Track your net worth like it is your business, wait…it is!

networth

Many people work in companies and devote 60+ hours / week to those companies.  We are often responsible for growing sales and profit, driving volume and coming up with ideas that will meet targets for the year.  An important element in every public company is the forecast relative to the target or commitment that management has made to the street.  This can have implications on profitability, inventory and total shareholder return which managers take very seriously and implement many processes to ensure their success:

Innovation:  Companies will perform consumer research to understand unmet consumer needs, match those opportunities up with the production capabilities to develop an innovation pipeline that can be 3-5 years out.  These projects are tested with consumers and shoppers in relative environments so companies can gather information to narrow the error range of the estimated volume associated with the innovation.

Trade investments: Companies will invest significantly to entice retailers to support their products with listings in more stores, feature frequency, display space outside of the shelf, pricing strategies to drive incrementality and shelf space to reduce out of stocks and stimulate triggers to purchase in store.  Companies will also determine the specific target of each innovation or product segment and develop shopper marketing plans to drive trial, penetration.   All of these investments drive estimated volumes with expected investment payouts that justify the spend; these estimates often roll up and translate to financial guidance that gets to the street.  Post game analysis is usually required to understand the impact these investments have had on the business and relative to what was projected all with the hope of optimizing investments.

Marketers do similar planning and analysis using techniques like Market Mix Modeling which is a statistical analysis on sales and marketing data to estimate the impact of various tactics (marketing mix) on sales and then forecast the impact of future sets of tactics.

Before a year even starts, these companies compile a list of “Building blocks” which include last years base volume, planned innovation, trade and marketing investments with the volumes associated.  The team then tracks each of those building blocks in a phased approach throughout the year.

This seems like a very rigorous logical and data based approach with elements that could be reapplied to our personal finances to drive a better return.  Some steps that could be taken on the personal finance front include:

  1. Tracking historical Assets and the return they have delivered.
  2. Tracking the growth trajectory of various asset groups
  3. Tracking the management of expenses.
  4. Tracking various financial ratios like savings rate, Monthly investment income / expenses
  5. Targets for the years net worth broken out by quarter
  6. Building blocks to help drive the net worth target with regular tracking.
  7. % of net worth in tax deferred accounts
  8. % of tax deferred investment room being used.
  9. Budget required while in the work force vs. in retirement.
  10. Portfolio mix vs. desired allocation over time.

Tracking our personal finances is just as important as our company business because after all, it is our business!

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