The Only Two Numbers You Should Measure In Your Finances

by Hank Coleman

The numbers that you monitor with your finances matter.What do you measure in your life? Do you count calories? Do you count how many visitors check out your website everyday (or every hour if you are me)? You should be counting things in your life.

Counting implies that there is a goal in the end that you are counting towards something in the end. Thos with a goal have been shown in studies to ultimately be more successful in life.

A study of Harvard MBA students in 1979 who were followed for ten years found that the 13% of the class who had made goals for themselves were earning, on average, twice as much as the other 84% who had no goals at all.

In fact, 3% who had written down those goals were earning, on average, ten times as much as the other 97% put together. What you measure in life matters. It draws our focus to it like a laser. So, what are you focusing on with your money?

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Measure Your Finances With Two Numbers

You Should Measure Your Net Worth

You should know how much you are worth. You should keep track of this number every month. You should have it written down and should compare it to the previous month’s outcome. How did your investments do? Did you add to your credit card debt last month? Are you on track to save for retirement or your children’s college educations? How do you know if you are not tracking how many assets you have and how much you owe in debts? You need to know your net worth so you know where you stand, where you need to be, and if you are headed in the right direction.

You Should Count Every Dollar You Spend

I am constantly blown away by Krystal’s weekly spending recaps on her awesome blog, Give Me Back My Five Bucks. You should definitely check out her blog!

Every week, Krystal details exactly what she spent for that week. This is a critical step to budgeting. It is very important o know where all of your money is going each and every month (or every week). Knowing where your money goes helps you when are you just starting out budgeting. One of the hardest things to do is know where you cash especially goes.

We all typically have automatic payments for things like our mortgage and car loans. But, do you know where that $100 from the ATM goes? We think we know where it disappears to, but that is just the thing…it disappears. We don’t monitor our cash expenditures as well as we should, and this is a spot where we see our budget start to slip away from us because we cannot account for that money.

One great way to tackle this is to carry a little notebook and pen with you and write down everything you spend money on. Try it for just a week and you will be blown away when you see where your money really goes.

We value what we quantify. We value what we track. You should track your net worth and your spending each month, especially your cash spending. These are the two most important numbers you should use to measure your finances. Knowing where your money goes is the first step in setting up or maintaining your monthly written budget.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 578 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 5 comments… read them below or add one }

Doctor Stock

Very interesting… I especially appreciate the second number (what you spend) as it often surprises people when they take a few moments to see what they spend where. I always think I can provide people with savings if only they can show me where they spend their money. Great article Hank.

Reply

Hank

Doc,

I’m thinking about coming out with a post just like Krystal’s where I detail everything I spent for the week day by day. I’m hesitant though. Would readers care? I might be ashamed at what I find out about myself and reveal. Any thoughts?

Reply

Shaun @ Smart Family Finance

Admittedly, I don’t track net worth, because it is so depressingly negative, I don’t know if I could stomach it. In fact, monthly fluctuations in my credit card wouldn’t even make a significant change.

One day, it’ll flip, but I’m far away from that.

My wife and I get receipts for everything and enter the expenses on a budget tracker every week.

I’d suggest tracking your checks and debit purchases via a check register as a close third.

Reply

Hank

Shaun,

I completely understand. I admittedly do not track my check and debit card purchases against a register at all.

Reply

YFS

I check my net worth on a monthly basis and track all credits/debits via my spending plan. But, I also think you should track your income. Why? Well you need to know if you’re not making enough money or capitalizing on your income potential. If you know your peers in the same industry make X more than you. That let’s you know that you need to increase skills or ask for more money.

What are your thoughts on my point of view Hank?

Reply

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