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Two sides to the money equation

Don’t get caught up with your budget. Be better at building net wealth.

Over the last few weeks, I have been test-driving the 22Seven financial management tool and it has highlighted to me that there are two important inter-woven factors when it comes to “managing your money”.

Once you are up and running on 22Seven you will end up on a splash page which talks about your “Net Value”. If you have set it up as its most basic option, you will get your bank accounts, credit cards and your “Net Value” – a score that whittles down during the month.

For those who want to use the tool to track monthly spending and compare how you are doing month on month versus a budget for a line item – such as entertainment – it is a solid way to go about it and I find myself logging in quite regularly now, just to play around with the dashboard.

However – as one reader wrote in to me – managing your expenses is one thing, but building on this idea of “Net Value” is equally important and while a lot of people get caught up in the idea of managing to a budget, they shouldn’t lose sight of the fact that they need to be building their wealth in the long run.

Psychologically, I get quite frustrated when I’m only looking at the income and expenses side of the equation. It doesn’t hold my interest for long and I find it difficult to stay focused on the small stuff when I want to be building my investment accounts and doing scenario planning with things like my Retirement Annuities (RA). If I am paying into them every month, and trying to build them up, then I want to be able to watch them grow over time.

I watched an excellent interview with Mark Cuban on the Dave Ramsey show recently and Cuban has long repeated the mantra that if you want to get rich, the first thing you do is cut up your credit cards. Having previously gotten into credit card trouble, this is something I can relate to.

If you can get the costs side of things right, you can build a strong base which allows you to then work on building your investments and savings.

However with 2015 being ushered in, there are a lot of people who have vague New Year’s resolutions about “being better with money”.

You need to be better at working out whether you want to be better at managing your costs or better at building your net wealth (or net value).

Here’s to a happy, well-budgeted and prosperous 2015.


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