Six Personal Finance Metrics that Everyone Should Track

Hey, guys, Matt Paulson here. I'm hanging out in my downtown office in Sioux Falls, and in this video, I want to kind of move in there just a little bit of the personal finance direction. Because, you know, if you're a business owner, you're an entrepreneur, even if you're not, you know, your personal finances and your business finances interact in just many, many ways. So I want to talk about kind of the personal financial metrics you should track in your life. I have 1, 2, 3, 4, 5 of them that I think everybody that's a business owner, really, anybody, anybody should track, just because it'll kind of give you an idea of what you're spending your money on and then what kind of direction your overall personal financial situation is moving. So I've got five metrics, and I'm going to tell you that I think you should track them and then how often you should track them. So if you're not currently tracking them, maybe put a spreadsheet together and start tracking them on a weekly or monthly or an annual basis. So the first metric is your net worth. And the reason you should track your net worth is because you just got to keep score. You have to know if you're moving in the right direction financially. If your net worth is going up, obviously you're getting more money in than you're spending every month. So that's a good thing. So when you're calculating your net worth, it's basically a combination of any money you have in the bank, your investments, your house, any liquid assets you can have, maybe a nice watch, maybe some jewelry, rental property, anything that's something that you own that you could sell within a couple of months for money, include that in your net worth, and then obviously subtract like a mortgage or any other debt that you have. So your net worth is just everything you own minus everything that you owe, and you keep track of that just so you know that you're moving in the right direction or the wrong direction. And if you're moving in the wrong direction, you can make some course corrections to move in the right direction. Some people say to track this annually, I track this monthly. Maybe you can track it quarterly. It really just depends on how much you want to nerd out on the stuff. At minimum, I think you should do it at least once a year. But I do it monthly. So you just kind of do it how often you want to, but you should do it at least once a year. The second thing I think you should track is your average monthly living expenses. So how Much are you spending every month? What are you spending it on? You know, I think most people don't have an income problem. It's just they have no idea what they're spending their cash on, so they end up spending a lot of money that they you don't even know you're spending. You might have subscriptions that are just hanging out there from a year or two ago that you never used. Maybe you're subscribed to a magazine you don't read, or you signed up for Hulu, but you never watched Hulu. Stuff like that can really eat away at your income. I like a tool called Trim. It's asktrim.com but it will show you your monthly living expenses as well as what your biggest purchases are. And then like the vendors that you spend the most money with in our family, it happens to be Coach because my wife likes to spend a lot of money at Coaches. And then it'll show you all of the recurring subscriptions you have set up and it will even cancel them for you. It's a free tool. Pretty neat. So go ahead and check that out if you want to. It's asktroom.com the third metric I'd like you guys to track is just your income. What are you making? If you have a job, this is really easy. You can pull your payroll slip and then you know that, and maybe you don't even need to track it. But if you have a business or any kind of side income, it's really good to track your income because then you'll just know. Have with certainty how much money you're making every month. But also include, other than your job income, your business income, if you have any interest income from a bank account, or if you have investment income from investments like a rental home or a dividend paid stock, include those as well. Then any side hustle, say you drive for Lyft or Uber, include that income as well because you want to really have a good understanding of all of the money that's coming in every month, all the money that's going out, and then you can really know how much progress you are making towards your financial goals every month. I like the idea of tracking income and expenses monthly and then you can see the difference and track those trends over time. So those two are kind of obvious. But one that's not so obvious would be the third thing I think you should track is your financial Runway. What Financial Runway is is a metric that says, if I didn't have any more income today, how long could I Live before I run out of money. So let's say that your monthly Living expenses are $5,000 a month and you've got 100 grand in a bank. You could live for 20 months before running out of money. And obviously that's just an example, but really this is kind of a metric that says, how much financial security do I have? How long could I live without any more money? And this just really tells you that if your job goes away, your business goes away, you know, how long of a cushion do you have before you need to start making money again? I think a good short term target is about three months of financial Runway, and a good long term target is more like 