Key Performance Indicators… in finance

I have been tracking my finances with care for over ten years.  I have created countless graphs, charts, and tables to better understand my financial situation.  Specifically, I’ve looked for trends or patterns in the numbers to indicate where I should place my big bets.  Since finances can become complicated, to simplify I have identified KPIs or key performance indicators.  My KPIs include my retirement plan investments, savings, and mortgage.  My retirement investments, savings, and mortgage have the greatest impact on my year-end results such as total saved, total debt, and something I call how much money do I actually have (total saved – total debt).

In reality, I take the time to track all my monthly utility bills, mortgage, taxes, income, and so on, but this can be too time consuming for many.  It also can make your analysis cloudy if the numbers are too overwhelming for you.  By using a KPI method to follow trends, you are able to focus on just the big priorities.  As I always talk about, my mortgage is the biggest priority I have right now.  I focus the majority of my money on paying this off because I feel it will bring me that much closer to financial stability.  Since this is top of mind for me, it would definitely need to be in my KPIs.  I also realize my retirement investments and savings are also two big buckets where a significant portion of my money goes.  These two would also need to be in my list of KPIs.

It sounds simple because it really is.  If you do not have a ton of time to track everything, track your big numbers with the greatest impact to start.  At some point, you will really want to dig further into the finite expenditures and income(s) you may have.  To get your year results and growth up, you need to understand your entire financial situation, build a plan to maximize your spend efficiency, and execute your plan.  As a side note, I have been working on this idea of spend efficiency.  Basically, spend efficiency is:

year growth in dollars / total income x 100%

The year growth number speaks to how much money you reduced your debt or grew your savings in the period of one year.  The total income is your 12 month salary.  The higher the percentage, the more efficient you are in managing your money.  I am still working out what should/should not be included in this calculation, but I feel it gives you another KPI to work with.  Key performance indicators are very good for comparison year over year.  It also helps you set numbers for goals you may have and helps you understand where you may be in a few years out if you continue to trend similarly as previous years.

This is a lot to take in for someone who does not typically manage finances.  I am not an expert and do not claim to be.  I am a regular guy working to better understand money management, which is a topic I’ve been interested in for the longest time.  I have been interested in this since middle school or maybe even before.  You can be a very smart technical person who makes a decent wage.  Without the money management piece, you may have a difficult time succeeding financially.  Similarly, just because a business sells a great product does not mean the business will be sustainable.  Business, money management, finance, accounting, and so forth will alway be crucial to the success of your business, personal finances, and so on.

Good Luck!

One Comment on “Key Performance Indicators… in finance

  1. Pingback: 401(k) comparison to the average American – Civil Accomplishment

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