5 Numbers More Important Than Your Income

As my friend Mel says, “Numbers are sexy.” We love talking about numbers, and tend to fixate on them — particularly when it comes to how much we earn. “I’m a six-figure freelance designer,” or, “If I take this job, I’ll earn $10,000 more.”

We oftentimes measure our worth based on how much money we rake in. It can be easy to feel like you’re behind, or a grade-A underachiever when your cousin or bestie or partner makes more than you. Sure, your income is important, but there are other numbers that deserve a closer look than how much cash you earn. When it comes to financial wellness, here are five metrics that trump your income.

1. Cost of Living Index

Bottom line: the salary you earn living  in one part of the county might not stretch as far living in another part of the country. Say you earn $80,000 in Los Angeles. If you move to Nashville, Tennessee, you’d only need $45,269 to enjoy the same comforts, according to Sperling’s Cost of Living calculator. Expect to spend 26.1% less in health and 39.2% less in transportation. And if you were to buy a home, you’d be spending 62.6% less in housing.

How much you make is relative to a number of things — one being the cost of living in your stomping grounds. So the next time someone says they’re making $120,000 but live in Silicon Valley, chances are they aren’t enjoying the same standard of living, than those in less-expensive parts of the country.

2. Compensation Package

When it comes to your work salary, it’s also important to look at the entire kit-and-caboodle for your benefits package. Your employee benefits can make up to one-third of total compensation costs. That includes health benefits (which alone can cost employers $15,000 per worker) and an employer-sponsored 401(k) plan.

If your workplace offers an employer match for retirement savings, that also boosts your total compensation. You might also get discounts on gym memberships, and group rates on car insurance, life insurance, and even financial and legal advice.

Besides your take-home pay, you’ll want to factor in the full suite of benefits that your employer offers. In turn, that makes a difference as to how much you have to work with each month.

3. Happiness Report

Yes, happiness is a difficult thing to pinpoint. But in recent years metrics have been developed to gauge how happy nations are as a whole, giving us a good idea of wellbeing and work-life balance.

The U.N.’s World Happiness Report uses data from the Gallup World Poll, which surveys citizens in 156 countries on how happy they feel — to determine the overall well-being of a country’s denizens. The Cantril Ladder, or Cantril’s Self-Anchoring Ladder of Life Satisfaction, is made up of 10 rungs. The bottom of the ladder equals 0, and represents the worst possible life for you. The top of the ladder equals 10, and equates to the best possible life for you.

Per the Gallup World Poll, Finland, Norway, and Denmark, respectively,  ranked highest for happiness. The bottom three countries were Afghanistan, Central African Republic, and South Sudan. Where does the U.S. fall? Nineteen out of the 156.

Consider doing your own happiness assessment using the Cantril Ladder. Are you living your best life? What does it exactly mean for you to be living your best life? What steps can you make in the right direction to boost your well-being?

4. Net Worth 

Remember: Your income isn’t a measure of your wealth. Your net worth is. To figure out your net worth, tally up your assets — this includes your investments, how much you have sitting in your savings, and any other assets, like your home or car. Next, tally up your debt. Subtract your debt from your assets and you have your net worth.

Net worth gives a full picture because it factors in how much money you make, how much debt you owe and how quickly you’re paying it off. It’s what you have left at the end of the day that’s for Future You. Having a positive net worth shows that you’re financially healthy.

5. How You Spend Your Money

Are you putting your paycheck toward paying off debt, helping your family, or are you squandering it? Not only does how you spend your money affect your progress toward net worth, but it’s ultimately an indicator of what you value.

For instance, while I am typically pretty frugal when it comes to clothes, I spend more on high-quality, nutritious foods. That’s because my health, especially as I get older, becomes more important. I recently splurged on some fancy cookware because I’ve been preparing more meals at home. I also pay for weekly yoga classes at a nearby studio. Because my physical health is important, I’m willing to spend more on food and exercise.

There you have it. Five metrics that are more important than your income. As you can see, while your take-home pay does play a key role in your financial well-being, there are other ways to measure your financial success.

This article was originally published at HiCharlie.com

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Money-saving Tips for the Self-employed

Gone are the days when the American dream means climbing the corporate ladder. Over the last years, the mindset of the American worker has shifted to valuing flexibility and freedom over stability. Self-employment continues to be a rising trend as employees leave their day jobs to do freelance work or start their own business.

