For your doctor to assess your overall physical health, they will need to know certain money numbers about you, such as your weight, blood pressure, and cholesterol levels. In a similar vein, to keep track of your financial well-being, you need to be familiar with specific numbers, including the following:
After-Tax Income and 'Must-Have' Expenses
Your net income is the amount of money you keep after deducting all of the taxes you owe from your gross income. If you get a consistent paycheck, your most recent pay stub may be used to determine this number. In such a case, look at the most recent tax return you filed.
Take your income after taxes and divide it by the total number of hours you put in to obtain it. That should give you a general indication of how much time you'll give up in exchange for the item you purchase. For illustration's sake, let's say your after-tax hourly wage is $20, and something costs $100; to purchase it, you will need to toil for five hours. Having that number in money might assist you in making financially responsible choices.
Your income after taxes also serves as the foundation for the 50/30/20 budget, a spending plan that assists you in striking a balance between your ongoing costs, payments on outstanding debt, and savings. This budget proposes reducing your necessary or must-have costs to no more than fifty percent of your income after taxes.
These expenses include housing, utilities, food, transportation, minimum loan payments, insurance and child care required to work. Wants, such as going on vacation and eating out, makeup thirty percent of the total. That leaves twenty percent for savings and further debt payments.
Putting a limit on your must-haves may help you weather a loss of employment or other significant financial setbacks. You may also utilize the limitations to determine whether you can afford the payments on a new loan. If the payment would put your must-haves above the 50% threshold, then the answer is probably not yes.
Lifetime Income and Net Worth
By creating an account at socialsecurity.gov/myaccount, you will have access to your Social Security statement, including a record of all the money you have earned throughout your life. Add up your yearly wages and any extra income you have, such as gifts, investment income, inheritances, pensions, money made under table, or benefits from the government.
Now, determine your net worth by deducting the total amount you owe from what you possess. When you look at your lifetime income in comparison to your net worth, you can see what you have done with the money that has been given to you.
There needs to be a scoring system that is objective. This activity, together with calculating your hourly income, is designed to bring to your attention the ways you spend your money. If you feel you should have more to show for the money you've earned, consider making an effort to save more of what you earn.
Full Retirement Age and Expected Social Security Benefit
The age at which you become eligible to receive the whole amount of Social Security benefits you are entitled to be your full retirement age. If you apply for benefits before you reach that age, there will be a permanent reduction in the amount you get. Delaying your application for retirement until beyond your full retirement age may qualify you for delayed retirement credits, which increase your benefit by 8% each year up to the age of 70. At this point, benefits reach their maximum level.
The age required to retire fully has been steadily creeping upwards. Those born between 1943 and 1954 might officially retire at 66. After then, the age at which one is eligible for full retirement rises by two months yearly. For those born in 1955, the full retirement age is 66 years and two months; for those born in 1956, it is 66 years and four months; and so on—people born in 1960 or after are required to reach the full retirement age of 67.
You need to have some notion of how much money you may anticipate from Social Security to have a better understanding of how to prepare for your retirement. Your Social Security statement will include an estimate of the benefits you are eligible to receive.
Retirement Savings Rate
How much money do you put away each month in preparation for retirement? Will your savings strategy allow you to retire when you want to do so? (A rough estimate may be obtained using a retirement calculator on the internet.) If you do anything to reduce this gap, your retirement years will be more enjoyable.
