9 Numbers Wealthy People Always Know, According to Ramsey Money Expert
Wealthy people know their numbers, but which numbers actually matter the most?
Ramsey money expert George Kamel got to the bottom of it and shared the most important financial numbers you need to know. This analysis is based on Kamel’s calls on "The Ramsey Show," and he picked up on common patterns. When people said “I don’t know” with any of these numbers, a troubling financial situation often followed.
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These are the metrics you should know within your finances.
1. How Much Cash You Have Saved
Kamel recommends having three to six months of expenses saved up in an emergency fund. You can get to that number over time, but not knowing your progress makes it more difficult to save.
An emergency fund lets you tap into savings for surprise expenses without having to take out a personal loan or get deeper into credit card debt.
2. Your Average Monthly Expenses
This next number determines how much you should put in your emergency fund to maintain the three- to six-month threshold. However, you can also use it to assess if you are living above or below your means.
Reviewing your bank and credit card statements over the past three months can help you gauge your monthly costs. If you have not reviewed your statements in a while, you may find unnecessary subscriptions that you can cancel.
3. Your Mortgage Balance
Kamel said that the average millionaire paid off their mortgage in 10.2 years, and knowing this number can help you map out how much longer you will have to make monthly payments.
While you have to make the minimum payment, it’s good to make extra payments toward the principal to get out of debt faster. Once you are free of your mortgage, you will have lower monthly expenses, full ownership of your home, and more peace of mind.
4. Monthly Take-Home Pay
Your monthly take-home pay, also known as your net income, refers to what you keep after retirement contributions, taxes, health insurance, and other withholdings. It’s the foundation of your monthly budget and shapes what type of lifestyle you can safely afford.
5. Your Margin
Margin, in this case, refers to how much you have left over after covering monthly expenses. The more leftover money you have, the more you can invest and save. You can calculate this figure by subtracting monthly expenses from your monthly take-home pay.
You can increase your margin by boosting your earnings or reducing your expenses. Taking both of those measures may be necessary to save toward big goals like a down payment or a car. Short-term sacrifices can give you enhanced financial flexibility in the future.
6. Retirement Goal
A retirement goal is the number you are building toward. It’s the number you remind yourself of each time you save or invest extra money.
A simple way to identify your retirement goal is to estimate your annual retirement expenses and multiply that number by 25. That way, you can safely use the common 4% withdrawal rule. Your desired retirement lifestyle plays a key role in determining how much you should save.
7. Your Investment Rate
Your investment rate reflects the percentage of your gross pay that goes toward assets. It includes retirement account contributions and the employer’s match.
Kamel recommends allocating at least 15% of gross income into tax-advantaged retirement accounts and other assets each month. However, he said it is more important to get out of debt and have an emergency fund before boosting your investment rate.
8. Your Total Debt
Total debt is a straightforward metric. Gather all of your financial obligations and map out each of your balances by the amount and interest rate. Kamel recommends the snowball method, which involves paying off the smallest balance first to gain momentum.
The debt avalanche method is a bit different and involves prioritizing debt with the highest interest rates after making the minimum monthly payments across all of your accounts.
9. Your Net Worth
Knowing how much you have left over after deducting total liabilities from total assets can help you map how close you are to your retirement goals.
A high income makes it easier to build your net worth faster, but some people who make six-figure are still living paycheck to paycheck. That can happen if you do not stay on top of your expenses. It demonstrates how all of these key metrics work together. They are all important and worth knowing when it comes to your financial situation.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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