If you are wondering what to track, here are key personal finance metrics to gauge your progress and keep you on track. 

Personal Finance Metrics are a great way to track the progress of success in your personal finance plans. These metrics are easy to apply and point you to the key areas that need work and improve your overall financial health.  So, if you are making that journey towards Financial Independence, you’ll need to track and improve these key performance metrics in order to become financially independent. 

Here are eight (8) key personal finance metrics you should track to make sure that your overall financial health is getting better, and not worse over time.  

1. Savings Rate

How much do you set aside from your income?

Savings are the foundation of building wealth. The rate at which you save is the amount that is left after all expenses are paid and are expressed as a percentage of left-over income after expenses divided by income. The benchmark rate we use as financial planners for savings is between 10 – 15%, or higher if you are closer to retirement and have nothing to your name. 

It is important to know and understand your savings rate because it will help you along when achieving your financial goals. You may realize along the way that you need to cut expenses and/or increase your income to reach your goals. 

2. Passive Income 

What percentages of expenses are covered by passive income?

Passive income is the income that is earned with little to no effort to earn and maintain. There are various types of passive income out there such as rental income, dividends or interest income. The aim of anyone looking to build a substantial amount of passive income is to cover and exceed expenses. To do this one has to consistently save more money and put it work. 

So, If you have KES. 100,000 a month in expenses and you have a couple of rental properties that bring in a total of about $50,000 per month, then your passive income ratio would be KES. 50,000/100,000 = 50%. The aim now would be to push this metric to 100% or more i.e. cover all expenses and move closer to financial independence. 

3. Financial Independence Number

What amount of savings do you need to accumulate to be financially independent? 

The Financial Independence (FI) Number is the amount of net worth you need to have accumulated before you declare yourself financially independent. One is considered financially independent when they have enough savings and passive income to cover their expenses for life. 

Your FI Number is typically 25 times your running expenses. It should be more than enough to withdraw 4% (inflation-adjusted) every year to cover your expenses forever without depleting your initial reserve. This means it should be well invested to make returns that ensure that the asset is maintained forever. 

4. Financial Independence Ratio

How close are you to being financially independent? 

The Financial Independence (FI) ratio shows you how far or how close you are to being financially independent. This number is very easy to compute. You simply divide your Net Worth by your FI Number, which will give you the percentage of your progress towards Financial Independence. 

For instance, if your FI number is KES 15M and your Net Worth is at KES 3M, your FI Ratio will be 20%. That means that you are 20% close/far to your destination i.e. being financially independent.

With this information, you can decide to increase your FI ratio either by increasing your Net Worth or by reducing your FI Number. To increase your Net Worth you would need to save more money or increase your income. And to reduce your FI Number, you would need to spend less money or increase your passive income to cover your expenses. 

5. Emergency Capacity

How well are you equipped to deal with emergency money issues? 

It isn’t uncommon to find people calling everyone they know asking for money to cover unexpected expenses that may arise from losing your job suddenly, accident medical bills, bribes to get out of police situations etc. We typically advise to have an emergency fund to cover these expenses, however, there are other ways to ensure that you have access to funds in the event of an unexpected expense. 

Before you sell your car, bonds, shares etc. consider the limits on your credit cards or M-shwari for instance. Adding up, your sources of funds i.e. your credit card limit, mobile money app limits, emergency funds and cash, constitutes your Emergency Capacity.

6. Net Worth

How much are you worth?

Net worth is what are all aiming to build, and the Net Worth metrics serves as an indicator of financial health. It is computed by subtracting your total liabilities from your total assets.

The goal of knowing and tracking your net worth is to consistently grow it over time. This can be achieved by increasing your assets, decreasing your debt or both. 

7. Target Net Worth 

If you aren’t comfortable taking a stab in the dark and would like a metrics to benchmark how you are doing, then consider this:

Your target net worth provides a great indication of what you should be worth after liabilities. 

For instance, If your annual pretax income is KES. 960,000 and you are 30 years old, your net worth should be KES. 2.88M.

To get this, you compute your annual pretax income, divide it by 10 and then multiply it by your age.

Please note that this metric is simply to give you a context of what could be achieved given your current financial standing. However, at the end of the day, let’s aim for higher, bigger and better. Right? 

8. Debt Income Ratio

The Debt to Income ratio is a great way to keep track of your progress of paying down your debt. It is a percentage of your total monthly debt payments divided by your monthly gross income.

For instance, if your total monthly debt payments are KES. 15,000 and your gross monthly income is KES. 50,000, then your debt to income ratio is 30%. A Debt to Income ratio lower than 30% is always ideal, which translates to a better credit score. Financers, always consider your credit score and this ratio before lending any money. 

The aim of this ratio is to ensure that you consistently lower this percentage month to month. Should it increase, you’ll be aware and you will take the necessary actions to get it back down. 

