When you go in for your annual physical, the doctor will look at certain numbers to determine how healthy you are. Meaningful numbers to doctors are your blood pressure, your cholesterol levels and blood glucose levels, and your body mass index. If any of those are at harmful levels, your doctor will give you advice on how to improve them through lifestyle changes or even prescribe radical treatment in serious cases.
When it comes to your financial affairs, there are four numbers that you need to know and should be checking regularly:
Your monthly/annual income
Your monthly/annual expenses
The total value of your assets
The total amount of debt you have (if any) and when the debt due
Depending on what stage of life you’re in, the relationship these numbers have to your overall financial health will vary. In the simplest terms, you want to make sure that your income is greater than your expenses (positive cash flow) and that your assets are worth more than your debt (positive net worth).
That might sound completely obvious, but the reality is most money problems stem from an imbalance in these numbers. If you allow your expenses to become greater than your income, or let your debt balloon well beyond the value of your assets, your financial health will suffer. Paying attention to these numbers will allow you to take pre-emptive measures to improve your situation before drastic steps need to be taken.
