Businesses pay close attention to key performance indicators, or KPIs, in taking stock of their finances. Balance sheets compare assets to liabilities. Profit-and-loss statements and statements of cash flow report revenue and expenses.<\/p>\n\n\n\n
These kinds of KPIs are just as important when it comes to your personal finances. Knowing how your assets stack up against your debts or what percent of your income you\u2019re able to save each month can help you better understand your financial position.<\/p>\n\n\n\n
Even if you don\u2019t have a lot of time to do a deep-dive into your financial picture, here are 5 KPIs you can track regularly to help you reach your goals with confidence, along with recommended benchmarks for each one.<\/p>\n\n\n\n
At a high level, your net worth is calculated by adding up your assets and subtracting your debts. In other words, if you converted everything you had into cash (without any losses or transaction fees) and paid off everything you owe, how much would you have left? That\u2019s your net worth.<\/p>\n\n\n\n
It\u2019s an important calculation because your assets only tell half of your financial story.<\/p>\n\n\n\n
Your bank account, retirement accounts, home value, and so on aren\u2019t a good measure of wealth on their own. Someone who owns a modest house with no mortgage could easily have a stronger financial portfolio than someone who owns a mansion that\u2019s mortgaged to the hilt.<\/p>\n\n\n\n
That\u2019s also why there are a few different ways to calculate your net worth, with solid reasoning behind each one.<\/p>\n\n\n\n
This first method of calculating your net worth is the most straightforward. It includes everything you own and everything you owe\u2014every asset and liability.<\/p>\n\n\n\n
For example, the current market value of your home is an asset, and the balance of your mortgage is a liability. The value of your car is an asset, and any car loan is a liability.<\/p>\n\n\n\n
Assets and liabilities don\u2019t always go hand-in-hand. The current value of your retirement account is an asset. Your credit card and student loan balances are debts. Your education is valuable to your long-term earning potential, but it isn\u2019t counted as an asset because you can\u2019t sell it.<\/p>\n\n\n\n
You can calculate your net worth on paper, but keep in mind that it\u2019s a moving target. If the market happens to be down, for example, that affects the current value of your retirement account. That\u2019s why keeping track of your net worth over time is an even more robust measure of your financial health.<\/p>\n\n\n\n
How to track it in Quicken:<\/em><\/strong><\/p>\n\n\n\n Quicken automatically calculates and tracks your net worth, including every asset and liability you track with the software. See your current net worth at the bottom of your accounts list, or visit your net worth report to see how it\u2019s changing over time.<\/p>\n\n\n\n Benchmarks: <\/em><\/strong><\/p>\n\n\n\n A good rule of thumb is to try to have a net worth of half your salary by age 30, twice your salary by 40, and 4 times your salary by age 50. If you\u2019re not there yet, don\u2019t worry. A lot of people aren\u2019t. The very fact that you\u2019re looking at it is good. Just find ways to cut back on spending and increase your savings. (Quicken\u2019s budget feature can help.)<\/p>\n\n\n\n Many experts recommend leaving your home out of your net worth calculation. Some say this is because your home is \u201cilliquid,\u201d meaning you can\u2019t necessarily sell it quickly. Others argue that if you sold your home you would need somewhere else to live, although you could buy a less expensive home and pocket the difference.<\/p>\n\n\n\n Other illiquid or questionable assets include privately held business investments you couldn\u2019t easily sell, or assets you would need to replace, like your car. (Cars lose value over time, and if you sold your car, you would probably need to buy another one.)<\/p>\n\n\n\n These differences might not matter much in your 20s, but for people approaching 50, not including your home as an asset can change your net worth considerably, making it harder to reach those benchmarks.