In A Nutshell

Here is a summary of the personal-finance metrics covered here: 

Building Wealth Using These Metrics:

There are so many personal finance metrics that everyone should be aware of, to help keep track of their personal finances. However, if you are trying to become financially independent and be more purposeful in your financial planning, then consider adopting these metrics when tracking. 

To use these metrics, I recommend using a spreadsheet tool to help you keep track of it all. Just put all your numbers and metrics there, and as time progress and goals get met, your metrics evolve with them over time as well. If you find this a bit too much, try out our Wealth Architects Excel Worksheets which has everything in one nice spreadsheet. 

You got this!!

If you have any questions on your own personal financial situation or need help getting started, feel free to send me an email at [email protected].

Image Credits: Top by Prateek Katyal via Pexels. 

See Also:

• Buy!! The Financial Planning Workbook
• Buy!!  The Financial Planner – Excel Template
• How to Calculate Your Financial Independence Number
• 8 Financial Planning Rules of Thumb You Need To Know
• How Much of Your Pay Should You Really Save?
• 6 Keys to Successfully Manage Your Personal Finance
• How to Develop A Simple Retirement Plan

I thought I should share some of the best personal finance jokes and money puns to get your week rolling in these tough economic times. 

One-Liners Jokes

• I saw a bank that said if offered 24 Hour Banking.” But I didn’t go in. I didn’t have that much time. 
• A long term investment is a short term investment that failed.
• The market is weird. Every time one guy sells, another one buys, and they both think they’re smart.

(Source: Progress to Financial Freedom)

Money Marriage

A little boy asked his father, “Daddy, how much does it cost to get married?”

Father replied, “I don’t know son, I’m still paying.”

(Source: Readers Digest)

Millionaire Joke

A woman proudly told her friend, “I’m responsible for making my husband a millionaire.” “Well what was he before he married you?” the friend asked. “A billionaire.”

(Source: Progress to Financial Freedom)

Richest People

Every day I get up and look through the Forbes list of the richest people in America. If I’m not there, I go to work.

(Source: Readers Digest)

God’s Time And Money

A preacher went into his church and he was praying to God. While he was praying, he asked God, “How long is 10 million years to you?” God replied, “1 second.” The next day the preacher asked God, “God, how much is 10 million dollars to you?” And God replied, “A penny.” Then finally the next day the preacher asked God, “God, can I have one of your pennies?” And God replied, “Just wait a sec.”

(Source: Financial Jokes)

Outstanding Balance

I’m normally not one to brag about my financial skills but my credit card company calls me almost every day to inform me my balance is outstanding!

(Source: Financial Jokes)

Never Lend Money to a Friend

Never lend money to a friend. It’s dangerous. It could damage his memory.

(Source: Readers Digest)

Ancient Egypt

Why did the financial system collapse in ancient Egypt?

Pyramid schemes.

(Source: Financial Jokes)

For-Profit

Why is it a penny for your thoughts but you have to put your two cents in? Somebody’s making a penny.

—Steven Wright, Comedian

Frugality Now

A millionaire, a hard hat, and a drunk are at a bar. When they get their beers, they notice a fly in each mug. The millionaire politely asks the bartender for another beer, then proceeds to sip it. The hard hat spills out just enough to get rid of the fly and quaffs the rest. It’s now the drunk’s turn. He sticks his hand into the beer, grabs the fly by the wings, and shouts, “Spit it out! Spit it out!”

(Source: Readers Digest)

Go Forth and Conquer!

Image Credits: Top by Pixabay via Pexels. 

See also: 

• How to Save Money in 14 Painless Ways
• 8 Easy Ways to Go Broke
• How to Overcome Debt Fatigue
• 6 Keys to Successfully Manage Your Personal Finance
• What is your money personality?

What are some of the things we do that can make us go broke or go down the road of financial ruin?

If you have ever wondered why you are never getting ahead in life, always facing the same roadblocks over and over again, take a look at some of these eight traps and see if you’re snared by one or more of them. 

1. Gambling

Any kind of gambling is a losing proposition. The odds of winning are less likely than being hit by lightning. You have a better chance of getting rich by investing and putting the work in it. 

For your personal finances, gambling has a detrimental effect in that as you attempt to chase winnings, you lose and your loses ultimately become unmanageable. Gamblers tend to spend their wages, spare cash and even get into debt to cover theirs loses. This digs them deeper into financial problems that will only end in financial destruction. 

2. Addiction

Addiction is the worst trap to be ensnared in. It costs a lot of money to maintain an addiction and more often than not, leads to poverty.

Addiction is something that is heavily associated with poverty and has ripple effects on future generations. This is because while you are an addict, your children may not receive an adequate education, and may even mimic your habits by developing addiction too. If you are facing addiction, please get some help before you completely ruin your life and the lives of your loved ones. 

3. Shopping

As a compulsive habit, shopping will leave a lasting negative impression on your finances.

By making it a habit, you can seriously derail your goals. Try to develop good habits that will help you cope with the itch to spend without thinking. 

