When you first dive into personal finance advice and education, you get bombarded with details about numbers like interest rates, credit scores and debt-to-income ratios. It’s overwhelming.
The good news is that you can cut through the noise and focus on just a few numbers as you begin your wealth-building journey — no need for spreadsheets upon spreadsheets.
In a recent YouTube video , personal finance author and influencer Rachel Cruze discussed the top five numbers you need to track for financial success . Here’s what she said.
Debt is one of the biggest obstacles to building wealth.
When you’re carrying a debt balance — whether it’s credit card debt, an auto loan, student debt, a personal loan or some combination of these — you’re losing money on the interest payments. You have to pay back the amount you owe, plus interest, before you can start putting your money toward growing your wealth.
“Your No. 1 priority should be looking at how much debt you have and how to eliminate it completely as quickly as possible,” Cruze said. That’s how impactful debt is on your ability to build wealth.
Start by listing all of your outstanding debt balances so you know exactly how much you owe. You’re working to bring this total down to zero.
Cruze recommends the snowball method for paying off your debt. In this method, you list each debt balance from smallest to largest, regardless of interest rate. Then, you make the minimum payment on each debt account except the smallest one, which you put as much money toward as possible.
The idea is to eliminate that small debt balance quickly and gain momentum as you work up the list to your largest debt.
To build wealth, you also need savings. Your savings accounts hold the money you set aside for specific financial goals, like buying a house, and protect you in case unexpected costs arise.
Before you start paying off your debt, Cruze recommends building an emergency fund of $1,000. While $1,000 isn’t enough to cover every possible financial hardship, it will cover minor emergencies like unexpected car repairs or replacing a broken appliance.
In 2023, CNBC reported that more than half of all employees in the U.S. wouldn’t be able to cover a $500 emergency without going into debt or relying on a family member for help, based on the results of a survey conducted by SecureSave. So, building a $1,000 emergency fund would put you ahead while giving you some peace of mind.
Once you’re out of debt, Cruze recommends bumping up your emergency fund to three to six months of expenses. A fully stocked emergency fund is a safety net that protects you if you lose your source of income or incur significant costs, such as the result medical emergency.
Beyond your emergency fund, you should also start saving for financial goals such as replacing a vehicle, going on vacation or pursuing further education. Track your savings balance over time to monitor your progress toward securing your financial future.
Your Income
Eliminating debt and saving money are essential, but you can do those things only by earning an income. As Cruze explained, “Your income is your largest wealth-building tool.”
You need a reliable income to reach any of your financial goals. The first step is to figure out exactly how much money you earn every month after taxes.
If you merge your finances with someone else, like a spouse or partner, include their income in your total. Don’t just include the money you make from your primary job. Any income you earn from side hustles or investments should also be part of this number.
Once you have your total income figure, consider whether it’s enough to cover all of your expenses and still build wealth.
“Make sure that you’re earning enough money to be pushing your financial goals forward, and also that you’re getting paid market value,” said Cruze.
If your income isn’t where you’d like it to be, consider asking for a raise, looking for a higher-paying opportunity or supplementing your income with a side hustle. Each additional dollar you bring in beyond your expenses contributes to your wealth-building goal.
The Amount You’re Investing
You also need to monitor how much of your income you’re investing. Your investments may include an individual retirement account, a 401(k) plan offered by your employer, an education savings account or general investment accounts.
The more you invest, the faster you’ll grow your wealth, thanks to the power of compounding returns. Your money starts to work for you, growing even when you sleep.
If you’re already investing, calculate how much you’re investing as a percentage of your income. If not, try to dedicate some of your income to investments, even if it’s just a small amount. Ideally, you’ll work toward increasing your investments to reach a higher percentage of your income.
According to Cruze, “15% of your income should be going toward building wealth, and make sure that you increase those percentages over time.”
That 15% recommendation is in line with other financial experts’ suggestions, but don’t stress yourself out if you can’t hit that figure immediately. Invest what you can now and try to increase those investment contributions over time.
Your Housing Costs
The final financial number Cruze recommends tracking is your housing costs. Whether you rent or own your home, your housing bill is likely one of your biggest monthly expenses. If it’s too high, relative to your income, you’ll struggle to build wealth and may even risk losing your home.
Cruze suggests that your total housing costs, including home insurance and homeowners’ association fees, should be around 25% of your take-home pay. That way, you have the majority of your income available to put toward other expenses, saving and investing.
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