THE GAME PLAN
There are three key indicators that provide the best picture of your financial health
The first indicator is where we start: your cash flow. This is the calculation that quantifies what’s coming in and going out of your finances each month.
To calculate your cash flow, sit down with your bank and credit card statements for the past month and run this simple cash flow equation:
Your cash inflow would include your salary or wages, any interest earned from savings accounts, and dividends from investments. Outflow is what you pay for costs like rent or mortgage, utility bills, gas, groceries, and entertainment.
If you have a positive cash-flow, this is a sign that your finances are in healthier shape. You may be able to consider investing more in your future. If your cash-flow is negative, then this is the place to start your Game Plan. You can begin by focusing on lowering costs, getting a handle on your debt and increasing your cash inflow.
While your debt may feel like it’s in a downward spiral, the Debt-to-Income Ratio (DTI) is a calculation you can run to identify the scale of the challenge in front of you—and begin to take control. It’s a key measurement for your financial health.
DTI ratio can reveal how much of your gross monthly income goes toward debt payments. The conventional wisdom from finance experts is to try and keep your debt payments below 40% of your gross monthly income. If you’re below 40%, then your debt may be more manageable than it currently feels. If you’re DTI is running above 40%, you may want to implement one of three popular debt-reduction strategies:
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