Today I want to discuss metrics that matter as it pertains to wealth building. Specifically, I want to address what is a metric outline three different metrics that do matter and help you understand why that matter.
So, first, what is a metric? A metric simply is a standard of measuring something. So, if you think of sports, a score is a metric, your height or your weight are metrics. Your age is a metric. or the number of years you’ve been married, are all metrics. Essentially, it’s a numerical value assigned to something. Something that you’re trying to measure essentially.
So, when it comes to money, specifically wealth building, which metrics are important and why Christ said in Luke 6 38 given it shall be given unto you. Good measure, press down, shaking together and running over. Shall men have given to your bosom? For with the same measure that you meet with all, it should be measured to you again.
Peter Drucker said, you can’t improve what you don’t measure. So, there are some metrics that are important when it comes to wealth building and that’s what I want to address today. Specifically, what should you measure? I have three suggestions.
Metric number one, that you should consider measuring as it pertains to wealth building.
That is your income. So why is income important to measure? Well, for most people, your income is your greatest wealth building tool. Income essentially is the result of the value that you provide to the marketplace. People a lot of times have this bad connotation towards work, but work is work is good.
Work is valuable. Work is a mechanism in which we obey, glorify, and worship God while also serving fellow man. A lot of people think that work is a byproduct of service. You know, Adam’s transgression and the curse. But the reality is that in Genesis two, before the curse, God gave Adam a job. It says in Genesis 2 15, and the Lord took the man and put him into the garden of Eden to dress it and do keep it.
Adam worked before the fall, right? So, this illustrates that work is valuable. And that’s how we receive income. So, we provide value to the marketplace, value to customers, value to our employers. And in return, we get paid an income. Income increases over time. Most of the time, your decades of your forties and fifties and early sixties are when you make the most amount of income.
Income. Why is that? Because you’re more skilled, you’re wiser, you’re more capable, right? So, the more education you have, the more skills you have, the more capabilities you have, the marketplace will reward you with more income because you’re providing more value. Think about it. If you’re work at Chick fil A and you make French fries, right?
That’s good. That’s valuable, but not as valuable as someone who maybe does an accounting for a large corporation while accounting is valuable in the marketplace, we value a brain surgeon. A lot more because they’re doing lifesaving type of engagements of activities, right? So again, the marketplace will reward us for the value that we provide.
So, the more education, the more skills, the more masterful of your craft you are, the more value providing, the more income you’re getting. And so, the metric to measure here is how much are you making? What is your income annually, right? So, a lot of times when people start off, they start to say, I make so much per hour, so much per week, or so much a month.
Eventually you want to get to the point where you’re tracking that annually. And ideally over time throughout your career, your income will go up and it should go up and you should measure that over time. So how much income are you making? Metric number one metric. Number two is that of your savings rate.
So, your savings rate. So how much of that income that we measured in metric one, are we saving or investing? If we’re not saving or investing any of it, then. You know, it’s all coming in, it’s all going out and we’re not doing anything with it. So again, income is your greatest wealth building tool, but not if it’s all being spent.
So, you must build the habit of saving Your money over time. What most people do is they spend all their income. And then when something happens or they want to purchase something, they go into debt, either from a credit card perspective or a loan perspective. And that requires them to spend more of their money in their future, paying those payments, which puts more strain on your income, right?
So, you’re just perpetuating this thing of not saving money. What we want to do instead is we want to build out a wedge. For future purchases and for your future goals, that savings rate essentially is the amount that you’re saving, either putting in the savings counts or investments, as well as how much you’re getting from a match perspective from your employer divided by your gross income.
That is how we quantify your savings rate. The amount of money that you’re saving plus your, the mountain you’re investing plus your employer contributions divided by your gross income. Historically, on average, Americans are horrible savers.
According to the Bureau of Economic Analysis from February 2024 is that Americans are saving about 3.
6 percent of their total income. So not very much. Ideally, you want to be saving somewhere between 15 and 20 percent of your total income. So, the idea is we build out that wedge. paying off debt, getting your emergency fund done. And then we build out that wedge where you’re constantly saving over time.
In a couple of weeks, I’m going to do an episode Lord willing on how financial independence really is a function of savings rate, not income. Years ago, when I was at the CIA, I did a presentation on managing the money that you have. And it had an open icebreaker of that, of all these different athletes from various sports, various timelines where they made millions, a lot of times hundreds of millions of dollars of money, but they ended up broke.
They ended up bankrupt. They ended up in foreclosure. Why is that? Because they didn’t manage the money that they had very well. And the people who would sit there would just say, you know, they’d shake their heads and be like, how could they do that? And then the punchline essentially was, well, you’re doing the exact same thing over the course of lifetime.
You too are going to make millions of dollars. And by the time people are tired, they have, very little and they’re very dependent upon social security and the government to take care of them. Why? Because they didn’t manage the money because they didn’t save it, right? So, savings rate is an important thing to measure when it pertains to wealth building.
The third metric that I want to outline is that of net worth. So, your net worth, what you are worth is from a value perspective, from a monetary perspective is you add up all your assets and then you add up all your debts and you subtract your debts from your assets. If you don’t have any debts, your 100 percent debt free, then that number obviously be zero.
