6 financial numbers you should know

Are you ready to dominate your financial course?

Then you came to the right place.

Welcome to the only newsletter that’s one part #golf, all parts #money.

I’m super happy you’re here.

You want confidence and clarity over your financial future. I’m here to help guide you there. Think of me as your financial caddie.

Together, we can align your money with your life.

That's finding your financial swing.

So, if you’re feeling loose, let’s tee one up on…

The 6 numbers that count

One of the most fundamental aspects of successfully managing your finances, and one of central themes of my book Golfer’s Guide to Money, is playing your own course.?

But what does it mean to “play your own course”?

In a round of golf, every hole starts with an assessment.?

• How long is the hole?
• How far away are any hazards?

From there you can start to build a strategy.

• Where is a safe spot for your first shot?
• If executed, will that shot set you up for your next shot?
• What is the distance to get there?
• What club do you have that’s closest to that distance?
• Is there any wind or a slope that you need to account for?

This routine plays out somewhere between 60 to 100 or more times (depending on your skill level) in any given round. Each shot is a series of decisions.?

Likewise, over the course of your life, you’ll make thousands of decisions around money.?

• How to make it
• Where to spend it
• How much to save and where to invest it

Some decisions are straightforward and require execution. Some are strategic and require weighing the trade-offs of potential outcomes. And with some decisions, we just have to trust our gut because we won’t know the outcome until we get to the other side.

The key is knowing what type of hole we’re on and playing the course as it’s presented in front of us – capitalizing on opportunities when they’re there and dialing back the risk when they’re not. Most importantly, it’s about playing the course according to your own goals and objectives, not anyone else’s.?

These decisions will shape our outcomes, just like a golfer’s round is built one stroke at a time.?

In golf you need to play the course, not let the course play you. The same goes for money.?

Let your life dictate the decisions you make around money, not the other way around.???

But how do you know how well you’re doing on your own course?

Handicapping your course

The USGA provides a method for us to assess your golf game, regardless of your skill level or where you’re playing golf. Here’s how it works:

Every golf course has two numbers that help assess its level of difficulty:

• Course Rating – measures how hard the course is relative to par?
• Slope Rating – reflects the course’s proportional difference in difficulty when played by a scratch golfer vs. a bogey golfer

As an example, Oakmont Country Club, the home of multiple U.S. Opens and generally known as one of the hardest courses in golf is a par 70 course but sports a Course Rating of 77.5 from the professional tees and a Slope Rating of 147. Whereas your local course may be a par 72 with a Course Rating of 73 and a slope of 114.?

These two numbers are plugged into the following equation, along with your handicap to determine how well you’d play one each course:

Handicap x (Slope / 113) + (Course Rating – Par)

If you’re an average golfer by USGA handicap standards, which according to USGA data means you have a handicap of 14.1 for men and 28.0 for women.?

As you can see, the scores vary widely depending on your handicap and the course you’re playing.

?This is why you’re potentially doing yourself a disservice by calling yourself a “bogey golfer” or saying, “I usually shoot in the 90s.” The score you achieve, or at least the score you should achieve, is largely dependent on the course you’re playing.? ?

Handicapping your finances

A golfer’s handicap is designed to reflect their abilities when applied to the specific course they’re playing, but how does this apply to your financial course?

We’re social creatures, so it’s only natural to use others as a barometer for how we’re doing. It happens on the golf course and in life. In fact, social comparison dates all the way back to the 1800s. Nineteenth century economist Thorstein Veblen coined the phrase “conspicuous consumption” to describe the practice of purchasing goods of a higher quality than what might be considered necessary.?

The phrase was used to describe the spending patterns of the nouveau riche class of the 19th century, who had garnered a significant portion of the country’s wealth during the Second Industrial Revolution.? These men and women with newly abundant discretionary income would leverage the purchase of luxury goods as a means to display their wealth and position in society.? ???

The paradox here is that just like driving a luxury car doesn’t make you rich, paying more for a “premium performance” golf ball doesn’t actually make you a better golfer. In both cases, the conspicuous purchases actually run counter to the ultimate goal. If you want to be a better golfer, you should practice more, invest in some lessons, or spend your money playing more rounds of golf.

If you want to be rich, you don’t waste money trying to prove to other people that you already are.?

This is why the best way to assess your true wealth is to play your own course, and it starts with taking an inventory of where you stand financially.?

Six financial numbers to track

There are dozens of financial metrics you could track on an annual, monthly, or even weekly basis, but at some point you hit the wall of diminishing returns. The data you’re tracking doesn’t provide any additional information; it just creates noise.

This is why I recommend tracking the following six numbers on an annual basis to see how well you’re progressing along your financial course:

1. Net worth

To calculate your net worth, make a list of everything you own (assets) like savings, investments, and property. Add up their values. Then, list all your debts and loans (liabilities), totaling them. Subtract your liabilities from your assets, and the result is your net worth.

Tracking your net worth annually provides an indication of how assets are accumulating (from investment growth and savings) and how well you’re doing at paying down liabilities.?

2. Human capital

Many people overlook tracking their human capital, which is a big mistake, because it’s often the largest number on your balance sheet. Simply put, human capital is the sum of all your future earnings. If you’re 35, intend on working for another 30 years and earning $100,000, your human capital is roughly $3,000,000 (assuming future raises match inflation).

This is one of the main reasons why investing in yourself in your early career can be a powerful multiplier of wealth.??? ???

3. Gross income

If you’re an employee of a company, gross income is a relatively straight forward number to wrap your head around. It’s simply the sum of your wages. However, if you receive equity compensation as part of your employment, or if you are self-employed or have multiple streams of income, gross income can be a little more challenging to wrap your head around.?

Tracking your gross income will give you a good indication of how well you’re capitalizing on your human capital and allow you to see if you’re earning more year-over-year.?

4. Savings rate

To calculate your savings rate, total the amount of contributions to your investment and retirement accounts and divide this number by your gross income. Your savings rate should increase as your income goes up, but it can be highly variable depending on your goals. Early retirement requires a higher savings rate, whereas you may forgo maximizing your savings if you’re focused on enjoying life along the way.?

Savings rate is a key indicator of how well you’re doing at keeping the money you earn.? ??

5. Debt to income

This number is more of a monthly calculation, but still a good number to track year-to-year. To calculate your debt-to-income ratio, add up all your monthly debt payments, like student loans, mortgages, and lines of credit, and divide that by your monthly gross income.?

The ratio helps assess your financial health, with a lower percentage indicating better financial stability.

6. Marginal tax rate

This is probably the least straightforward number you should be tracking, but also the one with the most strategic importance. Your marginal tax rate tells you the percentage of tax you pay on your last dollar of income and should inform your strategy for either deferring taxes (via 401(k) and traditional IRA contributions) or paying taxes now (via Roth 401(k), Roth IRA, or after-tax account contributions).

Marginal tax brackets change on an annual basis, so it’s a good idea to consult your tax preparer or financial advisor for help with this number.? ?

Financial swing tips

1. Your best comparison for how well you’re doing financially is YOU.?
2. Play your own course. If you want to accumulate true wealth, don’t waste money trying to prove to other people that you have it.?
3. It can be easy to get bogged down tracking too many financial numbers. Focus on what data provides best information and informs your financial progress and future strategy.