If you don’t know your numbers, you don’t know your money. The first law of financial success is simple but powerful: Know Your Numbers. Without this, everything else falls apart. Here’s a step-by-step guide to understanding, tracking, and leveraging your financial data to achieve financial freedom.
Why Knowing Your Numbers is Essential
Money is like a game—if you don’t know the score, you don’t know if you’re winning or losing. Without tracking, you might be leaking cash in ways you don’t even realize. Understanding your numbers gives you clarity, control, and confidence over your finances.
The Five Key Numbers You Must Track
- Net Worth – The Ultimate Financial Scoreboard
- Your total assets minus liabilities. This number tells you exactly where you stand financially and if you’re getting richer or poorer over time.
- Track it monthly using tools like Personal Capital or a simple spreadsheet.
- Savings Rate – The Measure of Wealth Acceleration
- The percentage of income you save rather than spend. The higher it is, the faster you achieve financial independence.
- Aim for at least 20-30%, but if you want to retire early, push for 50%+.
- Debt-to-Income Ratio – Your Financial Risk Meter
- The percentage of your income that goes toward debt payments. A high DTI keeps you trapped in financial stress, while a low one gives you financial flexibility.
- Keep it below 35% for stability and below 43% to qualify for mortgages & loans.
- Monthly Cash Flow – Your Financial Pulse
- The difference between income and expenses. Positive cash flow means you’re building wealth, while negative cash flow means you’re going broke.
- Track spending and adjust your budget to increase cash flow and free up money for investments.
- Return on Invested Capital (ROIC) – Your Wealth Multiplier
- The percentage of profit generated from every dollar invested. High ROIC = your money is working harder for you.
- Aim for investments with 10-15%+ ROIC and cut low-performing assets that don’t generate strong returns.
Calculate Your Net Worth (Your Financial Scorecard)
This is the BIG picture of your financial health. If your net worth isn’t increasing over time, you’re not getting wealthier. Your net worth is your total assets (cash, investments, home equity) minus your liabilities (debt, loans, credit card balances). This is your financial baseline.
Assets – Liabilities = Net Worth
How to Track:
Use our simple spreadsheet. (Get it here)
Utilize finance tracking apps like Wealthfront, Mint, Simpler Budget, or Rocket Money.
Update monthly to see progress.
Savings Rate (Your Wealth Accelerator)
Your savings rate is the percentage of your income that you keep instead of spending. It’s the single most important number that determines how fast you reach financial independence
Example: If you earn $5,000 per month and save $1,500, your savings rate is:
Why Savings Rate Matters
- A high savings rate gives you financial freedom faster
- It determines how soon you can retire
- The more you save, the less dependent you are on your job
- If you invest those savings, your money grows and works for you
How Much Should You Save?
- 🚀 Basic Rule: 20-30% of your income
- 🔥 Fast-Track to FIRE (Financial Independence, Retire Early): 50%+
- ⚠️ Minimum Survival Mode: At least 10% (if you’re struggling)
Boost Your Savings Rate
- Automate savings (Ally Bank high-yield savings account)
- Cut unnecessary spending
- Increase income through side hustles
Debt-to-Income Ratio (DTI) (Your Financial Risk Meter)
Your Debt-to-Income Ratio (DTI) tells you how much of your monthly income goes toward paying debt. It’s a crucial number because lenders use it to decide whether you qualify for loans, mortgages, or credit.
Example: If you earn $5,000 per month and your debt is $1,500 per month then your DTI is:
Why DTI Matters
- Loan & Mortgage Approval – Banks reject high DTI borrowers (>43%)
- Interest Rates – Higher DTI = higher rates = more money wasted
- Financial Stress – High debt = paycheck-to-paycheck living
- Credit Score Risk – Missed payments and high credit usage lower your score
- Wealth Building – Debt eats cash flow, making it harder to save & invest
Monthly Cash Flow (Your Financial Pulse)
Your monthly cash flow is the difference between your income and expenses. It tells you whether you’re building wealth or digging a financial hole.
Why Cashflow Matters
- Tells You If You’re Financially Growing or Drowning – If your expenses are too high, you’re living paycheck to paycheck.
- Helps You Save & Invest – Positive cash flow means more money for investing, saving, and paying off debt.
- Prevents Debt Dependence – Negative cash flow forces you to rely on credit cards & loans, creating a debt cycle.
- Gives You Financial Flexibility – The more free cash flow you have, the faster you can reach financial freedom.
Return on Invested Capital (ROIC) – Your True Wealth Multiplier
Instead of just tracking Investment Growth Rate, focus on Return on Invested Capital (ROIC)—a number that tells you how efficiently your money is creating more money. ROIC is typically measured annually but can also be evaluated on a quarterly, multi-year, or lifetime basis, depending on the investment type.
Why ROIC Matter
- Measures real wealth creation – Shows how efficiently your investments generate returns.
- Applies to all investments – Stocks, real estate, businesses, and side hustles.
- Filters out bad investments – If your ROIC is low, your money isn’t working hard enough.
Annual ROIC Percentages
Final Takeaway: Your Financial Check-Up Plan
1️⃣ Calculate & track all five key numbers today
2️⃣ Set improvement goals based on your results
3️⃣ Automate savings & investments
4️⃣ Reduce debt & increase income
5️⃣ Review your numbers monthly and adjust
💡 Challenge: Track these numbers right now and take one action today to improve your financial future!
Conclusion
Knowing your numbers is the foundation of wealth-building. It’s not enough to make money—you need to track it, manage it, and optimize it. Start today and you’ll have complete control over your financial future.
Are you ready to take control? Start tracking your numbers now!
