Only four numbers!
What are yours?
You don’t know them?
What If I told you everyone has four numbers! What If I told you, every business has four numbers as well!
You see, I consider these four numbers critical, yet so few people actual know them, or what they mean.
What am I talking about?
Here you go…
Income – money you receive
Expenses – money you spend
Assets – things of value that you own
Liabilities – things of value that you owe
Also, once you have these four numbers, you need to now do just two calculations – both are subtractions…
Firstly, take your income less your expenses and what do you have?
Second, take your assets less your liabilities and what do you have?
Are you still with me, or are you walking towards your open window…
Well whatever the answer is, it is what it is.
Now you need to draw on more courage and do these calculations on a regular basis – for me it is weekly.
What are you seeing now? What’s the trend? Is it going the way you would like it to?
Surprisingly so few people know their numbers. Even some very educated and highly paid professionals who have significant responsibility in companies – hard to believe isn’t it – but sadly it is true.
In business this is also a too common a situation.
The business owner, founder, entrepreneur who is not on top of their commercials or the financial health of their business is putting in jeopardy the longer term viability of their business. Because by knowing these four numbers on a regular basis will give you the much needed information and insight to make better informed decisions and appropriate corrective actions.
I am not sure why financial literacy is at this low level. However, from my experience, I have found that when things are not going the way we want them to, and we know it, we do not want to have that reality validated by a set of numbers. Like think about the bathroom scales that is put away and out of sight, or the credit card statement…
This situation of denial has to change. We have to change this mindset if we want to be set free.
But what is being free?
Well I think that is a personal answer and while there is certainly common themes I am sure we would all like to obtain, from a monetary point of view this will vary. However, the same four numbers and the two calculations remain.
So what can you do?
Well here are some suggestions – but as always, this is not advice – you need to obtain your advice from appropriately qualified people for which in finance we generally look to accountants and certified financial planners.
However, there is nothing wrong with reading broadly and for you to identify common themes people often refer to and then forming you own views and opinions. This after all is about being informed.
You need to do this at least…
First – Know Your Numbers
Determine your four numbers now and do the two calculations
Second – Keep Records
Put in place a system to record all your financial data in one location and note, this is not a shoe box, or sticky notes posted on the kitchen fridge. Please do not do this!
Instead, at the very least, maintain a hand written book written up with columns and sub totals, better, spreadsheets on your computer, best, use accounting software like Quicken, MYOB, Zero etc.
If you are a business, your only decision is the accounting software package – no paper based books OK.
I have used Quicken for my personal and business since 1996. The records are detailed and up to date. It has become a habit. This information allows me to do my annual tax return in little time, juggle funds around accounts and project cash flow. I have not always liked what I have reported on, but I have been able to make quality decisions because of this information.
As my businesses become more complex, I now need to scale and am implementing Zero – key reason is for the integration possibilities as I am implementing a greater level of automation into my business.
Third – Backup Your Records
Also make sure you have backups in place in case of an incident. For example, what happens if your computer crashes – what do you do? So using technologies like Dropbox that replicates files in the cloud is the way to go.
Fourth – Report & Review
Depending upon your business and where you are at, you want to have a cash report prepared. Your software will do this and if it is linked to other accounts such as your bank then this can be live and pulled at any time you need – some businesses do this twice daily.
Look I know what I am saying is so basic, but the reality is few people get it.
Please do not be one of those people. You do not have to feel overwhelmed and think that financial knowledge, whether that be for you personally or for your business, is only understood by accountants.
Please do not under estimate your abilities here. As I have explained, if you get a handle on those four numbers (Income, Expenses, Assets and Liabilities), do the two calculations and measure them frequently you will be in a much better position.
If you are already good at it, then teach it to others. Especially children, teenagers and young adults.
Everyone deserves better health both physically, emotionally and financially to set them free.