The first number you need to know is your net worth. Calculate it by adding up all of your assets and subtracting your liabilities. You increase your net worth by taking your cash flow and buying assets. You decrease it when you take equity and buy consumables (e.g. cars, clothes, vacations.)
Track your net worth each quarter. Make it your goal to increase 3% per quarter, which translates to 13% per year. Do that and you’ll double your net worth in 6 years.
Which leads to the next number you need to know. Cash flow is the difference between your periodic income and expenses. This number must be positive. If it isn’t, increase your income and/or lower your expenses. You should probably focus on the latter. Positive cash flow can be invested in assets that will increase your net worth. Living beyond your means leads to consumer debt and decreasing net worth.
Finally, you need to know your FICO score. FICO stands for Fair Isaac Corporation, the organization that conducts statistical research on the probability that a loan will be repaid. Factors that affect your score include available credit, payment history and credit inquiries. Your FICO score determines what it’ll cost you to borrow money. The higher the score, the lower the rates you pay.
Net worth measures your investment strategy.
Cash flow measures your budget skills.
FICO score measures your ability to manage cash.
These numbers paint a picture of your financial health. Track them consistently and work to increase all 3.