The best things in life are free But you can give them to the birds and bees…”Money (That’s What I Want)
Rebeca De Sancho Mayoral
Senior adviser EU Innovation & startups finance| Life Business coach| Public speaker | #InvestEU #EUTechfunding #femalefounders #financialconfidence
“Money (That's What I Want)” by Barret Strong
HerWealthyClub Newsletter - 6th Edition - Financial metrics
Harnessing Financial Power
Welcome back to HerWealthyClub, where we aim to boost your financial confidence and help you live a life free from financial stress! In our previous editions, we've delved into the importance of cultivating a resilient money mindset and the magic of compounded interest. Today, we're going to unlock the power of key financial indicators—those essential numbers that can transform the way you manage your personal and private finances. By understanding and tracking these metrics, you can make informed decisions, set realistic goals, and pave your path to financial freedom with clarity and confidence.
As the song goes, “The best things in life are free, but you can keep 'em for the birds and bees. Now give me money (that's what I want)...” Let's take control of our financial destiny!
Decoding Financial KPIs
Understanding your finances isn't just about how much money you have in the bank—it's about knowing the metrics that influence your financial health. Let's dive into some key performance indicators (KPIs) that can help you navigate both personal and business finances with ease.
1. EBIT (Earnings Before Interest and Taxes)
EBIT is a crucial metric often used in business to measure a company's profitability. It represents the earnings of a company before any interest or taxes are deducted. For personal finances, think of EBIT as your net income before you account for debts and taxes. It gives you a clear picture of your earning potential and operational efficiency.
“Your love gives me such a thrill, but your love won't pay my bills. I need money (that's what I want)...” Understanding EBIT can help ensure your earnings can cover those bills and more.
2. ROI (Return on Investment)
ROI measures the gain or loss generated on an investment relative to the amount of money invested. It's a powerful tool to evaluate the efficiency of your investments, whether it's a new business venture, stocks, or even your education. Understanding ROI helps you make smarter investment choices by comparing the expected returns of various opportunities.
3. Cash Flow
Cash flow is the net amount of cash being transferred into and out of your personal or business accounts. Positive cash flow means more money is coming in than going out, which is crucial for maintaining liquidity and financial stability. Monitoring cash flow helps you avoid cash shortages and ensures you can cover your expenses and investments.
“Money don't get everything, it's true. But what it don't get, I can't use...” Positive cash flow ensures you can always use what you need.
4. Debt-to-Income Ratio
This ratio compares your monthly debt payments to your monthly gross income. It's a key indicator of financial health and creditworthiness. A lower debt-to-income ratio suggests better financial stability, making it easier to secure loans and manage existing debts.
5. Net Worth
Net worth is the value of all your assets minus all your liabilities. It's a key indicator of your overall financial health and wealth. To calculate your net worth, sum up the value of all your assets (like your home, investments, and savings) and subtract your liabilities (like mortgages, credit card debts, and loans). Understanding your net worth gives you a snapshot of your financial position and helps you plan for future financial goals.
Examples of multimillionaires with significant net worth include:
- Elon Musk: The CEO of Tesla and SpaceX, known for his immense net worth due to his successful ventures in technology and space exploration.
- Oprah Winfrey: Media mogul and philanthropist, renowned for her substantial net worth built from her media empire and various investments.
- Jeff Bezos: Founder of Amazon, whose net worth has made him one of the wealthiest individuals globally.
- Rihanna: Musician and entrepreneur, with a significant net worth stemming from her successful music career and Fenty beauty brand.
European examples of multimillionaires include:
- Bernard Arnault: Chairman and CEO of LVMH (Louis Vuitton Mo?t Hennessy), he is one of the wealthiest individuals in the world, with a net worth built from his luxury goods empire.
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- Fran?oise Bettencourt Meyers: Heiress to the L'Oréal fortune, she is among the richest women globally, with her wealth stemming from the leading cosmetics company.
- Amancio Ortega: Founder of Inditex, the parent company of Zara, his significant net worth comes from his global retail empire.
- Susanne Klatten: A major shareholder in BMW and a successful investor, her net worth is one of the highest among European women.
The Athlete's Mindset and Financial Mastery
Success in both sports and finance requires discipline, strategy, and mental toughness. Just as elite athletes hone their physical and mental skills, you can apply the same principles to your financial journey. Let's draw inspiration from tennis players and "The Inner Game of Tennis" by W. Timothy Gallwey.
Gallwey emphasizes the importance of focusing on the process rather than the outcome. He states, "The player of the inner game comes to value the art of relaxed concentration above all other skills; he discovers a true basis for self-confidence." Similarly, mastering your finances involves focusing on understanding and optimizing key financial indicators rather than fixating solely on financial goals.
Tennis players meticulously track their performance metrics—serving accuracy, unforced errors, and match statistics—to continually improve their game. In the same way, tracking financial KPIs like EBIT, ROI, cash flow, and net worth allows you to measure your progress, identify areas for improvement, and make informed decisions.
Resource Roundup: Learn from the Best
To help you dive deeper into these financial indicators, we've curated a list of articles, podcasts, and social media influencers who offer valuable insights and practical advice:
- Podcast: "The Money Guy Show" https://www.moneyguy.com – Episode on "Mastering Financial KPIs for Personal Success." This episode breaks down key performance indicators and how they apply to personal finance.
- Influencer: Follow @HerFinanceJourney on Instagram for daily tips on financial health and key metrics
Take Action and Share Your Journey
Now that you're equipped with the knowledge of essential financial KPIs, it's time to put this information into action. Start by tracking your EBIT, ROI, cash flow, debt-to-income ratio, and net worth. Use these metrics to set achievable financial goals, make informed investment decisions, and improve your overall financial health.
Remember, taking calculated risks is a part of the journey to financial freedom. Don't be afraid to invest in new opportunities, whether it's a side hustle, a course to upgrade your skills, or a promising stock. The key is to analyze the potential returns and ensure they align with your financial goals.
Gallwey advises, "Trust yourself. You know more than you think you do." Trust in your ability to make smart financial decisions by understanding the metrics that matter.
We'd love to hear about your experiences and learnings! Share your financial journey with us on social media using the hashtag #HerWealthyJourney. Your stories can inspire and empower other members of our community to take charge of their finances.
“I need money (that's what I want)...” Stay financially confident and always strive for growth.
Have an inspired, joyful and wealthy summer!
Rebeca De Sancho Mayoral
HerWealthyClub CEO
Disclaimer: HerWealthyClub information is for inspiration and educational purposes. If you have any doubts about the merits of an investment, you should seek advice from an independent financial advisor.