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Posted on February 10, 2020

Know Your Numbers

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With the blink of an eye, we have come to February. January has come and gone so we want to make sure you didn’t miss our 2020 Vision Initiative announcement. This initiative is our company’s vision to help as many people as possible be prepared for this new decade.

Each month, we are focusing on a different theme in hopes that you may have clear vision for what lies ahead. Foundational steps for developing your personal vision were introduced in late December. I hope you were able to give them some serious thought. January’s theme was moving from CHAOS TO CLARITY. Getting organized is the first step, and we have provided guidance on the importance of de-cluttering your finances, in our monthly blog. Our Thigpen Group legacy book is another fantastic resource to help you get and stay organized, and we will be referencing it throughout the year.

KNOW YOUR NUMBERS is the focus of February. There are many numbers that are critically important to both know and understand. Do you know your cholesterol numbers? Your blood pressure? Your resting heart rate? Ask any medical professional and they would say that these are common numbers that everyone should know. In our context, there are two numbers that everyone should both know and understand within their financial game plan. These two numbers are “vital signs” of your financial well-being. The first, discretionary income, can be found from your budget. It can be utilized in one of three ways: to increase your assets, decrease your debts, or spent in a manner that affects neither.  Discretionary income is the fuel that drives the second number, your net worth, which is found on your balance sheet. Efficiently allocating your discretionary income in order to maximize your net worth is Financial Planning 101. Most everything else stems from knowing and understanding these two numbers.

While discretionary income and net worth are the vital signs of your financial plan, there are other numbers that should be known as well. One of the most common questions we get asked is how much capital is required in order to provide for a dignified retirement. Your personal rate of return on investment accounts are important as well. Other examples of knowing your numbers include guaranteed benefits such as Social Security and Pension benefits. The expensive costs of potential long-term care needs and other health related expenses are primary concerns for retirees and pre-retirees, but most people do not know how to quantify these. Do you know how much your spouse would be leaving you from life insurance proceeds in the event of their premature death, and is it enough? Sufficient life, disability, and other insurance coverages are foundational numbers to know. The list goes on and on.

Perhaps more importantly, though, the question you should be asking is WHY? Why is it so important that you “Know Your Numbers?”. The answer is two-fold. First, knowing your numbers allows you to have a clear understanding of where you are currently.  In the words of my old farmer friend, “You can’t get to where you’re going unless you first know where you are.” Getting organized, or turning chaos into clarity, allows you to understand where you are now. The quantitative side of that understanding is knowing your numbers. Secondly, knowing your numbers will hopefully empower you with a heightened sense of control. Finances don’t have to be scary, overwhelming or burdensome. Year after year I have seen the power of knowing your numbers and how it has empowered clients. At the end of the day, most people just want to know, “am I going to be OK?”. Knowing your numbers is crucial in answering that question.

Once you know your numbers, it’s time to start looking ahead. Chaos to clarity and knowing your numbers are realizing where you stand now. The vision for your life is where you aspire to be. Bridging the two is done by identifying, quantifying, prioritizing, and accomplishing goals, and is the essence of financial planning. Throughout this month and into the rest of the year, we will provide resources to help you quantify the most common numbers you need to know.

One of our visions for our clients is to help simplify their lives, make things easy and understandable, and allow them to delegate many of their financial responsibilities to us. We want to provide you with as much discretionary time (your most precious asset) as possible so you can live out the vision of your life in the most meaningful way for you and those you love the most.