As an investor and an accumulator of wealth you will always be studying numbers. Everyone will have their own metrics that they analyze to determine how well their investing is doing for them. So I thought I would share a couple of the numbers that I pay attention to that help me keep track.
First and foremost, I pay attention to my earned income and expenses. I am old school in this area because I track all of my earned income and expenses by hand. I have a notebook that I have built of all my different accounts. This includes bank, credit cards and investing accounts. The reason that I track this by hand is so that I do not have to worry about pending transactions. I am very deliberate with how I allocate my money and I need my books to be very efficient.
So by this simple method of tracking my money I am able to monitor my earned income and my expenses on a regular basis. This form of bookkeeping is only a snapshot of the overall picture of my financial situation though. So I use another method to get a better overall picture.
My next number that I pay attention to is a very popular metric, it is my net worth. I maintain a spreadsheet that I update at the beginning of every month to help me analyze this metric. On the left side I list all of my assets and all of my liabilities on the right. By doing this it takes into account all of the cash that comes and goes because of my earned income and expenses but it also takes into account all of my assets that pay me dividends or increase in value through capital appreciation.
My net worth can fluctuate up or down depending on how the markets are doing but this is of no real concern for me. Since I buy stock in good companies I do not spend a lot of time worrying about what price the market values them. Although when they drop below my cost basis I do enjoy buying more at a better price.
While my net worth does give me a great overall picture of my financial situation, it is not the last number that I pay attention to. This last metric is one that I started doing myself. If others use a similar metric I would love to hear about it.
The last metric that I use is my daily passive income. I take interest earned monthly and divide that number by 30. Then I take all of my stock holdings and use the quarterly dividend income and divide that number by 90. Then when I have all of these numbers I take them and add them all up. The sum represents the amount of daily passive income that I earn without having to do anything.
By tracking my daily passive income it allows me to see that my investments are creating me a growing income stream. New additions to my holdings increase this number as well as reinvesting the dividends. So even if I am not actively buying stocks this number should continue to increase. If I were to add a rental property into my portfolio this number would jump significantly but it would still stand true to my passive daily income.
These are the three numbers that I pay attention to. It is worth noting that I do not track my 401k in my daily passive income. Also I do not list any cryptocurrencies anywhere in these numbers, I will be talking about this more in an upcoming post.
Overall, I think that I have chosen the right metrics to analyze my financial well being. I would be very interested to hear about any other ways that you all are tracking your finances.
As always I look forward to reading all of your comments and questions, until then….. happy investing!
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