There is a business phrase that says, “You can’t manage what you can’t measure.” When it comes to finance, this is particularly critical. Whether it is activities or actual results, if you don’t have a way to measure your progress, you won’t be able to effectively manage your progress against your expected results. In fact, you might not even be able to determine if your results have been reached if you haven’t previously articulated what form of measurement you will use. Managing financial results means you have to determine what specific results you are looking for and in what time frame. These can be a dollar figure, or a series of regular activities that you expect will provide you with your pre-determined result. For this to be effective, you will need to have a way to track your progress so you can also analyze your data to effectively manage your progress. Rarely will tracking only single figures provide you with adequate data to make informed decisions. This means that if your only form of tracking your financial state is to look at the bank or investment balance, you might be able to chart out your ups and downs, but that doesn’t put you in a position of control, or provide you with much information to manage ongoing decisions.

What do you need to track to effectively manage your financial progress? In business, financial statements are produced to show income, expenses, assets and liabilities and how these change over time. With this information, you are able to pull various figures to perform analysis to show how well current income and assets are being used to effectively grow the business. To effectively manage household finances, you need to be able to analyze your financial data like a business. This means you have to collect the data then understand what various financial ratios will tell you. This is not simply measuring how well you stuck to a budget. This is cash flow analysis and net worth monitoring. This is debt to equity, income to assets, interest coverage, working capital, etc. When you start with your personal finances, you can then apply the measurements of a business to create and analyze your progress the way a business does. This will help you understand the value of information and what it conveys to help you make, not only personal financial decisions, but also business and investment decisions from more detailed and advanced financial statements.