Generating passive income from assets cannot happen until you build your wealth.
This is only possible once you learn how to grow financially and know whether or not you are on track.
You are in charge of your financial future and no one else can be held responsible for it.
Transforming your financial situation involves both effort and strategy and cannot be expected to happen in short space of time.
It is also imperative that you have a system in place that allows you to keep score of your finances by measuring your progress. Without analyzing your financial routines you won’t be able to implement changes to improve nor be able to identify areas which are limiting your financial growth.
The Value of Financial Education
According to Wonga SA, ”It is imperative that consumers are educated about the various issues related to credit and to get financially fit to avoid getting into debt.” In South Africa, debt is a huge problem and very few people are able to reap the benefits of financial planning and saving.
Learning to evaluate your financial standing is the best place to start if you lack discipline over your money. So a budget makes perfect sense for ongoing control and provides useful information to help you improve on a monthly basis. There are yet other important ways you should learn to measure your financial progress as are detailed below.
How to Measure Your Financial Progress
Preparing a personal balance sheet and income statement. We usually think this is the responsibility of companies and businesses and does not apply to individuals in employment. But a balance sheet will give you a broad overview of your financial status, and an income statement will help you ascertain if you are building wealth or not.
Once a year work out your balance sheet by subtracting your liabilities from your the assets you own. This result will indicate your actual financial position or net worth as it is popularly referred to. If you have any investments subdivide them into categories under your assets so you can see a breakdown of wealth you are generating. So for example, include listings of stocks, bonds, shares and unit trust etc. By carefully organizing your personal asset allocations in this manner you can monitor your growth by comparing to last year’s result.
To measure your progress even more closely does take more effort but it is well worth the time to do so. It’s easy enough to see your progress by comparing balance sheets, but seeing how you’re doing in comparison to the financial markets allows you to aspire to even greater results. So for instance when you only look at the growth in your personal investment portfolio you would be pleased to note an increase of 15% from the previous year.
However when judging according to financial markets you have to take a larger picture into account. So in this example, if the markets went up by 10% then your 15% is an obvious win. But what happens when the markets are higher than your personal result? These are relative but are good indicators of whether you are truly growing financially or not.
Taking measurements of your results can be a daunting affair especially if you undertake to do all the calculations yourself. Thankfully there are many useful computer programs which are useful for determining your rates of return. You could even get by with a simple spreadsheet as you would for your typical monthly budget.
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