In a piece I wrote last week, I mentioned that lots of people have at best only a vague idea about what the numbers in their lives look like. I also added that this I-see-nothing approach to one’s financial life is, to say the least, not optimal, and then I went ahead and teased the notion that it’s quite easy for a person to get in touch with his or her numbers, and that doing so in January is the perfecto time for doing so.
So it’s January, we’re about a third of the way in, and time’s a wastin’, so let’s get talking about how you can, in a few short minutes, get nearer thy financial numbers to thee, shall we?
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There’s Just Three of ‘Em. You have but three main financial numbers in your life. You can go all hog-wild getting to know them to the penny and in the minutest details, or you can keep it simple and have a good overall understanding of them that’s easy for you to update whenever you want to update it.
In this piece, we’re going to leave the hogs behind, wild or not, and just KISaSSYPGE — we’re going to just Keep It Simple and Somewhat Stupid Yet Plenty Good Enough.
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1. Money-In. For most folks, the easiest of the three main financial numbers to know is how much money they have coming in. For instance, if you are an employee on a salary, you probably know, within a few tens of dollars and right off the top of your head, what that number is, and you can move onto the next section on Money-Out without reading the rest of this section. And, yes, we are talking about take-home pay here.
If you’re paid on an hourly or piece-rate or commission basis, or if you’re self-employed, etc., then your Money-In numbers likely get a bit more bouncy and might even be all the way lumpy, with long dry spells followed by flash floods (the imagery for this and many other Northern Californians these days tends towards the precipitative variety, because, folks, we’re really hurting for moisture right now).
Unless you are a human calculator who can accurately average all those lumps and bounces, you need to look this info up and take an average of the numbers (now, now, don’t get all freaked out; it’s just simple math, and you can always use Excel or Numbers or what-have-you). But before you go and look that info up, how’s about waiting until you’ve read the Money-Out section below, because you very well might be able to kill these first two Money-birds with but one look-it-up-online stone.
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2. Money-Out. There are lots of ways to get to know your Money-Out numbers. Businesses have been built on such things, either using semiconductors and electrons and data feeds (Quicken, Mint, etc.) or paper envelopes and cash money (Dave Ramsey).
My favorite way for people to get a plenty-good-enough view of their Money-Out is to go to their day-to-day checking account and write down the “total withdrawals” number that just about every checking account statement shows right at the top, first things first — right where the numbers start showing up on the first page of the statement.
And while you’re at it, why not write down the “total deposits” number as well?
Putting them into Excel can be right handy. Just put the name of successive months as each column header, with later months to the right, and let the first row down from those headers be the row for Money-In and let the next row down below that be the row for Money-Out.
The result of doing that would be you having a month-by-month series, moving left to right, of your Money-In monthly numbers and your Money-Out monthly numbers — a mere two numbers each month that summarize every single, solitary, to-the-penny, Money-In and Money-Out number your life.
Oh, and while you’re at it, how about in each of those monthly columns you go ahead and subtract the Money-Out number residing in the lower row for each month from the Money-In number residing one row above for each month, and seeing, for yourself and all by your lonesome, whether you had more money coming into that day-to-day checking account of yours than you had going out of it? Why, that’d be a good number to see, wouldn’t it?
You bet’ch’ya those’d be good numbers to see; if positive, they’re your monthly Money-Saved numbers and, if negative, they’re your monthly Money-Dissaved numbers prior to any amounts you might be saving through automated savings plans, such as a 401k or other retirement plan at work.
Now it might be that your day-to-day checking account has a lot of money coming in and/or going out of it which isn’t, in fact, true Money-In or true Money-Out. If that’s the case, and you want to be nearer thy numbers to thee in the simple way I espouse here, then you need to start using that day-to-day checking account differently, so that month after month it generates a nice, clean set of KISaSSYPGE data. That would mean, e.g., stopping account-to-account transfers coming in or going out of that account, and it could also mean consolidating all your day-to-day Money-In and Money-Out banking activities into a single account. The choice is yours; sometimes to arrive at the simple you must first rile things up and complicate a bit.
