Assessing your Financial Health

Your finances by the numbers

Customers often ask how they can tell if their finances are "good." While the definition of "good" finances is different for everyone, depending on your stage in life, your debts, and your goals, there are a few key numbers that you can look at to access your finances health. 

Calculate your net worth

Net worth is possibly the most telling and most important measure of your overall financial well-being. Calculating your net worth is fairly simple - subtract everything you owe from everything you have. In other words: 

Net Worth = Total Assets - Total Liabilities

You can automatically calculate your net worth in the Mobile Community using the "Net Worth" tab. The Mobile Community will allow you to not only link all of your accounts and debts from other financial institutions, but it will also automatically calculate your net worth. 

If you don't like what you see, you can improve your net worth by increasing your assets and reducing your debt.

Home equity

Home equity is a measure of how much of your home you actually own, based on its current value. A simple way to calculate your home equity is: 

Home Equity = Current Market Value of Your Home - Mortgage Balance

If you find yourself in a situation where you may owe more than your house is worth, you can increase your equity by making improvements to your home that will increase its value.

Gross income and net income

Gross income is your total income before taxes and withholdings (which are taken out before you get your paycheck). Your net income is how much money you get paid after taxes are taken out. This is the amount you will focus on when budgeting.

Monthly expenses and burn rate

This is one of the most important financial numbers and the one that you have probably the most control over. This is the total of your expenses over a month, including housing, transportation, food, and entertainment.

The burn rate is the amount you are actually spending each month, and there is always room to reduce this number to leave you with more money available to save.

Investment Balance

This number will largely determine if and when you will be able to retire, so it's great is you are regularly contributing to this account. Check it regularly to determine if your investment strategy is meeting your expectations. 

Cash Balance

This is also reflected in your net worth, however your net worth will not reflect how much of your assets are liquid. Access to cash and other liquid assets are important in case of an emergency where you may need cash quick to pay your expenses. 

Emergency Fund Balance

Building an emergency fund is a step that many will recommend for people trying to get out of debt. By having an emergency fund, you can often avoid using credit cards to cover unexpected bills and expenses. Many will recommend keeping a minimum three to six months worth of living expenses available for any emergencies. 

Credit Card Balance and interest rates

While it's important to keep track of all your debt, your credit cards hold the highest interest rates and can easily increase your debt without you noticing. For retirement planning, you will want to estimate your expenses and then scale the expenses up based on the expected effect of inflation over the years.