And it’s just the assets that you have. This essentially is the financial scoreboard. It says whether you’re winning or not with money. So, a lot of people associate wealth with evil, but it’s not evil.
Wealth really is just the byproduct of the services and products and the value provided in the marketplace to others, coupled with the sound management of that capital gain from those engagements. Right? So that’s how, that’s how wealth is. You’re providing value to marketplace, you’re gaining money from it, and then you’re managing it well.
You’re being a good steward of it. And so, knowing those two numbers, what your assets are worth plus what your debts are worth or what your debts value, what’s your best total. You add those up. One of the great things of doing this in general is just how much debt are you in? I remember the first time I did this exercise and I saw the total number of my total debts.
And it just shocked me. I was, I was amazed by that.
So, a new segment here, we’re going to start interjecting to the show. Is that of utilizing right? Capital, right? Capital is a financial planning platform that I use in my personal practice. And I want to introduce that to you today and show you these metrics inside of right.
capital.
Inside of right capital. Let me first introduce you to Jane and Joe average. And so, this profile here is based upon all the average metrics that I could find for the average American. So, in this case, Joe and Jane are 34 and 33 respectively. They have two children, Jimmy, and Jenny. This is an overlay of their net worth.
The greens are assets that they have. The red are liabilities that they have. And the blue is property that they own from an income perspective. We can see a couple of different things here that Joe works for his state, making 50, 000 a year. Jane works as an office manager, making 34, 000 a year.
So, they have an average income about 84. 1, 000, which is the average amount that an average American household makes.
So, when it comes to income, how much we’re making, we can see that a couple of different places in right capital. The first one here is on that blueprint income, savings, and expenses. And so, we have the amounts there. Additionally. We can see it in retirement under the cash flows. So right capital gives us a year-by-year cashflow as to what is coming in.
And we can decompose those salaries over time. Additionally, different view, a waterfall view of how much they have coming in and where it’s going in terms of various expenses, taxes, investments, savings, and gives us a breakdown like this as well. So, very easy to see metric number one of income inside of right capital, which brings us then to savings rate, savings rate, the amount that we’re saving.
So, we can see that as well on our dashboard and right here, current savings. They are currently saving, 6, 650. And so that’s how much they’re saving given. What they’re putting in as well as their employer matches this
to this two can also be visualized on the retirement savings tab where we have how much they’re putting in today. That was the same metric we saw in the dashboard. How much there. saving in dollars over time, as well as their savings rate here. So, there be saving about 8 percent kind of going forward, but their average over the scope of their life essentially, or to retirement is 6%.
So that shows us our savings rate.
Lastly, is that of our net worth? So, on our profile tab, we have our net worth here again, kind of calculating assets minus, minus. Liabilities. If we want to see that in greater detail, we can go to dashboard balance sheet and we have our total assets minus our total debts, giving us our net worth.
Additionally, we can see the details of those in a spreadsheet form all the various assets and those get updated over time as well as Historical how you’ve done in the last year as it pertains to your net worth.
So that is right. Capital and Jane and Joe average. We’ll be showing you more of these in various shows going forward.
As a bonus, I want to give you one more metric that is not important. So, when I was going through those metrics, you might’ve thought, well, what about credit score? Isn’t credit score important?
Everybody says in credit score is important, but I intentionally left that off because really, it’s not that important. Although a lot of people think it is. Let’s unpack that a little bit. According to nerd wallet, most Americans, almost 95 percent say that having a good credit score is important to them.
Well, the reality is that a good credit score does not make you wealthy, right? We’re talking about metrics that make you wealthy. A good credit score will make a bank wealthy, not you. Wealthy the Ramsey state of personal affairs study that they did in 2023 says that most Americans, 84 percent believe having a high credit score is a sign of financial success.
But in reality is it’s not it’s a sign that you’re borrowing a lot of money paying back payments Generally with interest we’ll unpack the credit score here in future episodes, but as a preview essentially Credit score is really an I love debt score The only way to have a high credit score is to go into debt often repeatedly and staying in debt It’s a fool’s game really is what it is CNBC reports that four out of 10 people have no idea as to how their credit score is actually determined, which is probably why they think it’s valuable and a good metric to measure, but it’s not.
It’s really an, I love debt score. And it’s only based upon how much interactions you have with debt. So, the higher you score is the indication of the more debt you went into, right? So, your credit score is not a metric. That you should measure as it pertains to building wealth.
Your micro action for the week, take one of those metrics and determine it.
My guess is you probably already know your income, but if you measure it by weekly or hourly, figure out what it is per year. I would recommend you calculating your net worth. It’s something I do for clients every year in the beginning of the year, and you can track it over time.
And so, this will give you two numbers, how much assets you have, as well as how much debts you have. Seeing that debt number might be a revolutionary eye-opening experience. Like it was for me.
Today we talked about metrics. It matters as it pertains to wealth building. We talked about what a metric is. I gave you three metrics that matter as it pertains to wealth building, showed you where you can find those metrics and write capital and gave you a bonus metric of what is not important.
Hope this helps you on your financial journey. If you have any questions or comments, would love to hear your opinions. You can leave them below or send an email to Mike at true wealth that show. And until next time, I hope you have a great day.
