Are You Financially Efficient?
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- เผยแพร่เมื่อ 23 ก.ค. 2024
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Are You Being Financially Efficient?:
There are a lot of ways to measure financial progress. From watching the growth of your net worth over the years, to comparing your passive income with your ongoing expenses, and many others besides.
But measuring accumulated wealth and/or your income situation aren’t the only metrics that may be of interest to individual investors. One thing that’s also interesting to look at is how much you’re making out of what you have earned. In other words, how efficient you’re being with your money.
Today we discuss a measurement that attempts to pinpoint how financially efficient you are.
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I always learn new things from you, loving the content man! :)
I think it's a bad idea to try to adjust for core living expenses in this ratio. There are very few people who are going to be able to keep their ego out of that adjustment number. It also eliminates a lot of room for innovation in some of our more core expenses. We might say a one bedroom apartment costs x amount, that's true But a two bedroom apartment with a roommate may have cost you a lot less.
Greg, that's a fair point! While you certainly could adjust your calculations regarding your core expenses to account for the fact that one could have lowered them even further through house hacking (i.e. getting a two bedroom place and splitting the costs with a roommate) or any other creative savings strategy you might come up with, objectivity, especially in retrospect when exact cost figures may be difficult to find, is not always the easiest thing to achieve.
Still even if the adjustments are not perfect (which they likely wouldn't be in reality as you pointed out) the exercise of tracking your financial efficiency over time can be motivating for some, leading them to try and think more creatively about their budgets than they might have otherwise and try new strategies. Which I think can have value in an of itself, even if they later realize that (in some of the cases) they over/underestimated their make the changes stick long-term. The changes that do work out would still lead to some net positives in their finances.
Like many things in the realm of personal finance it all comes down to finding out what works best for you :)
Thanks for sharing!
I really like this ratio I'll be adding it to my finances. 👍
another metric: what percentage of your living expenses could your assets cover indefinitely using an X% rule?
Very interesting comparisons. Thanks for the lesson.
Glad you liked it!
Great video I personally love investing in dividends for the long term :)
Glad you enjoyed it. And glad to hear that you have found an approach that works for you :)
Let’s see what I’ve been missing.
You leave us hanging. If net worth / lifetime earnings is an efficient measure, what is considered good? You don't really say. Is 20% good or bad? How about 50%? Metrics with no context or understanding is not really helpfull.
It's difficult to put a concrete number for what's good with a metric like this. There's so many variables that go into it that make some results significantly more difficult to attain for some people than others (as stated in the video if half of your income is being swallowed up by taxes its more difficult to achieve super high scores. Same goes for if the bulk of your money goes toward paying for necessities or the effects of past unfortunate events [like medical bills for instance]).
I guess if I had to draw a line in the sand for what's considered good with this type of metric it would be a number that holds steady or rises over time, since (assuming you are making an effort to become more financially efficient) that suggests that you either achieved a reasonably high level of efficiency given your situation right from the start (and thus there wasn't a whole lot of room for improvement) or you have been getting better over time.
Either way, I'd consider that a success. But, again, as far as a specific number is concerned its difficult to say without the context of the person's specific financial situation. I hope that makes sense :)
Thanks for the comment!