{"id":40890,"date":"2023-07-26T19:38:35","date_gmt":"2023-07-26T23:38:35","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/you-track-savings-spending-and-investments-but-are-you-paying-attention-to-the-right-numbers\/"},"modified":"2023-07-26T19:38:37","modified_gmt":"2023-07-26T23:38:37","slug":"you-track-savings-spending-and-investments-but-are-you-paying-attention-to-the-right-numbers","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=40890","title":{"rendered":"You track savings, spending and investments. But are you paying attention to the right numbers?"},"content":{"rendered":"
\n

Managing your personal finances is a game of numbers. But which numbers? Are the numbers you track the right ones?<\/p>\n

Some people use the wrong metrics to assess their financial health. Whether it\u2019s tracking cash flow, investment performance or saving for retirement, it\u2019s important to monitor the most relevant, revealing data to draw accurate conclusions.<\/p>\n

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For example, most workers know their salary or annual income. But far fewer know how much of that pay goes into their savings bucket every month \u2014 or how it gets spent. \u201cThey tend to focus on the top line and not the bottom line after taxes and expenses, especially their discretionary spending,\u201d said Alex Vela, a certified financial planner in Bethesda, Md.<\/p>\n

Vela helps clients understand their debt-to-income ratio and liquidity ratio. As a result, they have a deeper awareness of their debt level and current assets and liabilities.<\/p>\n

\u201cWe also run through different cash flow scenarios,\u201d he said. Assembling a comprehensive cash flow statement and net worth analysis gives a better set of financial planning tools \u2014 and more precise measures they can use to evaluate their financial wellbeing.<\/p>\n

For example, before seeking a loan, consumers may check their credit score. (Some credit card companies make it easy on their website for cardholders to get credit score updates.) Diligent folks might also request a copy of their credit report from the three biggest credit reporting companies (Equifax, Experian and TransUnion) and scan them for errors.<\/p>\n

It\u2019s also useful to calculate your debt-to-income ratio. This involves dividing their total monthly debt payments (from home mortgages, auto loans, credit card, student loans, etc.) by your monthly after-tax take-home pay.<\/p>\n

\u201cIf the result is under 30%, that\u2019s good,\u201d Vela said. \u201cIf it\u2019s over 30%, we start asking questions on how they can lower their personal debt.\u201d<\/p>\n

Some savers gain false reassurance by the number of bank accounts they maintain and what they perceive as healthy balances in each account. They may figure that the more accounts they have, the better.<\/p>\n

\u201cIt\u2019s better to look at your cash flow as a whole,\u201d Vela said. He finds that some people miss the forest for the trees. They may tie each savings account to a specific goal (such as retirement, saving for a child\u2019s tuition or a vacation fund) without tracking the total amount of money flowing in and out of their accounts.<\/p>\n

\u201cUsing that mental accounting, they may not be looking at the overall picture,\u201d he said. \u201cThey may be compartmentalizing\u201d rather than tallying where all their cash is going.<\/p>\n

Homeowners insurance is also an area where numbers can be deceiving. At renewal time, a policyholder can glance at their insurer\u2019s \u201cdec page\u201d \u2014 the summary of coverages including their dwelling and personal property \u2014 and conclude that they\u2019re all set.<\/p>\n

\u201cBut many people are underinsured,\u201d Vela said. He makes a point to review clients\u2019 homeowners coverage, especially with higher inflation affecting the cost of rebuilding a home if it sustains severe damage.<\/p>\n

Investors might also apply the wrong measures when evaluating their investment portfolio performance. With investing apps, you can see gains and losses at a glance. But that\u2019s just one piece of the puzzle.<\/p>\n

\u201cPeople get hung up on their short-term investments,\u201d said Curtis Crossland, a certified financial planner in Scottsdale, Ariz. \u201cThey may miss tax efficiencies\u201d to lower the capital gains tax or use tax harvesting strategies to their advantage.<\/p>\n

Similarly, investors might judge the performance of each mutual fund or exchange-traded fund in their portfolio by checking if it produced market-beating returns. Many fund companies make this easy: They provide a two-column graph that pits its fund\u2019s fee-adjusted average annual return against an industry-wide benchmark.\u00a0<\/p>\n

Yet many advisers caution clients not to place undue emphasis on such comparisons. A fund can beat the market for six months or a year but still underperform over time. A better measure for long-term investors is to focus on five-year performance or even longer, depending on their time horizon.<\/p>\n

More:<\/strong> How much do you believe in this market? Your gut feeling matters more than the stocks and bonds you like.<\/p>\n

Also read:<\/strong>\u00a0\u2018I like Warren Buffett\u2019s approach \u2014 keep investing and just believe in America\u2019: I\u2019m about to retire. How do I invest a $400K windfall?<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Managing your personal finances is a game of numbers. But which numbers? Are the numbers you track the right ones? Some people use the wrong metrics to assess their financial health. Whether it\u2019s tracking cash flow, investment performance or saving for retirement, it\u2019s important to monitor the most relevant, revealing data to draw accurate conclusions. […]<\/p>\n","protected":false},"author":1,"featured_media":40891,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-40890","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nYou track savings, spending and investments. But are you paying attention to the right numbers? | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Managing your personal finances is a game of numbers. 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