The next time you turn on your GPS to get somewhere you haven’t gone before the starting point will say “Your Location.” Next time you’re lost in a mall you will look for the “You are Here” sticker.
Get it? To get where you want to go, you need to know where you are.
In financial planning the same is true.
What does “knowing where you are,” mean?
To know where you are, there are two important financial metrics:
- Net Cash Flow
- Net Worth
Knowing these two figures is the most important step in your financial plan. You can learn about all of the cool money tips, tools, and strategies, but without knowing these two points, you cannot go anywhere.
Net Cash Flow
Your net cash flow is money in minus money out.
A few examples of money in are:
- Interest income
- Dividend income
- Distributions from your business
- Rental income
Any cash that goes IN your pocket.
A few examples of money out are:
- Mortgage payments
- Car payments
- Living expenses
Any cash that goes OUT of your pocket.
Your net worth is the value of all of your assets minus your debt.
Assets include the following:
- Bank accounts
- Retirement accounts
Assets are things you own.
Debts include the following:
- Student loan
- Car loan
- Credit card
Debts are things you owe.
How can I find my Net Cash Flow and Net Worth?
You have two options to find your Net Cash Flow and Net Worth:
- Hire a professional to assist you in calculating it
- Roll up your sleeves and dig into it
Option 2 is filled with a lot of free ways to find this. There are numerous apps out there that will gather your information in a way that shapes everything into an easy to understand format.
A few popular programs are:
Both provide the tools needed to you the information needed to know where you stand today.
Do you know your two numbers? You’re above average if you do.
Do you want to understand how to make your money work for you and keep more of what you have earned?
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Nate Byers a Madison, WI CPA Financial Advisor, and all rights are reserved. Read the full Disclaimer in the footer below