The most important thing in building wealth is measuring. People I know who are constantly raising their total net worth to follow and are always motivated to achieve higher financial goals. Recognizing the immeasurable results of your spending and investment decisions is the first step in controlling your spending. Generally, people I know who are in a terrible financial situation have no idea where the money is being spent and are too scared to know what their value could be because it would not be good. Which of the following best describes you?
As Dr. Deming puts it, "You can't manage what you don't measure." Think of it this way: If you were rich, you could spend a certain amount of time managing your own money each week. If you want to improve your financial situation, the first version of financial management and tracking is required. In addition, when you have more money to build, more financial assets and obligations are to be considered. If you don’t have your financial tracking available before you get it, I might bet you won’t be the owner for long.
If you do not see and feel the discovery and loss of your financial decisions - you are playing the hard cash game of living without a credit card. This is how many people with well-paying jobs and insurance are still getting into financial trouble. You need to have navigating areas to know if you intend to build wealth or destroy wealth. It is to monitor your total value to begin to experience the financial impact and consequences of your decisions.
The first area of financial measurement is a simple statement of fair value (or balance sheet). If you have never heard of this name, it lists current market prices for everything you own and what you owe to others. The difference between the two numbers is called your net worth, and this is the number you want to measure and increase every month.
As a business, once you start measuring the financial consequences of your behavior, you can start to make your own spending rules. For example, if most of your monthly income is spent at restaurants, try to make a rule that you will only go out twice a week. If you spend a lot of money on fuel, you need to find more ways to reduce it. A simple understanding of the following rules like this will help increase your residual value, which will lead to greater understanding and grow into greater gains.
If you have a lot of debt that reduces your net worth, or perhaps a bad net worth, then what rules about debt will you create for yourself? After receiving your savings, where will you put it? How much time are you willing to spend? How much effort are you willing to put forth to educate yourself about investing? These questions will help you build your investment rules. Eventually, you will have rules for spending, saving, using debt, and investing that will build your personal plan to start moving your net value more efficiently. Consider adding a rule to read a new financial book every year. Your financial statements and financial rules can be as simple or complex as you want them to be. If you continue to push even children's steps forward, it may not be a big deal to have some rules for retirement planning, tax impact, business structure, an inspection of investment properties, a checklist to buy mining companies or to sell the company you have built.
Once you have calculated your initial statement of fair value, you begin to have the ability to plan for purchases and payments. As a simple example, if your car insurance comes in once a year, you can calculate how much money you need to set aside each month to pay off easily when it arrives. Or if you get a new car, you'll be glad you did.
After you are relieved of the fair value statement, you can proceed to the income and expenses statement. Then proceed to make estimates of all your statements. And to create conditions such as: What is the right target for your retirement income for you? How much will you need for the price? How will you increase your income, increase your savings, increase your investment profits? Answers will be built on the financial practices, tools, and education you will develop, but it can all start with your initial statement of fair value.
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