I generally do not like to talk or write about money. I even prefer to avoid thinking about money and financial matters until necessary. Last few months I faced the depths of financial ruin and not having a future. Finding my current job literally saved me from fate worse than not being able to study. Each working hour brought me close to not being broke again so I had to rethink my finances again.
The worst aspect about money, more specifically the topic of finances means potentially finding yourself in a room with a person saying “I am very rich” and then that person expects you to like him or her. At worst such people derive their happiness from their financial wealth. Sure enjoy it if it makes you feel good. Some people will feel less good.
I have learnt to manage my money and finances from my parents from a young age. They promoted saving and getting things value-for-money. At school I learnt more about finance first in economics classes. I had a great teacher whose knowledge exceeded the book and who’s notes were enough to easily pass exams. One equation opened my eyes for the rest of my life until now, every waking moment. TR = TE or in Dutch TO = TK. (Totale opbrengsten = totale kosten!)
T.R. = T.E.
T.R. = total revenues
T.E. = total expenses.
Both are equal, you break even.
T.R. > T.E.
T.R. – T.E. = profit
More revenues than expenses, you profit.
T.R. < T.E.
T.R. – T.E. = loss
More expenses than revenues, you make losses.
In economics, entrepreneurship (starting up companies & running them) and non-profit organisations understanding this basic equation opens the doors to understanding how to survive financially.
How to survive financially is the untold story of many people. People who constantly face opportunity costs while balancing their budgets to break even or profit from their decisions.
T.R = T.E. + Profit
X = Y + Z
So when you know two values you can work out the equation.
T.R > T.E
For example, you set a personal goal to earn 20.000 next year.
T.R = 20.000
T.E. = your expected living expenses, about 12.000
Find a way to make what remains.
Add “Profit” to the equation and this starts to make more sense. Accounting and economics become more personal. Numbers are no longer only numbers. The represent values derived from decisions you make: risk versus reward.
Every time I think about money and finances TR = TE comes up.