By When it comes to financial analysis, there’s really only two tools I’d say are universal. The first is the ability to determine risk or the difference between a loss and a gain. The other one is the ability to determine the likelihood of an event happening.
These are two extremely important tools in our ability to understand and manage our finances. While the above two are not mutually exclusive, using the risk/difference tool and the likelihood tool together can give a great overall picture of our financial situation.
I think that we all already knew that we should be taking action on our finances.
But I think we still have a lot of questions. How do we know if we’re doing things right? How do we decide when to take more or less action? What are the best tools to use for our specific situations? In this article, I’ve included three areas that I think are important to know about when it comes to financial management.
The likelihood tool is a great tool to use when looking at your finances. It is a method of finding the likelihood of an event occurring. Basically, it takes all the data that you have about your finances and makes a probability estimate by taking into account the statistical likelihood of an event occurring. By knowing our odds, we can easily estimate whether or not we’re doing things right.
In the four days following the trailer, we learned that the odds are a lot better than what you think your financial system should be. For instance, if you’re saving for retirement, it’s better to save for your kids’ college or your current job than it is to be saving for it right now.
One of the most common tools of financial analysis is the “expected value” of an asset. We know that it’s easier to expect the value of a stock to increase than it is to expect the value of a bond to increase. But that is not to say that the stock market is always a good idea, just that the expected value of an asset is a useful tool for identifying when your financial situation is heading in the right direction.
When you are not in college or in your current job, you can look at your average annual salary and find that it’s far from that much. So, if you are not saving enough money for your kids as a result of your current job, you can look at what you might be able to save and use that as an indicator of whether you should save more.
If you are in college, you can use the same tool to identify what your expected return on investments is. When you have a lot of money in the bank, the expected value of that money is a good tool for identifying whether or not you should invest more of it.
