The financial indicators you need to know

Advice provided by Marc Hébert, founder of The Harbor Group Inc. The company is a registered investment adviser. If you have any financial questions or would like to suggest a future topic, email [email protected] Sometimes a number can give you a lot of information. Just as knowing your blood pressure is one of the keys to your health, there are numbers that are critical to your finances. Here are a few that you should probably know. The first is the rate at which you contribute to your retirement plans. Start by looking at the amount paid into the plan offered by your employer. It’s a pretty automatic way to save and you can lose track of what you’re contributing. As a result, you may have a mismatch between what you need to save and what you actually are. It’s a good idea to periodically check your premium rate to make sure you’re on the right track. Consider increasing it when you receive a raise and contributing enough to take full advantage of the employer match. Another good number to know is your credit score. This number indicates the ability to manage and borrow responsibly. Late payments, missed payments and defaults will affect the score. This is a tool often used by lenders to assess your creditworthiness. Whether it’s a mortgage loan, a car loan or a credit card, having a good credit rating allows you to benefit from attractive terms and interest rates. A good credit rating can even make the difference between getting a loan or not. The most common credit score is a FICO score. It is a three-digit number that will range from 300 to 850. It is calculated based on a mathematical formula. The higher your score, the better. The three major credit reporting agencies (Equifax, Experian, and TransUnion) calculate the FICO score differently. You may want to get the score for each – be aware that charges apply. Along with that, you might want to get a copy of your credit report. You are entitled to one free report from each reporting agency every 12 months. See www.annualcreditreport.com for details. Check the accuracy of the credit report and correct any discrepancies. Do you know your net worth? This important number is a snapshot of your financial situation. That’s all of your assets minus all of your liabilities. Essentially, net worth is the value of what you own minus what you owe. It can be used as a benchmark of your financial progress. Over the years, as you save more money, your assets will grow. As you pay off your debts, your debts decrease. The combination of these two things will increase your net worth over time. If your net worth isn’t growing, it might be a good idea to find out why. Does your investment strategy need to be rethought? Could you save more? Are you overusing your credit cards? Properly managing your net worth gives you a window into your finances. The last useful number is your debt to income ratio. As the description says, it’s the balance you have between debt and income. This is another number that your lenders use to decide whether or not to offer you credit. Too high can mean you’re reaching a point where you can’t repay your debt. To calculate this number, add up all of your recurring monthly debts and divide by your gross monthly income. Debt includes mortgages, auto loans, home equity loans, student loans, as well as credit card payments. Generally, mortgage lenders require a ratio of 36% or less for conventional mortgages and 43% or less for FHA mortgages. A higher debt to income ratio can be worked on. You may be able to pay off low-balance debt or avoid new debt, for example.

Advice provided by Marc Hebert, one of the founders of The Harbor Group Inc. The business is a registered investment advise. If you have questions about finances or if you would like to suggest a future topic, email [email protected]

Sometimes a number can give you a lot of information. Just as knowing your blood pressure is one of the keys to your health, there are numbers that are critical to your finances. Here are a few that you should probably know.

The first is the rate at which you contribute to your retirement plans. Start by looking at the amount paid into the plan offered by your employer. It’s a pretty automatic way to save and you can lose track of what you’re contributing. As a result, you may have a mismatch between what you need to save and what you actually are. It’s a good idea to periodically check your premium rate to make sure you’re on the right track. Consider increasing it when you receive a raise and contributing enough to take full advantage of the employer match.

Another good number to know is your credit score. This number indicates the ability to manage and borrow responsibly. Late payments, missed payments and defaults will affect the score. This is a tool often used by lenders to assess your creditworthiness. Whether it’s a mortgage loan, a car loan or a credit card, having a good credit rating allows you to benefit from attractive terms and interest rates. A good credit rating can even make the difference between getting a loan or not.

The most common credit score is a FICO score. It is a three-digit number that will range from 300 to 850. It is calculated based on a mathematical formula. The higher your score, the better. The three major credit reporting agencies (Equifax, Experian, and TransUnion) calculate the FICO score differently. You may want to get the score for each – be aware that charges apply. Along with that, you might want to get a copy of your credit report. You are entitled to one free report from each reporting agency every 12 months. See www.annualcreditreport.com for details. Check the accuracy of the credit report and correct any discrepancies.

Do you know your net worth? This important number is a snapshot of your financial situation. That’s all of your assets minus all of your liabilities. Essentially, net worth is the value of what you own minus what you owe. It can be used as a benchmark of your financial progress. Over the years, as you save more money, your assets will grow. As you pay off your debts, your debts decrease. The combination of these two things will increase your net worth over time.

If your net worth isn’t growing, it might be a good idea to find out why. Does your investment strategy need to be rethought? Could you save more? Are you overusing your credit cards? Properly managing your net worth gives you a window into your finances.

The last useful number is your debt to income ratio. As the description says, it’s the balance you have between debt and income. This is another number that your lenders use to decide whether or not to offer you credit. Too high can mean you’re reaching a point where you can’t repay your debt. To calculate this number, add up all of your recurring monthly debts and divide by your gross monthly income. Debt includes mortgages, auto loans, home equity loans, student loans, as well as credit card payments. Generally, mortgage lenders require a ratio of 36% or less for conventional mortgages and 43% or less for FHA mortgages. A higher debt to income ratio can be worked on. You may be able to pay off low-balance debt or avoid new debt, for example.

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