<\/p>\n\n\n\n You might also have your own reasons for including, or not including, certain assets or liabilities in your net worth calculation. (For example, if you aren\u2019t including your home in your net worth, you probably shouldn’t include your mortgage either.)<\/p>\n\n\n\n How to track it in Quicken:<\/em><\/strong><\/p>\n\n\n\n If you want to change the way Quicken calculates your net worth, you can do that easily in your net worth report. Open the report, choose Edit<\/strong>, and then choose Selected accounts<\/strong>. Add or remove accounts and then save that report to see it again whenever you want to.<\/p>\n\n\n\n Benchmarks:<\/em><\/strong><\/p>\n\n\n\n As you change your net worth calculation, the suggested benchmarks make less and less sense. Rather than getting hung up on a specific target, consider using Quicken\u2019s Lifetime Planner to run what-if scenarios and calculate your potential cash flow under various circumstances.<\/p>\n\n\n\n Your debt-to-income ratio measures how much debt you\u2019re carrying in monthly payments relative to your monthly income.<\/p>\n\n\n\n For example, someone who makes $5,000 per month and pays $500 every month in various debt payments has a debt-to-income ratio of 10%. The $500 in debt payments represents 10% of their income.<\/p>\n\n\n\n To calculate your own debt-to-income ratio, add up all the payments you make each month on every debt you owe, including car loans, student loans, credit cards, and so on, and divide that number by your monthly income.<\/p>\n\n\n\n How to track it in Quicken:<\/em><\/strong><\/p>\n\n\n\n In Quicken, you can find all your debts listed under loans and credit cards in your account bar in the left-hand side of your dashboard. Click on each one to see your monthly payments. Be sure to connect all your accounts in Quicken to see your complete financial picture.<\/p>\n\n\n\n Benchmarks:<\/em><\/strong><\/p>\n\n\n\n As a general rule, you want to keep your combined debt payments under 36% of your income\u2014the lower, the better. Your debt-to-income ratio needs to be under 43% to qualify for a mortgage, but the lower the number is, the more likely you\u2019ll qualify at a better interest rate.<\/p>\n\n\n\n Another key performance indicator that can affect your ability to qualify for a mortgage or other loan is your credit score. Ranging from 300 to 850, your credit score is affected by many factors, including your payment history and how much debt you\u2019re carrying.<\/p>\n\n\n\n Generally speaking, your credit score is a relative measure of how risky lenders think it would be to loan you money. The higher your score, the less of a risk you look like, which means that you\u2019re more likely to be approved for loans and that you\u2019ll generally pay lower interest rates.<\/p>\n\n\n\n Paying your bills on time makes you less of a credit risk, for example, as does keeping your overall debt level relatively low.<\/p>\n\n\n\n How to track it in Quicken:<\/em><\/strong><\/p>\n\n\n\n Track your score in Quicken for Windows by clicking the Credit Score<\/strong> button at the bottom of your accounts bar. Or check your score directly in TransUnion<\/a>, Equifax<\/a>, or Experian<\/a>.<\/p>\n\n\n\n TIP: If you sometimes forget to pay your bills on time, check in with Quicken\u2019s Bills & Income center every day to view your upcoming bills.<\/p>\n\n\n\n Benchmarks:<\/em><\/strong><\/p>\n\n\n\n Keep your score above 690 for a rating of \u201cgood\u201d and above 720 for \u201cexcellent.\u201d Higher scores are always better, but it can take some time to build up your score by paying down debt and building your payment history.<\/p>\n\n\n\n Your savings-to-income ratio measures the percentage of your income that you\u2019re saving every month.<\/p>\n\n\n\n Far too many Americans live paycheck to paycheck, spending almost every dime they make. The more of your income you can save every month, the better position you\u2019ll be in to handle life\u2019s unexpected expenses.<\/p>\n\n\n\n How to track it in Quicken:<\/em><\/strong><\/p>\n\n\n\n In Quicken, you can set up a line for savings in your monthly budget or use Quicken for Windows to set up and track a specific savings goal.<\/p>\n\n\n\n Benchmarks:<\/em><\/strong><\/p>\n\n\n\nYour net worth without illiquid assets <\/strong><\/h4>\n\n\n\n
2. Debt-to-income ratio<\/h3>\n\n\n\n
3. Credit score<\/h3>\n\n\n\n
4. Savings-to-income ratio<\/h3>\n\n\n\n