Are You Financially Healthy? The 3 Numbers You Should Know

Anna Williams
Posted

When it comes to your money, there are an awful lot of numbers floating around.

From your savings account statement to your investing portfolio, every number tells you something … but some are more revealing than others.

Three numbers in particular give an indication of your overall financial health: Your retirement savings, your debt and your emergency fund.

“These three numbers are your basic financial security,” explains Stephany Kirkpatrick, director of financial planning and a Certified Financial Planner™ with LearnVest Planning Services. By getting a handle on these figures, she says, “you’ll begin to develop the foundation to help build your future.”

You’re more than halfway through the 12 Days of LearnVest—we’ve helped get you organized and set your financial intentions for this year—and now, we want to help you see exactly where you stand, financially, and where you should go next.

For guidance, we’ve enlisted Kirkpatrick’s help to explain the significance of these numbers, and how to help make yours represent finances that are in tip-top shape!

1. Retirement

Why does crunching this number matter? Simple. The money you save today will most likely be your primary income source for the entire time you’re retired, which could be 20 years … or far longer. And the secret of retirement savings is that the sooner you start saving, the more time your money has to grow. In other words, if you start investing money at 25 or 30, you’ll actually have to save less (and worry less) in the long run.

Now that increasing numbers of people don’t have pensions to rely on, it’s more crucial than ever that you open the proper retirement account for you. Chances are, it will be just you and your savings to help you retire on a beach, travel the world or gift to your grandkids.

Later this week you’ll hear from one woman who waited until it was almost too late to start investing for her retirement. She would probably tell you that the better plan is to get a handle on your retirement number today.

Crunch Your ‘Retirement Number’

First, it’s time to track down all of your retirement accounts. Maybe you put some money away early on in your career—then switched jobs and left that 401(k) behind. (In that case, it’s probably time for a rollover.) Maybe you opened a Roth IRA that you promptly forgot you had. Today’s the day to figure out exactly how much you’ve saved so far.

If sorting through the details of your accounts sounds like a drag, head to the free LearnVest Money Center to link up each account and see your total savings in one place. Then, just for fun, go ahead and see how your savings compare to others’.

RELATED: The 7 Biggest Retirement Mistakes Financial Planners See

How Much Is Enough?

Forecasting precisely how much we’ll need in the bank when it comes time to retire is an inexact science—for starters, there simply isn’t a way to predict how long we’ll live.

But you should have a rough estimate to guide your savings. To predict how much you should aim to save in total, you can start by using a free retirement calculator.

All you need to provide is your birthday, the age you plan to retire (67 is standard), your annual pay and how often you receive a paycheck to see how much money you’ll need each month during retirement. Multiply that figure by 12 to see how much you’ll need for a year, then by about 23 to get an idea of how much you’ll need in the long term.

Now that you have that number with all the zeroes … don’t panic! We have you covered, and there are a few things to keep in mind:

First, the calculator assumes a “replacement ratio” of 85%—the estimated amount of your current income that you’ll need to have available during retirement. For most people, Kirkpatrick recommends replacing 85% of your current household pre-tax income at a minimum, but not everyone will need 85% exactly—check out our guide to estimating how much you’ll need to live the retired lifestyle you want.

Second, remember the secret of investing: $500 in your retirement account today could equal as much as $21,000 in 20 years. And the earlier you start, the more time your money has to grow. Even if you can only sock away $100 a month, you can make it count by starting today.

  • Willie Mae Cliett

    is It practical for an average person who doesn’t make a lot of money to have 6 to 9 months of emergency money saved up?

    • Nate

      It is a good idea for everyone, whether you make a lot or a little, to have money set aside for those unplanned expenses. We never know what the next day will be like and having that security blanket of money that just sits there is the best way to keep “murphy” from knocking on your door.

    • paul from nc

      Yes. I agree it may seem harder to do, but remember that the less you make should also mean you need less to save. A 9 month emergency fund for a 100K earner is a lot more than one for a 30K earner because their expenses should be a lot lower. Presumably, lower rent or mortgage payment, car payment, etc. Obviously food and utilities could be the same or higher depending on family size. But overall it should be substantially lower

  • ksgirl73

    Isn’t it a little contradictory to make paying off debt a priority when you pay yourself first?

    • paul from nc

      Not really. What they’re saying is to have an automatic payroll deduction for a 401k, IRA or just savings. After a month or so, you won’t even notice you’re saving. Then make paying off the debt your priority with the remaining take home pay.
      There are 2 schools of thought on paying off debt. The one mentioned, (highest rate first) and paying off the smallest amounts first. The one they talk about is the best, but the other is psychologically more satisfying. If you have 10 different bills and can rid of 3 or 4 small ones quickly. Then put more money into paying the remaining ones. It gives you a good feeling. The key is not to add other debt and constantly whittle down the expenses.