When I first meet a client, they’ll often say something like “I’m not very good with money.” And of course, that’s why they’ve decided to work with a money coach.
But often, when we start to look at their money management, they are in a better position than they thought.
So, it begs the question – what does being ‘good with money’ mean to you? Or putting it another way, how do you measure your financial success?
Measuring financial success
Your financial success can be measured in lots of ways. Here's a few success measures we often think of:
Being debt free
Earning a high salary
Having a ‘big’ bank balance
Having a ‘big’ nest egg – whether it’s super, or shares, or property
Owning lots of expensive stuff – a fancy car, jewellery, art, designer clothes, a boat.
The reality is, it's the combination of all these factors that matters – and how do we know how much is enough?
Can we use a KPI?
At work, we use performance reviews to measure how well we are doing in a role, with the measure of success expressed in term of a KPI – a Key Performance Indicator. It’s a way to translate performance into a tangible measure.
What if you used that same approach with your finances? – A KPI that takes account of the various factors like your level of debt, bank balances and nest egg. Something that you can revisit, say annually, and set a target for.
That’s your net worth.
What is net worth?
Your net worth is the value of your assets (what you own) minus your liabilities (what you owe). So, it’s a fairly straightforward number to calculate – add your assets then subtract your liabilities. That answer, is a dollar figure that is your net worth.
For your assets, you need to include your bank accounts, your super, shares, your home (not if you rent) and any other investments including property. Liabilities are any credit card debt, personal debt, your home loan, and investment debt.
You can use a spreadsheet or even an old-school notebook and there’s plenty of online tools that you can use to calculate your net worth.
Why use net worth?
Budgeting – done the right way – helps you understand and have confidence in your finances. It’s a useful tool to manage your cashflow and see how you are tracking.
But you can get caught up in the minutiae of it all.
Working through the details of your cashflow is important. But if all you’re focused on is your month-to-month expenses, you can lose sight of the bigger goals.
Net worth helps see your overall position – it's a KPI for your finances. And for some people, it can serve as a great motivator.
It moves your focus away from the minutiae to the big picture – and with that comes a clearer understanding of what it takes to achieve your goals.
Nutshell is here
If you want help looking at your net worth, and importantly, how to stick to a cashflow plan that helps you increase it, you can learn more about a Flying Start session here.
You will leave this two-hour, one-on-one coaching session with a plan for your money that takes into account actions for the short-term, as well as your long-term goals.