I’ve found the most effective use for Numbers is to look forward. I’m talking goal setting and planning. In that context, Numbers serve two vital purposes; the first is in helping describe the goal while the second is in measuring progress toward achieving it. In fact much of personal financial planning concerns itself with identifying goals, quantifying and tracking them.
For example, a universal goal is being financially independent at retirement. This goal has lots of moving parts but for purposes of this post I’m going to simplify it by defining financial independence as having 25 X your lifestyle costs when you retire. If lifestyle costs are $50,000 per year, you’re going to need $1,250,000 (25 X $50,000) when you retire.
Plans are the detailed steps that make up a goal. If retirement age in my example above is 65 and you’re 45 you’re going to have a different plan than someone’s who’s 50 or 20. No matter what your age, if you’re serious about achieving your goal you need to set up a plan (Plan Curve) and begin tracking how you’re doing. Tracking’s key because nothing is certain and you’ll want to know sooner than later when to make changes to the plan.
This post’s purpose is to emphasize the critical importance of forward-looking Numbers in the goal setting and planning process.
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