Measures Help Me Keep on Track

"You get what you measure." ~ adage

To me, measuring financial status and progress is an important element personal finance. Without measures, I wouldn't know how well we are doing financially. By getting measures, I can determine whether we are on track or make changes. Here are the two questions that I try to answer with the data:

Is the plan working? This is a harder question to answer than it seems. In an up market, almost every plan is working. In a down market, almost every plan is not working. We've learned to ask this question separately for our short term investments and our long term investments.

What changes needed? If the plan is not delivering the expected results, then we determine if changes are needed and make the adjustments. For short term investments, we will decide on making a change within a couple months. For our long term investments, we will wait longer before making a change in strategy, perhaps one to two years.

Two years prior to retiring in 2007, I started doing a quarterly analysis of our financial situation. This analysis helped us make some good adjustments to our financial plans in 2009. First, we paid off our home mortgage, which reduced our monthly living expenses by 24%. Second, we started keeping 3-5 years of living expenses in low/no volatility investments such as CDs.

For now, the new plan is working for us. Our longer term stock investments have recovered from the March 2009 bottom. Also, we now have a good margin of safety for the next bear market since 3-5 years of livings expenses are in investments where the principal won't decline.

For more on Strategies and Plans Ideas, check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

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