Purchasing power
What your money actually buys, not the figure. Earning 3% more with 5% inflation is earning less.
In the chapter
CKnow
Where your money comes from and where it goes
From the same chapter
- Net incomeWhat actually reaches your account, after everything is taken out. The only figure you can plan with: gross cannot be spent.
- Fixed expenseThe one that repeats identically each month regardless of daily choices. The hardest to cut and the one that frees the most room when cut.
- Variable expenseThe one that changes with what you do. Where everyone tries to save first, and where least is achieved if the fixed ones are out of control.
- Cash flowThe difference between what comes in and what goes out over a period. Positive means you can build something; negative means the rest of the plan is moot.
- Net worthEverything you own minus everything you owe. The real scoreboard: your salary says how much comes in, this says how much you kept.
- AssetSomething you own that has value. The useful question is not what it is worth, but whether it produces anything or merely depreciates.
- LiabilityWhat you owe someone else. Not a failure in itself: it is a future claim on your cash flow, and it is planned as such.
- BudgetDeciding where money goes BEFORE it goes. Not a diet: it is swapping the order of deciding and spending.