At my company whenever there is something we want to improve upon or an area of the company we want to keep under control we always start by coming up with a good way of measuring that aspect of the company. This applies to almost everything weather it is productivity, quality, accuracy, spending, etc. Once we have good measurements and people are forced to evaluate and track the progress of these metrics it is amazing how fast you can go from being out of control to on track and then to exceeding expectations.

Since ideally you should be running your personal finances like a business there is no reason for you to not be measuring your own performance. I think too often we deal with our personal finances with an “ignorance is bliss” kind of philosophy. Maybe we think we are doing alright or maybe we know we aren’t doing well but are too scared to actually sit down and figure out exactly how bad we are doing and hold ourselves accountable. With good measurements you can identify how well or how poorly you are doing. This will give you a good starting point that quantifies your problems or successes. Now that you have quantified your problems you can easily track improvements and make sure you are moving in the right direction.

What is easily measured isn’t always the right thing to measure. The best example I can give of this in personal finance is salary. I’ve seen people obsess over this number when it really isn’t as important as most people think but for many it is the only measurement of their finances they have. For me, my easy number is savings. I’m great at building that savings account but find it more difficult to put that money to work. That is why I have recently decided to track the following: 1. Passive income, 2. Passive income as a percentage of monthly expenses. Since I plan to be able to live off of this in a few years these are extremely important numbers too me. Part of me fought this because I knew I would have to face the poor decisions I’ve made while the other part of me knew that I can’t go forward until I know where I am now.

Having good measures of your personal finances helps align your actions with your goals and keeps you focused on what is important. Being able to see positive changes in these numbers helps to keep you motivated and moving.

-T!

I totally agree. Really good measurements are necessary for good management. Also I would like to add that better control of personal finances by measuring of debit and credit would provide positive mental benefits. When a person has money problems, for example debt and they don’t know how big these problems are and this is reflected in everyday activities because their minds are heavy with unmeasured debt that is poisoning their life. This person can’t feel fully free and relaxed. On the other hand, when a person sees that there is debt but also knows the amount of the debt and how long it will take to repay it, they can feel more confident and the poison from their heavy thoughts won’t be so destructive to their mental health :). Money is a very emotional topic and I would like to write about it in more detail in one of my next posts.

-O.