It’s interesting how many people tell themselves they’re bad with numbers, or my favorite one is that I don’t do numbers. And my comment is, if you want to live a financially free life, you’ve got to know a few key financial numbers. Not all numbers, but a few key ones.
And today, I’m going to share with you three critical ones that are easy to master. And if you can get your focus around those, it’s going to literally change the trajectory of your life, your money, and ultimately your business if you have one. So, stay tuned.
Transcript: Wealth Inside and Out® Podcast – 3 Key Financial Numbers You Should Know
Hi, my name is Annette Bau (bah oo), your host of the Wealth Inside and Out® Podcast. I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.
For over 30 years, I have been advising and researching the top 1% of Millionaires.
I am passionately obsessed with money, mindset, and the intersection of self-worth and net worth and how the two connect and allow us to live fulfilled and wealthy lives on our terms.
From Humble Beginnings
And, I teach the tried-and-true principles that only someone with over three decades of experience advising millionaires would know. This podcast is different – it’s about much more than money. We talk about mindset, success, money blocks, worth barometer, and all aspects of money and topics from practical manifestation, along with real-world how-to, and everything in between, with the goal of making your journey easier and more fun.
Think of this as coffee, actually, matcha tea, learning real-world, common sense, money, and life advice from a BFF that you can start applying today. If you want to create a financially free life you love, you are in the right place, my friend.
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3 Financial Numbers You Need to Know
So today, we’re diving into three financial numbers you need to know, and you’re going to love the episode.
We dive into:
- Your balance sheet and income statement
- Quarterly or yearly reports you may want to consider
- Important financial reports
- Insight to help you assess your short and long-term financial health
The P&L Statement
Let’s begin with your P&L statement.
P&L stands for Profit and Loss. It shows in a given period of time what’s coming in and going out.
The P&L starts with income from all sources. I don’t care where it comes from. Even if you get a gift, I want that included in the money that’s coming in so you can keep track of it.
If you earn wages, have a business, and pay yourself a salary or get a distribution, all that comes in. That’s the plus number. And then determine what goes out; these are your expenses.
Start with your personal expenses (also referred to as your cash outflow). It may include a mortgage, utilities, and car payment.
Hopefully, you’re getting debt free. Until you are debt free, you’re going to have those expenses. Other expenses include food, entertainment, supplies, and maintenance of your residence and car. You may also have a vacation fund. Anything you’re spending money on or have money you’re earmarking each month for should go in the expense column.
And then you know your bottom line minus how much comes in each month minus how much you spend. This is your net profit. It’s so important. I recommend you view your P&L monthly, quarterly, semi-annually, and annually. Just make sure you know where you are.
Now, if you really have problems with spending, like you’re a spendthrift, don’t beat yourself up. Just start monitoring what’s coming in and going out daily. And if you, for instance, get paid every two weeks, then you that number of days and divide that out.
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That tells you how much money is coming in each day. And then you monitor what you’re spending each day. It’s really an eye-opener.
I know it’s been for my son, who’s in college. I said, “You’re overspending on your budget.” And when he started calculating the rate he was spending, he found that he only had about $10 a day to spend. He’s like, that’s not very much money.
I agreed, it’s not. So, you’ll have to start figuring out where you’re spending your money and what you will do over the school break to earn some money. So, you should be aware of that.
Knowing the numbers on your P&L for your business and your personal expenses is critical. And it’s something many people don’t know. But it’s easy to incorporate.
And once you start focusing on it and making it a priority, it becomes easier.
The Balance Sheet
Next, we will review your balance sheet. Now, your balance sheet is a journal of your assets and liabilities.
Assets are what you own, and liabilities are what you owe.
I recommend that you watch these at least on an annual basis.
Some people may want to watch them more frequently. As some of you know, I finally did my balance sheet recently. I haven’t done it in a while and was amazed that I hit my net worth goal.
Just like you, I should be doing that every year, just like you should. So, there’s no excuse. And so that’s something that I’m going to make a priority.
You get so busy helping clients that you don’t watch yourself, but it’s something we all should know.
- Where are you from the standpoint of net worth?
- Assets include the value of your home, and then the liability is, do you owe money on it
- What is the value of your car, and do you owe any money on it?
- Do you know the value of your 401k, IRA, personal investment account, or checking account?
- Anything positive you include in the asset column and anything you owe is a negative.
Net Worth Calculation
Take your total assets and subtract your liabilities to get your net worth. I recommend you do this at least annually. Some people do it a lot more frequently.
Doing my balance sheet monthly would be a full-time job because of all our assets. The more assets you accumulate, the more challenging it is. One thing that is really important about a balance sheet is this.
I have had at least three, if not four, clients who, because we did a balance sheet, saved houses headed to foreclosure, meaning they retained ownership of the home. They weren’t paying the taxes because the home wasn’t top of mind. When you own your property free and clear (no mortgage), you don’t have a mortgage, so taxes are not taken out in your monthly mortgage payment. You are responsible for paying the property taxes and can pay them once or twice a year. If you don’t, the state can foreclose on your home to get the property taxes you owe.
In these cases, my clients had moved and forgot to pay their property taxes. And because we completed a balance sheet that listed all of their assets. They realized this home was not listed on the balance sheet, and they had not paid the property taxes they owed. Out of all the people I’ve worked with, there were three or four people who this happened to.