4. No Financial IQ

The lack of financial literacy – the ability to understand money and finance – has much living from salary to salary, unable to save, buy homes or even pay for unexpected expenses such as medical bills or repairs.

Money affects your life every day, and thus it is a disservice to not give it the attention it deserves. Your financial literacy affects every single decision you make: how you earn, spend, save and even invest. Therefore, it helps A LOT to gain financial literacy and increase your chances to achieve your financial goals i.e. getting out of debt, buy a house. 

5. Showing Off

If your main focus in life is looking good and being Instagram worthy, then my friend, you are investing in a depreciating asset.

It is one thing to stay in shape, be well-groomed and another to wear designer clothes, shoes and drive the latest model luxury cars. The thing about things – clothes, shoes and cars – is that they’re depreciating assets. So the moment you buy them to satisfy your need, they are worthless than what you paid for.

Overall the value of an investment in looking good and showing off looks worse and worse with time for you financially. 

6. Debt

There is nothing that can make you poorer than paying interest on purchases that you made but can’t pay off.

Mobile loans and credit card debts will put you in a state of financial quagmire quicker than you can imagine. If you don’t want to be poor, don’t borrow to buy things before you can afford to pay for them with cash.

7. Not Investing

Not investing is a bad idea. Cash is always a bad idea, even in uncertain times – most of the time.

So if you have cash sitting in the bank, and are the conservative type that doesn’t ‘like’ investing. I recommend financing a broad range of long-term investment strategy to protect your money such as real estate, dividend stocks and more. There is a cost to not investing, which is inflation. Every day you wait to invest or fail to invest, you are losing out. 

Put your foot down and stop losing. Start making money no matter how little it is. Your money won’t earn you anything unless you put it work for you. 

8. No Goals

Having no goals, no plans only translates to bigger financial risks.

Without having your plans are written down and a road map to achieve them, you are generally planning to lose at life.  Life has a way of throwing things at us like sudden layoffs, divorce, retrenchment, medical bills, and more, can really knock you off your boots and set you back decades. Everything you would like to do can be achieved with a little input at different stages in life. Being prepared before hand will always help ease the load. 

Final Word

If you are ensnared in any of these, don’t worry. There is still time to fix your money situation but first, you need to take your finances seriously and put in the work.

Start by not spending unnecessarily and start saving.

Seriously. 

Go Forth and Conquer!

If you have any questions on your own personal financial situation or need help getting started, feel free to send me an email at [email protected].

Top photo by Robert Bogdan from Pexels.

When it comes to personal finance, it is never too late.

As the end of the year quickly approaches, you may be looking at your bank account and feel exhausted about the life you have lived throughout the year. With vacations, parties, and get-togethers, and more time out and about to plan for this December, you are probably wondering where did the time go. You are also probably wishing there was a simple trick that allows you to never have to worry about managing your money again? While that may not be realistic, there are some simple things you can do right now to improve your money situation.

Start out the new year well and try out these five key things to successfully manage your personal finances. If you stock these, your financial problems may start to diminish, and get your situation back on track to what you had initially planned for at the beginning of the year. 

1.  Detail Your Financial Plan

Don’t just jot down your new year’s goals, detail your goal especially your financial goals in a financial plan. Your financial plan should include establishing a budget, analysing your monthly cash flow and creating a road map to get you out of debt.

Ensure your financial plan includes the following:

Put the above items in a timeline and figure out when the SMART goals you have created, will get you there. Seeing your financial plan coming to life will give you the morale boost you need to keep going and even dream bigger. 

Get started: Get our financial planning workbook from our online store here. 

5.  Educate Yourself

Don’t push yourself to learn everything about personal finance all at once. Instead, break down your finance learning needs into digestible chunks and allocate some time every week to read about those topics. A topic a week is a great way to get you started to understand personal finance and move you to a better place in making better, wiser financial decisions.

Here are some great books you can start with: 

• Rich Dad Poor Dad by Robert T. Kiyosaki;
• The Millionaire Next Door by Cotter Smith, Thomas J. Stanley Ph.D., et al.;
• The Richest Man in Babylon by George S Clason;
• Personal Finance for Dummies by Eric Tyson.

6. Review Yearly

As time passes, things change too and with financial planning, you may want to update your financial decisions based on what you’ve learned throughout the year or what has actually happened throughout the year. So, don’t just make guesses about how much certain things cost or have changed. The cost of goods and services rise every year and thus it always wise to take steps to review and try to save at the same rate or more each year.

Your future self will thank you for this. Trust me! 

Wrapping Up

Successful and effective financial management doesn’t require much and can improve your life in so many ways. Each of the above keyways will have a great impact on your financial health and security in the long-run. Therefore,  cumulative results may have life-changing consequences and thus worth the try. 

Go Forth and Conquer! 

If you have any questions on your own personal financial situation or need help getting started, feel free to send me an email at [email protected].

Image credits: by Bich Tran via Pexels.