I have spent much of my adult life considering this question: How can I best understand and measure my financial wealth and health?
The short answer is to use financial benchmarks. Benchmarks are ratios, numbers, and other figures that allow you to score your financial situation and then to compare it to others. (I introduced this topic in the preceding chapter.) With benchmarks, you can both compare your situation to people of a similar age and compare your own situation to itself, year by year, as it changes. By using benchmarks to analyze and score your financial situation, you can gain a much deeper understanding of your financial health and, with that understanding, you can make the decisions you need to achieves the goals you have set.
A Story from Chris: Building My Patchwork Toolbox
Early on in my real estate and business career, I realized that if I wanted to become financially successful I needed to find a way to calculate, analyze, and deeply examine each property or business in which I was considering an investment. I had to be able to quickly compare and contrast various options before purchasing or divesting from an asset.
I began calculating and analyzing business and real estate opportunities by using spreadsheets that I created. To assess larger more complicated apartment complexes, I also used a commercial financial evaluation application.
Once I had a business up and running, I developed a yearly valuation model to help me understand the movement in the value of the company over time. I also used a real estate cash flow analysis tool to help me determine the value of real estate assets that I owned or was considering. Furthermore, I used QuickBooks to monitor my personal income, expenses, and savings rate. Using these methods while I was young allowed me to build my Net Worth. Before retiring, I again relied upon several home-grown spreadsheets to calculate, analyze, and score various investment scenarios vis a vis my long term objectives. Those objectives were to retire ten years early with no reduction in income during retirement and for my net worth to continue to grow during retirement.
My use of all these tools was a rigorous routine but it was one that I had to undertake to be successful. I gained a deeper understanding of my finances which in turn helped me to feel secure in my endeavors and, on many occasions, to do things that were counterintuitive and may have appeared risky or dumb, but which worked out well for me.
On several occasions during these years, the same thought would occur to me: If I had a magic wand and I could build the perfect toolbox to help me manage my wealth, what would it look like? What would that toolbox contain? What would most help my kids—or anyone who wanted to use data-driven analytics—to make better financial decisions?
I had always been forced to use multiple applications and to create my own spreadsheets, frustrated at the lack of a single app that did it all. I had spent so much time stitching together and constantly switching back and forth among so many different software packages—Excel, QuickBooks, real estate software, and more—to succeed with my goals.
I wanted a single app that could serve a person’s full long term needs. In my head, I started to imagine such an app.
My Vision for A Comprehensive Toolbox
My vision was to enable the use of data-driven analytics to help individuals make better financial decisions—decisions based on facts and analysis rather than on emotion. The ideal app would have a comprehensive set of tools that would allow me to develop a more complete perspective on my financial situation.
Here are some of the tools I envisioned:
A Net Worth Calculator
The app would need a Net Worth Calculator to calculate global net worth, based on information provided about assets and liabilities. It needed to provide a global view and snapshot of net worth for a particular date and time. Assets and liabilities would be categorized into various sub-groups to aid in the calculations of various ratios, and liabilities would be deducted from assets for each separate entity. A Net Worth snapshot would serve as a starting point in the quest to improve financial security and success.
A Savings Calculator
My vision for the ideal toolbox also contains a Savings Calculator that calculates income and debt ratios. Such a Savings Calculator would enable a user to determine their projected savings rate for the year and, at year’s end, the savings calculator would crunch the data to determine an income to debt ratio and other key ratios that offer each user critical insights to their financial position.
A Net Worth & Savings Rate Combiner
I envisioned a special tool that would build upon my first two tools: a “Combiner” would combine data from the Net Worth and Savings Rate calculations, and offer users a larger perspective to better evaluate their financial strength and situation. By combining these two types of data and performing numerous calculations with them, this tool would offer users a much more detailed view and deeper understanding of their financial strengths and weaknesses.
An Analyzer tool would also be included in my ideal toolbox. It would dissect and categorize a user’s assets and liabilities, as well as income and expenses. It would then convert this information into specific benchmark ratios that would build a foundation for other insights. The precise set of selected ratios would have to be able to create a set of personal scorecards for a user.
A Scorecard Comparer
With an Analyzer in my toolbox that can create scorecards, I next envisioned a tool for a user to confidentially compare his or her personal Scorecards to the Scorecards of other people in a similar situation. Color codes on each Scorecard (red, orange, yellow and green) would tell users how they are doing.
My ideal toolbox needed a tool that would give users a long-term view of their progress, so I envisioned an Aggregator Tool that would show users the trends in their Savings Rate, Net Worth, Debt Ratios and other key indicators over time. A user-friendly dashboard would visually display the results and give users a clear view of their situation.
The Ultimate Toolbox
In 2016, I sold my business and decided to retire. But even in retirement, my mind was buzzing with ideas, chief of which was the vision I just described of my ideal toolbox. I decided then and there to go for it—to create the perfect personal financial toolbox to meet my needs and possibly to help other people looking for a single app to support them in their financial journey.
After one and a half years of development, the app is completed and ready for Beta testing and prime time. I named it CalcuTrackTM.
I spent years building a robust financial management toolbox for me and my businesses. Now, the time has arrived to share the product of all my experiences with the rest of the world by creating the Personal Financial Net Worth App that I had always wanted but had never been able to find!
Chris’s Take Away
Managing your financial journey with a pieced-together, patchwork set of apps and spreadsheets is hard work. There has to be a better way. The tool I have created can help you avoid the frustrations that I experienced during my financial journey. If you are inclined to begin your journey today, or are already on it but lacking a great toolbox, you may just want to take advantage of this comprehensive app called CalcuTrack.