And it might be that you don’t have a day-to-day checking account in the first place. If you can get one, please do. They are really helpful things to have, and shame on all of us that so many among us are unbanked and must therefore resort to financial intermediaries far more nefarious (in this context anyway) than the Big Four of BofA, Chase, Citi and Wells.
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3. Money-Stored. Last but not least, you also need to get a good read on how much money you have stored up. For most folks there’s no parallel in the Money-Stored arena to the handy-dandy total deposits/total withdrawals numbers in your day-to-day checking account that give you two overall numbers that summarize lots of other Money-In and Money-Out numbers flowing in your financial life each month. Instead, most people have their Money-Stored seemingly here, there and everywhere, e.g., some money stored inside their 401k plans at, say, Fidelity, plus some money stored in their houses, plus some money stored in their brokerage accounts at, say, Schwab, plus some money stored in their savings accounts at, say, Wells Fargo, etc., etc., etc. etc.
So there are no numbers available to you that summarize all the Money-Stored numbers, and that means you need to get your hands on the numbers and tally ’em all up.
Good thing it’s easy to do!
First, you need to go to every single financial account you have and write down the balances for each of those accounts as of 12/31/13. Then you need to add ’em all up. Using Excel can be very helpful here.
And then you need to figure out what other Money-Stored sorts of things you own, i.e., things which you own, at least in substantial part, as a store of money. This would for sure include your home if you own it. So go onto Zillow and RedFin and Trulia and dig up some information about the value of your home and take an average of the numbers you find, and add that to your tally.
Also include the cash balance of any cash balance sort of life insurance you own.
You should also include the value of any business interests you own. However, since putting a value on most business interests is more art than science, I recommend that people with hard-to-value businesses use a placeholder figure which remains constant through the years, until the possibility of actually turning that business interest into something like cash is on the horizon, at which time we start getting much smarter about the value of the business. Or you can just put the value down as your share of the business’s book value or some other purely accounting sort of metric.
Do not include cars; 99.9999999999% of them go down in value every moment of every day. If you own a car that fits into that leftover .00000000001% of cars that actually do store value, then, please, by all means, do put it into the tally!
Do not include jewelry; good jewelry often holds it value (contra: the price of gold in 2013), but people rarely treat that value as something they are going to convert into cash. We all loves our baubles . . . our precious.
Art usually also does not belong in this tally; include it only if you are a collector and you truly are using art as a store of your saved-up dollars, to be converted into spending money some day.
OK? Now add all that up.
How big is that number? In this context, big is better in just about every way imaginable.
Next, you need to tally up all your debt. Debt is 180 degrees removed from Money-Stored; it’s Money-Already-Spoken-for-and-Owned-By-Someone-Not-You. It has a big bearing — a one-to-one dollar bearing — on all the positive numbers you added up, i.e. every dollar of debt is a dollar from your financial and other money-storing assets that t’ain’t really yours.
So, sad but true, the last thing you need to do is subtract the total value of all your debt from the total value of all your money-storing assets and, voila, you have an excellent plenty-good-enough read on your Money-Stored.
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Most people can get all this done — come up with these three numbers — in one hour or less, especially if they take advantage of the Internet to access all this info.
Think of that: in one hour you can get nearer thy three main financial numbers to thee, and, coupled with the five minutes that doing The First Week of January Test requires of you, you can get much more smartened-up about your overall financial health — of both the numeric and non-numeric variety — than you have been, and do so in less time than it takes to watch the first half of the 49ers game on Sunday.
From that smartening-up much financial health will follow, regardless of whether the numbers paint a cheery or a dire picture. Because what you don’t know in this realm really can hurt you.
So please: do get ye nearer to thy numbers, won’t you?