One of the major challenges self-employed individuals face is managing cash flow. Since you do not have the regular pay that a day job provides, not to mention health insurance and tax duties, it can be challenging when all these things fall on your shoulders. Saving and budgeting can be taxing, too, as there will be months when you’ll be flushed with cash, while there will be months when you’ll need to tighten your belt a little.

Below are a few money-saving tips for the self-employed.

Set a budget.  Whether you are a business owner or a freelancer, this is very crucial. Good financial planning can determine the success of your new venture. Total all your income sources. Make sure to list down all your expenses every month. Determine all the fixed costs such as monthly bills, subscriptions, and mortgage, which takes up a huge part of your budget. You may want to consider paying off your mortgage early to get it out of the way and have more room in your budget for other things like savings and retirement fund.  After listing down the fixed costs, add the variable expenses such as payment to freelancers if you hire some, and any other expense that vary month-to-month. By doing this, you’ll know the amount of cash you need every month to live comfortably. Stick to the budget as much as you can. There are plenty of budgeting apps and tools that can assist you with this.

Set your rate. Do not undersell yourself and do not be shy to increase your rates as you gain more experience. In terms of billing, it’s better to be billed in installments rather than in lump sum at the end of a project. It would be harder to budget your money if your cash comes in once every three months rather than having them sent in monthly installments.

Build your emergency fund. And maintain it. It is important to always save for the rainy days. An emergency fund can save you from high-interest debts in times of financial stress. Make sure you have a fund, ideally a 6-month cushion – for when something unexpected happens such as a big client backing out. This 6-month cushion cannot be built right away, but you must work towards building it as soon as you begin getting paid. Set a certain percentage of your income to be allotted to this fund every month.

Know your taxes. Now that you are self-employed, you no longer have your HR department’s compensation and benefits people to look after your taxes. You must do them yourself now. Be aware of the tax bracket you are in now that you have gone solo. If you are a business owner, seek the help of a financial advisor in determining the best entity type to register your business as.

Get help. Time is money. If you think it would be best to delegate some of your tasks to freelancers in order for you to focus on more crucial tasks, hiring help could be a great idea.

This article was originally published by Uncapped Mortgage

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Can Debt Be Used to Build Wealth? Let’s Weigh In

Image result for suitcase cash

Generally, people think of debt as something to avoid. Debt usually means “bad” and no debt means you are better off financially. So the idea of using debt to build wealth can seem a bit dubious. Can you really build wealth using debt?

In order to answer this question, we first need to know that there are two kinds of debt. There is good debt and bad debt. And though the thought of debt being “good” seems counter-intuitive, the fact remains that some debt is actually good.

Good debt is a debt that will increase your finances over time. So something like a small business loan is good debt because you use the money you borrowed to build up your business, thus, bulking up your finances in the long run. Good debt also has a smaller interest. So while you are expanding your business with your small business loan, you aren’t paying an exorbitant amount in interests. This type of debt also allows you ample time to pay back your debt.

Bad debt is the exact opposite. This kind of debt has astonishingly high-interest rates and usually involves some form of collateral. There is also a very short turnaround time for you to pay your debt, plus interest, back. Some examples of bad debt are credit card debts, car title loans, and payday loans. A loan of $100 will have you paying back nearly the same amount in interests alone. Bad debt will sink you financially faster than a boat riddled with holes.

So now that you know the two types of debt, you can probably guess which one can be used to build wealth. The question now is “how”.

A good way is the example stated above. Use debt to expand your business. If you do not have a business, use debt to invest. It could be in property or in various investment funds. Whatever you decide to invest in, it is important to know your risk tolerance and how much you are willing to invest.

The principle of leverage can help you out as well. Say for example you are investing 100 dollars of your own with an expected return rate of 10%. This will earn you a return of $10. If you borrowed money with an interest rate of less than 10%, you can add to your initial $100 investment and still earn from it despite having to pay off the debt you used to invest. You can diversify your financial portfolio using this strategy as well; borrow to invest in different institutions and different kinds of investments.

There are a few to consider when using debt to invest. Think of your tolerance for debt. Can you realistically pay off your monthly payments? Can you pay off that debt within the time frame or do you need more time? Consider your cash flow as well. You need to make sure that you have enough income to pay off your debt.

So the answer to the question can debt be used to build wealth is yes, you can. You just need to choose the right kind of debt, invest in the right things, and keep in mind your debt tolerance.

This article was originally published by Uncapped Mortgage

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