We are just over a week into a new year – hooray! I hope that 2020 is off to a great start for all of you.
What I love about this time of year is crunching my numbers. I track all of my expenses in two self-created spreadsheets, one for my monthly fixed expenses and one for my daily variable expenses. I add the monthly numbers together to figure out exactly how much I spent in the past year. Then I figure out how much cash my portfolio produced, whether dividends or capital gains. Finally, I determine how what portion of my annual expenses are covered by my portfolio’s cash flow.
For the first time ever, my portfolio covered 54% of my annual expenses. I was thrilled at this discovery! I’ve been building my portfolio since 2011. In only 8 short years, my portfolio has grown enough to cover all of my fixed expenses and a portion of my variable expenses. I’m not financially independent just yet, but I’m definitely headed in the right direction.
Know Where You Stand
Between you, me and the fencepost, you should crunch your own numbers too. It’s always smart to know where you stand with your money. How much are you taking home every month? How much is spent on your necessities – shelter, food, clothing – vs. how much is spent on the nice-to-have’s like Netflix, cable, eating out? If you have a portfolio, how much money did it passively create for you in the form of dividends & capital gains?
As a grown-up, you’ve got goals for your life. If real life were like cartoons and other TV shows, you could achieve all of them them without worrying about money. The reality is that money is often needed to achieve life’s goals.
So it’s up to you to crunch your own numbers. If you don’t, then how will you know if you’ll have the money to build the life that you want? Are you really satisfied with relying on hope to ensure that somewhere, somehow the money will land in your pocket so that you can pursue your your dreams?
Net Worth = Your Assets – Your Liabilities
Knowing your net worth is important too. If you want to see your net worth go up, and trust me when I say you do, then you need to know your starting point.
To figure out your net worth, do the following.
- Add up your financial assets.
- Subtract your financial debts.
Voila! The resulting number is your net worth.
To be clear, in my opinion a vehicle is not a financial asset unless you use it to make money. Non-income-producing vehicles depreciate in value every year and they cost money in terms of insurance, maintenance and gas. In other words, non-income-producing vehicles siphon money out of your wallet on a very consistent basis. As such, I’ve never understood how they can be viewed as financial assets.
On the other hand, a vehicle loan is definitely a debt. There’s no confusion on that point. If you had to borrow money to obtain your vehicle, then you most definitely have a debt, and debts are a factor that decrease net worth.
Track Your Expenses
Crunch your own numbers by tracking your expenses. You might find that what you spend on coffee in a month or in a week is enough to buy stock in the coffee company. Again, buying stocks – also known as investing in equities – leads to earning dividends and capital gains. Look at it this way. If you cut your expenses, you can increase your financial assets by using that money to increase your RRSP, your TFSA, and/or your investment portfolio. The invested money would then kick off capital gains and dividends for you.
Ideally, you’d choose to reinvest your dividends for years and then use the dividends to fund your retirement. However, I’ve heard it rumoured that some people spend their dividends as soon as they get them! Scandalous!!!
Hope is Not a Reliable Financial Plan.
Let’s say that you want to save money for the down payment on your next home. How much did you put towards that goal last year? How much do you intend to put towards that goal this year? Have you set up your automatic savings plan to dedicate money to your house fund? Are you tracking your expenses to identify which ones can be eliminated so you can pursue your goal?
Maybe you want to start saving 10% of your income for retirement. In order to do so, you need to know how much already spending and on what. Is your money already being spent on the survival expenses? Or are you ready to give up your $250 monthly cable habit to find the money to fund your retirement?
The new year is young! Take some time to do the following two things:
- Figure out where you want your money to go. What priorities are most important to you right now? Are you satisfied with how much of your money is being directed towards your priorities?
- Create a method for tracking where your money does in fact go. Are you satisfied with how your money is spent? Do your spending choices get you closer to or further from your priorities?
You are the person who benefits the most when you crunch your own numbers. When you are familiar with your own numbers, then you’re better able to determine how and why to spend the next dollar that comes into your life. You improve the odds of attaining and creating the life that will make your heart sing.
Ask yourself the following and be brutally honest in your response: Are you really and truly satisfied with working hard just so you can waste your money on things that don’t get you closer to fulfilling your hopes and dreams?
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Weekly Tip: Cook at home more often than not. Thanks to the wonders of Google and YouTube, any recipe that you could possibly want is online and someone, somewhere has made a video of themselves preparing it.