If you are on the road to financial freedom, or simply looking to improve your personal financial situation, you need tools to measure your success. In addition to providing meaningful information about your finances, these tools also serve as motivation as you watch your personal portfolio grow over time! But what are the metrics that truly matter most?
Income Statement– A detailed income statement is more complex than just listing your yearly salary minus your approximate expenses. As your investment portfolio and sources of income grow, you need to measure them in a more precise manner!
An income statement doesn’t need to be complicated, but it should include these basic categories:
Traditional (W2) Income
Side Hustle Income (Blog, Part time gigs)
Real Estate Income (Rent)
Dividends, Interest, Miscellaneous
Expenses– rather than itemize every category, I prefer to roll these up into larger categories and rely on bank statements to get more granular when tweaking my monthly budget.
Net Worth– Keeping track of your personal Net Worth is critical on the path to financial freedom. Net worth is simply the sum of the value of your assets minus your liabilities. Increasingly, net worth has become the gold standard measure of wealth because it’s seen to be a more durable and reliable measure of long term financial outcome. Your income can vary from year to year, but a net worth built on solid assets will typically hold value over the long haul. I’m not discrediting that the stock market could dip or real estate could hit a downturn, but over the long haul these assets tend to perform in an upward trajectory and if you are investing over many years, history tells us these assets tend to grow in value at a rate higher than inflation!
Value of primary residence
Value of secondary residence
Value of personal property (vehicles, furniture)
Credit Card Debt
Car Payment Debt
So which matters most? The answer is BOTH! Make sure you understand your bottom and top line so you can grow your income & assets and reduce your unwanted expenses so you can save & invest to grow your net worth!