12 months. So I mean, if you're in a situation where you can live for 12 months just off your existing financial resources, money in a bank, investments, that kind of stuff, without any more money coming in, you're doing pretty well. Kind of the fourth of five financial metrics I think you should track is your asset allocation. So when you've got investments, you're going to want to have a certain percentage of stocks and bonds and real estate and cash and who knows what else. Maybe private equity, but you should have a good idea of what percentage is going to into each and have kind of a baseline target. And the reason you should have a good breakdown of this is because markets, they move over time. Stocks go up, bonds go down, stocks go down, bond goes up, or bonds go up, maybe real estate goes up and bonds go down, who knows what. But your percentages will get off over time. And you kind of have to do some course correction called rebalancing. And you probably only need to do this once a year. It's not really worth doing it that much more often. But it's typically good to have kind of a diverse investment portfolio where you've got some money in stocks, some money in bonds, some money in real estate and some money in cash. The kind of a good basic theory is to own your age in bonds. So if you're 33 like I am, maybe you have 67% stocks, 33% bonds, I don't know, maybe some money in cash on top of that. Obviously those two numbers add up to 100%, but I think you guys get the picture. But those prices change every day. So once a year, maybe around Christmas, end of the year or beginning of the next year, sell whatever you're overweight in and buy whatever you're underweight in. That way you can kind of maintain your diversification and your percentages that you have over time. The last metric that I think you guys should track is charitable giving. I think giving should be part of everybody's financial plan. Even if you have a middle class income, the reality is that you are doing better than 90% of the world's population. So you make say 50 grand a year, you think you're not doing especially well. The reality is you're doing really well if you're making 50 grand a year by global standards. Also, personally, I find just a lot of joy in being being able to support the causes that I care about and then just see the community change and the world change as a result of my giving and other people's giving. Honestly, I find more joy in giving to the things I care about than I do buying a nicer car, buying a new house or a fancy new watch or anything, that's just stuff. I've got plenty of stuff. And having an Acura versus a Honda or a Mercedes Benz versus a Honda, that's probably not going to make me that much happier, if any. But being able to give to an organization that I support, like the home, I don't know, there's several that I support. I probably don't want to name any of them. But just watching the good that they do really makes I just get more joy out of that than buying another thing for myself. So what I recommend is that you set kind of a fixed percentage of your income. So say maybe give 5% of your income, 10% of your income, 15% of your income, and say that's kind of what I want to give to charity. So matter if I make 50 grand or 100 grand or 500 grand this year, or 20 grand, I don't know what you're going to make. 10% of that is going to go to giving. The reason I recommend you do that is because as your income goes up over time, your percentage of giving actually goes down. That's the most common situation. If you are in a place where you're making more money and then more money, more money, your giving tends not to go up kind of in lockstep with that. And so by setting kind of that fixed percentage, you know, you've kind of drawn a line in the sand and say no matter what I make, 8% or 10% or 12% or 5%, whatever it is, is going to go towards the charitable causes that you support. Whether it's your church, whether it's like the local zoo or the homeless shelter. You know, there's lots of good stuff to give to. But you know, you just have to figure out what you care about and decide, you know, this percentage of my money, my income every year is going to go to that. You might not be a big giver right now. That's okay. I recommend just giving it a try. You might find out that, you know, as I have over time, I used to not be a giver, but my friend Kyle challenged me to give maybe 13 years ago now. And I tried it. I liked it. So you might try it and you might like it too. So that's, that's charitable giving. So those are the five, five things that I think you should keep track of on a monthly basis. All of them, honestly, on a monthly basis, except for maybe financial Runway and asset allocation. You could do that once a year or so. It's not a big deal. But your net worth, track your net worth, track how much money you have overall. All of the stuff you own minus stuff you owe, track your average monthly living expenses, track your average monthly income, track your financial Runway, track your asset allocation, and then track your charitable giving. That might actually be, I guess that's six things. So six things, not five things that you should keep track of on a monthly basis. Hopefully you guys have enjoyed this video. If you like these videos that I make, feel free to press the like button on this video on YouTube or on Facebook. Book or subscribe to my channel, subscribe to my Facebook page and tell your friends because I could use more people watching these videos. Thanks, everybody.