The Most Important Number in Personal Finance?

Nick Magguilli, a prolific blogger at Of Dollars and Data, just put out one of my favorite posts in recent memory. He claims it's the most important metric in personal finance, which I tend to agree with. Not only do I encourage everyone to read the article, but strongly suggest going through the exercise of creating your own ballpark "Lifetime Wealth Ratio" (LWR.)

While a traditional Statement of Net Worth can be a catalyst for conversation, it fails to include context that the LWR can provide. I like the measure because it captures larger trends and habits while removing the need to spreadsheet every dollar coming in and out. 

My only critique would be that it seemingly punishes those who are late to implement better habits. In other words, if I didn't save much over the first ten years of my working career, but a few years ago started executing on a 20-25% annual savings rate, my LWR will probably remain a relatively low figure. You could argue that a low LWR puts too much emphasis on the not saving for ten years part instead of rewarding the implemented behavioral changes that are very positive, but I suppose that's the point. In time, with consistency, that number should take care of itself. No quick fixes. For most, wealth creation is like running a marathon. Whenever the inevitable sub optimal split comes early on in the race, many miles lie ahead.

For anyone asking, "I'm not sure if I'm doing the right things with my money", unequivocally start here. Contemplating the Roth versus Traditional 401(k) or deciding whether to buy Facebook or Microsoft or whether or not to utilize a 529 plan are all important, but secondary considerations. 

So what does your LWR look like? How well have you leveraged historical earnings into wealth? 

^{The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.}