How to measure and track Financial Progress in life?
When it comes to finances, you just cannot ignore quantifying and measuring – be it the profits or expenditures, or even your assets and liabilities – every penny must be accounted for. Especially, when you want to judge how far you have come financially, it is important to understand the various parameters and tools that you can use to get a head start on the process.
Why should you track your financial growth?
It is a rather obvious question that might cross your mind – why is measuring financial progress necessary? Well, it is important because it is the only thing that will help you keep track of your spending and saving habits and assess where you are headed financially.
Moreover, it will help you understand your risk appetite, investment status, and debt management strategies. Financial planning comes handy in such a case and tracking your financial progress becomes one of the most important steps in this process. Statistical research shows that people who track their progress and chalk out a plan in accordance with it are more likely to reach their goals faster.
Psychologically too, it plays a vital role in motivating you for the future. It is almost like having a cause-effect relationship that helps push you forward. For instance, someone who is on a weight loss journey tracks their progress. A slight reduction in the number on the weighing machine goes a long way in boosting their confidence. Similarly, if you see that you have worked hard, saved better and have progressed financially, your motivation level will increase. It also helps you identify the problem areas and gives you space to fix them in your future plans.
How to know if you have made progress?
Progress is a highly subjective term. It is directly dependent on a number of internal and external factors and thus, progress for one person can never be judged with the same outlook for another. It is rather better to track progress in terms of profit and losses. What matters at the end of the day is how far you have come from where you started, instead of where you are in the race with others.
1. Calculating Net Worth
Another parameter people often use to measure their financial progress is calculating their net worth. In simple terms, net worth is a sum of all wealth and assets you own minus the liabilities. Compare this figure to the figure that you started with. Ensure the comparison is with your own situation in the past and not with someone else’s. Experts advise that you keep checking your net worth every three months in order to always be aware and cautious of being on track.
2. Creating a P&L Sheet
In finance lingo, a P&L sheet is a sheet/database/account that tells you how much profit or loss you are currently in. This can be a useful tool for businessmen and investors who need to constantly check their financial situation before taking the next step and investing further.
What to do after tracking your progress?
The next step is to come full circle with where you started – keep the planning going. Once you have accounted for the finances you have, it becomes easy to determine how you want to plan the years to come with respect to money. You can set goals accordingly and prioritize them. Keep this process going!
To sum it up
The process of assessing one’s financial situation can be both, overwhelming and complicated. You need to be extremely careful while calculating and interpreting your financial progress report.
Need help in assessing your financial state? You can consult financial advisors. Professional intervention and guidance can ensure that you are on the right track.