We manage what we measure
Tracking money is such a great habit to get into. You have an overview of what’s happening with your spending and see where it is going.
Personally, I track my money every month. Some people I know do it weekly (usually on a Sunday) but I like to get the monthly overview. I still check my bank balances and statements usually every day to ensure all is well!
If you’re at a lost at how to track your finances, I wrote a handy post about it here.
Key things to track
1) Net worth
Your net worth is:
Net worth is a snapshot of the value of what you own less what you owe. If you have a negative net worth, then you owe more than you have available to you. A positive net worth means the value of what you own is greater than the amount that you owe. (Time)
A really important element to focus on! It is the sum of all of your assets minus your liabilities, seen on your balance sheet (keep reading to find out more about these).
2) Making a profit every WEEk/month/year
As it says on the tin, you need to be tracking if you are making a profit every month. Celebrate if you do! It’s a huge achievement not everyone is able to have.
How do I track them?
There are two handy tools that you can use to track the key measures mentioned above.
1) Income statement (profit/loss)
This covers your income and expenditure. It is a snapshot of how money is flowing through your life. Creating it every month allows you to look what is happening with your money.
Think of your life as a business! You need to create a profit every month.
|Food shop: £25||£1,475|
|New shoes: £12||£854.01|
… and so on.
2) Balance sheet
The tool to track your net worth is a balance sheet. This is where you subtract liabilities from your assets to determine your net worth.
Examples of assets
An asset is anything that causes wealth to flow into your life (in terms of net worth) either through income or by increasing in value.
- Stocks and shares (equity)
- Investment properties
- Residential, commercial
- Passive income businesses
- You! (courses, self-development… ability to learn and create other assets)
Example of liabilities
Liabilities are things that cause wealth to flow out of your life. Not all of them are wrong! Some of them bring you joy, like a car that allows you to visit family easily. They cost you future money in the form of repayments, often with interest on those monthly repayments.
- Credit card debt
- Student loans
- Your home (some people would put this in the asset pot but your primary residence is not an asset because as long as you are living in it, it is not bringing in income)
- Your car (my car is such a money drainer!) – car lease or loan
- Anything you sign that you can’t get out of easily:
- Mobile phone contract
- Buying anything on credit
Ideally, your balance sheet should be growing towards your target net worth number. How much do you want to be worth?
Depending on how much it changes, I would track it anywhere between 1 month to a year. I usually adjust mine every couple of months because the changes I’m making at the moment aren’t massive.
Tracking both your net worth and making a profit means you can keep your eye on the figures. If they are not growing as quickly as possible, you are able to course correct to stay on track. Let me know how you get on! 🙂