Principle #2: It's Not How Much You Earn, It's How Much You Get to Keep
If you went through the exercise of setting goals the last two issues, you would have by now set SMART goals which you've categorized by what you want to be, what you want to do, what you want to have, where you want to go, and what you want to give. And you would have prioritized your goals by drawing a timeline or listing them by short-, medium-, and long-term.
Now that you know where you want to go, you need to have a clear understanding of where you are.
Bear with me. The next few exercises will take a bit of work. And I have to warn you: it's all about the hard, bitter truth.
Whether you earn 20 thousand, 50 thousand, or 100 thousand pesos a month, you will realize it is never enough (or perhaps, you already know this all along). If you're earning 20 thousand, you might think "If only I'm earning 50 thousand.". If you're earning 50 thousand, you might think "If only I'm earning 100 thousand." (If you have more than you need now and in the future, then good for you!)
In the end, it's not really how much you earn that matters, it's how much you get to keep. That's Principle #2.
Remember the book "The Millionaire Next Door"? It's not the people who earn millions but also spend millions that are really rich. It's those who may be earning only thousands but accumulate money that eventually turn into millions. In other words, it's not income that matters, it's net worth.
Of course, the other idea espoused by another best-selling book "Rich Dad, Poor Dad" is that it's cash flow that really matters.
Well, whatever view you believe in, the next step after goal setting is to do your personal financial statements.
Did I hear a collective gasp? Or a collective groan?
Yes, unfortunately, this is something you have to do. Because the only way to find out what your net worth and your cash flow are right now is to compute them.
It's crucial that you go through the exercises that will follow. I've gone through them before so I know how much I am worth financially and I know how much is going in and going out.
This will be the foundation of your financial plan and it will also be the primary tool to measure your progress.
Are you ready? Not yet? Good! Accept your fate this week and we'll do the dirty work next issue.
