Of course, the purpose of keeping score is not to compare yourself to anybody else but to compare your performance from year to year and against your own financial goals. This article will discuss four of the most important measurements.
Perhaps the most important measurement someone seeking financial success can monitor is net worth. Net worth is the sum total of all your assets minus the sum total of all your liabilities.
Assets include bank accounts, retirement accounts, investments, home equity, and the cash value portion of life insurance. Liabilities are primarily debt, such as student loans, mortgages, auto loans, and credit card debt.
Another important financial metric is your savings rate. This is the percentage of money saved in a given year toward your long-term financial goals, such as retirement or college, divided by your gross income.
I suggest you count retirement account contributions and other investments as well as paying down debt as “savings.” If you are unsure what to count as income, keep it simple and use your total income from your tax return.
The first is your effective income tax rate. The second tax rate worth knowing is your marginal tax rate. This number is generally significantly higher than your effective tax rate.