Who doesn’t want to become a millionaire? The good news is becoming a millionaire isn’t about luck or an overnight windfall. It’s about understanding and managing your finances with precision and consistency. Tracking these five key numbers will put you on the path to financial freedom. Here’s how:
1. Your total Expenses
Your expenses are the foundation of your financial plan. To manage them effectively, complete a detailed budget with all of your outgoings. Use our budget here if you don’t have one yourself. Once you’ve calculated your total expenses, add a 10% buffer. Why? Life is unpredictable, and this extra margin ensures you’re prepared for unexpected costs like car repairs or vet bills. By proactively accounting for the unexpected, you’ll stay on track without derailing your budget.
2. Savings Rate
Your savings rate is the percentage of your take-home pay that you set aside. Work out your take home income & divide the amount you save by this. For example, if your total take home income is $5,000 per fortnight and you save $500 per fortnight, your savings rate is 10%.
Start with a minimum goal of 10%, but aim for 15-20% for optimal results. Initially, these savings should go into building your cash reserve. Once you’ve established a solid reserve, redirect those funds towards investments that grow your wealth and lead to financial freedom. The higher your savings rate, the faster you’ll achieve your goals.
3. Debt-to-Income Ratio
Your debt-to-income ratio is the percentage of your take-home pay used for debt repayments. This includes everything from credit cards to rent and personal loans. A healthy target is to keep this ratio as low as possible, ideally under 35%. High debt levels eat into your ability to save and invest. By focusing on reducing debt, you free up more resources to work towards becoming a millionaire.
4. Liquidity
Liquidity measures how easily you can access cash in a pinch. Aim to have 3-6 months’ worth of living expenses saved in an offset account (if you have a mortgage) or a high-interest savings account. This cash reserve acts as a financial safety net, giving you peace of mind and flexibility. Whether it’s covering an emergency or taking advantage of an investment opportunity, liquidity keeps you prepared.
5. Net Worth
Your net worth is the sum of all your assets minus your debts. When calculating this figure, exclude depreciating assets like your car or household contents. Include your home, but also calculate your investment net worth by removing your home value and mortgage. This adjusted figure shows the wealth you’ve built for generating passive income. Monitoring your net worth regularly ensures you’re progressing towards financial independence.
Become a Millionaire: Why These Numbers Matter
Each of these numbers provides a snapshot of your financial health. Together, they form a roadmap to millionaire status:
- Expenses teach you to live within your means.
- Savings rate ensures you’re consistently growing your wealth.
- Debt-to-income ratio keeps financial stress at bay.
- Liquidity protects you from life’s uncertainties.
- Net worth tracks your progress toward true financial independence.
By keeping an eye on these metrics and making small, consistent improvements, you’ll build a solid financial foundation. Remember, wealth isn’t just about earning more—it’s about making smarter decisions with what you have. Start tracking today, and you will be well on track to become a millionaire!
