Along the way we also began to realize that we needed to have a clear starting point. For example, life begins when you earn an income. You can earn money in a lot of different ways, but you can’t do much with this income until you pay tax on this money. Once you earn an income and pay your taxes, now you have money left over and you can now decide what you are going to do with this money. Over time you can measure your success by looking at something called your Net Worth statement. The Net Worth Statement is a chart that shows you the things you own vs. the debts you owe. The Net Worth statement is the scorecard of how well you have a) earned an income, b) efficiently managed your taxes, and then c) deployed your hard-earned resources into things that grow in value. The Net Worth Statement is an indication of how well you have protected against the 5 Great Killers of Wealth and about how well you have followed the 7 Key Truths About Money and Life. Therefore, your Financial Core is always your starting point: a) what is your income, b) what taxes do you pay on this income, c) how are you then deploying your hard earned resources, and d) as a result of all of these steps, what is the outcome as shown on your Net Worth statement?
Your Financial Core should be measured each year and should be measured again whenever you do forward looking projections. In that way you can begin to see how the decisions you make going forward will either positively or negatively impact your income, expenses, tax picture and net worth. Since “something is only as good as to what you compare it to”, every financial decision you make should in some way improve your income, reduce your taxes, reduce your expenses and improve your net worth. If this outcome doesn’t occur, then is this really the best decision to make with your money? The Financial Core is the cornerstone of all of the financial planning and financial analysis work we do each day and it is always the best place to start. The Master Your Retirement book applies this approach in what we call an “income first” orientation.