The Five Most Important Numbers You Need to Know
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I spent my early 20s totally ignoring my finances. After all, what did it matter exactly how much was in my pitiful publishing paycheck when the answer was not much? Or how high my credit card debt climbed (very), or how little I invested (uh, zero)? I just trusted everything would work out over time.

Wrong move.

Sure, at 36, I now make a good living, am debt-free, and have a decent-sized nest egg, but I spent many years playing financial catch-up—and I often wonder how much further ahead I’d be if I’d paid more attention to my money. (The painful truth: probably tens of thousands of dollars richer, thanks to the years of compounding I missed out on.)

“Knowing your numbers … is the only way to take control of your finances,” says Mary Beth Storjohann, a San Diego-based certified financial planner and founder of Workable Wealth. “They give you a baseline to set goals, check your progress, and also serve as a quick checklist to ensure you’re being smart about your money.”

Here are the five most important numbers you need to know.

1. Your Take-Home Pay

What I used to see when I glanced at my paystubs was how much more flush I’d feel if that hefty chunk wasn’t being taken out for taxes—but that’s not the point. What you need to memorize is what you actually take home each month.

“You have to know exactly how much money you have to work with in order to create a strategy for paying your bills, saving, and budgeting,” says Storjohann. “This is arguably the most important number, and it’s surprising how many people [don’t know it].”

If you’re freelancing, review the last six months of income and take an average.

2. Your Retirement Contributions

When retirement is still decades away, it’s easy to either a) not invest at all, figuring you’ll catch up later or b) not pay much attention to what you do contribute. These are both dangerous strategies, says Storjohann, since starting early and tracking your progress almost always yield a bigger portfolio.

Financial advisors often recommend those in their 20s contribute 10 percent of their salary—a figure that jumps to 15 percent once you hit 30. If you can’t reach those targets, start by contributing up to the point of your employer match, if you have one, and then increasing it. One relatively painless method: Increase your contribution a percent or two each January. Then it can come straight off any cost-of-living or merit raise you get, and you’ll hardly miss it.

You’ll also want to calculate how much you’ll need by retirement—say, around age 65. “Assume you’ll need 60 to 70 percent of your current expenses,” says Storjohann. So, if you need about $40,000 a year to live, you’ll need a portfolio with $1 million or more. That may seem like an impossible amount. But over time, your yearly contributions can grow exponentially. “Remember, this money is invested, which means it will compound,” Storjohann adds.

Case in point: If you deposit $100 in a savings account with a simple interest rate of .06 percent (about the current average) that compounds monthly, and contribute $100 a month every month for 30 years, you’d end up with about $36,000. But invest that cash, and receive an average rate of return of 7 percent that compounds annually, and you could have more than $114,000 30 years from now. (The 7 percent is roughly the average annual return on money invested in the stock market over time, based on the performance of major indices.)

3. Your Debt (and Interest Rates)

When my debt was creeping up, I only kept a ballpark number in my mind. But not focusing on this figure—no matter how scary—is a mistake.

“When you don’t look at how much you owe—and the interest rate—you don’t know what it’s costing you,” says Storjohann. (Which, of course, is sort of the point.) But not looking at it doesn’t make it go away; it often makes it worse.

Let’s say you have a $2,000 balance with a 15 percent interest rate (the current average for variable credit cards), and you pay the minimum of $80 per month. It’d take you almost eight years to wipe it out, and you’d end up paying more than $800 in interest!

Chart courtesy of Bankrate.com
Chart courtesy of Bankrate.com

So know what you owe. Write down every outstanding balance, plus interest rates and minimum payments. Then optimize your strategy with balance transfer offers and extra payments. “Find a little extra money to put toward each. And remember, target the highest interest-rate debt first,” Storjohann says.

4. Your Credit Score

One in four consumers has identified credit report errors that could affect their credit scores, according to an FTC report. So get a free copy of your credit report once every 12 months from at least one of the three reporting agencies at AnnualCreditReport.com and scan it carefully for inaccuracies. If you find a mistake, call the credit bureaus to file a dispute.

Knowing your actual FICO score is important, too, as it can affect whether you qualify for a mortgage, car loan, among other things, and how much interest you’ll pay. You can get a free look at your score through sites like CreditKarma.com.

5. Your Savings Account Balance

Storjohann suggests setting aside the equivalent of six months of basic expenses (others recommend a minimum of three months). “If you need to tap this account, you’re not going out to fancy dinners or spending on clothes,” she says. “Just calculate what you need to survive—groceries, bills, your rent or mortgage—and build your savings to that number.”

Once that’s set, you can focus on other bigger goals—like saving for a down payment on a home or a vacation abroad.

Don’t be discouraged if the goal seems far away. “Start with saving just one month’s worth of bills,” Storjohann says. Hitting a small target, then the next, can fire you up to stay the course until your account is fully funded—and saving is second nature.

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