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I mean, that is just crazy. So don’t let that be you.
Right now, it may not seem like it’s a big deal to keep track of them. But, as you accumulate more assets, keeping track of them will become a big deal.
Did you know that ten years ago, there were $7 trillion of unclaimed assets that no one knew existed? And it’s because of this that we need to complete an annual balance sheet.
Because when you don’t know all your assets and something happens to you, your heirs have no way of knowing. So don’t let that be you.
Make sure you’re doing at least an annual balance sheet.
The next thing you’ve got to know is your business numbers. What is the cost of acquiring a client if you have a business? Let’s assume the average cost to acquire a client is $15 per lead. And the average sale you make is $1500.
That’s valuable information. It tells you that you are earning 100 times the client acquisition cost. Now, it could be $150 on average. In this case, it would be ten times the acquisition cost.
If the number is, say, for instance, $1000 and you only make $1500, that’s a lot less profit margin. Another important number is the lifetime value of this client.
Many businesses acquire a client, sell them one thing, and then find another client to sell to. In many cases, this is a terrible model for everyone.
The goal is to acquire, nurture, serve, and care for them so they become clients for life. And I always recommend going deep versus just going wide because it’s much easier when you go deep.
If you get most clients via referrals, you won’t have an acquisition cost in dollars but in time.
So again, be aware of that. Many of us have watched The Shark Tank, and one of my favorite parts of that show is Kevin O’Leary saying, “You must know your numbers!”
What are your numbers? He wants to know the numbers. Why? Because he knows that if a person doesn’t know their financial numbers, it’s probably not a good investment.
Some people on the show have no idea what their numbers are. They have no idea what it costs to acquire a lead or their average sale. We are all thinking, I would never invest in them. So again, we need to be aware of our numbers.
And it’s not that difficult, and it’s something we all need to know. Some of us don’t have a high cost per lead, meaning we do more warm, organic nurturing and cultivating. That’s fine. But you still need to know your numbers. Focus on making it fun, like a game.
It doesn’t have to be difficult. Somewhere along the line, somebody told you it was hard or that you were bad with numbers. My favorite is “I don’t do numbers.” Where that came from is beyond my comprehension.
Creating New Habits (also known as neural pathways)
We need to rewire that belief about numbers. It takes 18 to 254 days (on average 66) to change a belief or a neural pathway. So start today, and before you know it, you’ll have replaced that crazy belief with one that’s serving you.
Free Success Guide
Now, if you want more results, you can go to https://themillionaireinsider.com/wlg and access the Success guide. This takes you step by step on how to get results.
Let’s face it, my friends; I don’t care whether it’s your business, your life, or your money; you’ve got to learn how to get results, attract and manifest, and remove money blocks. This guide is going to help you. It’s the key to achieving what you want. So again, https://themillionaireinsider.com/wlg
Tips For Success With Your Financial Numbers
Do what you can to make your finances like a game, so it’s fun. You enjoy it. You can do it with friends.
The numbers we covered are a great place to help you assess your financial position.
Additional Financial Numbers
These are some additional financial numbers that may be important to you depending on your situation:
- Cost of goods sold
- Operating expenses
- Annual Report
- Accounts Receivables
- Cash flows from operating
- Gross profit
- Cost of a cash flow statement if you aren’t doing it
- Goods or services expense
- Operating activities and expenses
- Personal and business investing activities if applicable
Delegate, But Don’t Abdicate
I have seen so many people get in serious trouble.
I was at the National Speakers Association when three speakers shared at different times how they almost went bankrupt because they had employees stealing from them.
Don’t let that be you. You can delegate but don’t abdicate. I delegate some of my financial stuff. But I do some accounting because I want to know my financial numbers.
I found that when I delegated my accounting, I spent more time than when I did certain elements myself. So again, figure out what that mix is for you. I don’t mind doing financials, and it’s eye-opening.
And I have caught more inaccurate and even fraudulent charges than when I have delegated it to an accountant. So again, just be aware of that. You have got to get in the driver’s seat of your financials. The more you tell yourself and create a story that it’s fun, the easier it is. It’s important and can be easy.
Make Your Money a Priority
And then make money a priority in your life. No, it doesn’t need to be the end-all-be-all, but it doesn’t need to be a priority. If you ever want to become financially free or retire, you’ve got to at least know the basic numbers.
I shared three simple financial numbers. They’re not that difficult. Anyone can do them, but you just got to do them.
Recap: Financial Numbers You Need to Know
Wasn’t that easy?
Profit and loss, balance sheet, and business numbers are not complicated. There’s no excuse. If I can do this, you can too! I’m not any better or worse at numbers than you.
It’s just a matter of doing it, making it a priority and a habit. And before you know it, you’ll be like, this is so easy. I can’t believe I didn’t do it before.
And then you’ll love it when you start seeing your net worth grow; your income grow, and a more secure financial future ahead. It’s amazing. So, I’ll look forward to seeing you on our next episode.
Until our then, take one action that will help you create a secure financial future and retirement you love.
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Thank you so much for joining me for
3 Key Financial Numbers You Should Know.
I’m Annette Bau (Bah oo).
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Bye for now.