Are you doing well financially? No matter how much progress you make, it still never feels like you're financially well off. You could always be doing better, right? There's always someone your age who seems to be exponentially better off when it comes to money. It can be hard to take an honest look at your own financial situation. Taking a look at some basic financial metrics to measure your well-being can help you gain a clear perspective and get a better grasp on your progress.
You can pay your bills on time. Even if you're not in the top one percent for your age, if you can pay your bills on time, you're doing better than you think. Just being able to pay your rent, phone bill, and pay for your food should have you breathing a sigh of relief. The reality is that many people can't pay all of their bills due to a lack of financial discipline or because they don't earn enough money. They must choose which ones they're going to pay, which causes a whole host of new problems. Late fees, interest, and dings to your credit score are just some of the issues.
What happens if you can't pay your rent or your mortgage? After a little while, your landlord is going to kick you out, or your mortgage company is going to come after your home. If you don't pay your car payment, the bank is going to come after that too. Just being able to pay your bills is a great thing.
You can control your spending. Doing well financially doesn't mean you have to be the richest person you know. Just being able to keep your spending under control means you're doing pretty well. Many people are unable to keep their spending in check, and it's impossible to get ahead when doing this because this is the first step in improving your finances.
For example, buying an expensive item such as a brand-new car with little to no consideration, or even making multiple smaller purchases, could set you back years financially. Being responsible with your spending and resisting impulse purchases can be easier said than done with easy access to credit and constant advertisements designed to get you to spend as much money as possible. If you can resist the urge to overspend, this is a clear sign you're headed in the right direction.
You're investing. You should be proud if investing in appreciating assets is part of your financial routine. While everyone should be investing what money they can, a large percentage of people don't invest anything at all. Just putting some money away into a 401(k), IRA, real estate, or another investment for your future means you're on the right track, even if it's not quite as much as you feel it should be.
Even investing in a home for yourself is an accomplishment that should benefit your future and set you up for success. It can seem like you're behind if you don't yet have a multi-million-dollar portfolio providing you the ability to retire in your 30s like seemingly so many people do nowadays. But the reality is that this is not common. Even making slow and steady progress with your investments is an accomplishment.
You're insured. Part of being well off financially means being protected against financial loss, and having the proper insurance coverage helps reduce risk. That way, if something happens beyond your control, you have some third-party coverage.
The amount of insurance needed varies from person to person, but you want to be protected against catastrophic loss. For example, homeowners insurance is important if you own a home, as is having full-coverage car insurance if you have a vehicle worth a fair amount. Health insurance is also important to protect against life-altering medical bills, and life insurance is important if you have a family who relies on your income and would have trouble getting by without your earnings. Having the right coverage means you're not going to incur disastrous expenses in an unfortunate event.
You don't worry about money when you go to sleep at night. You tend to sleep peacefully, and if anything does keep you awake, it's usually not money-related. Everyone worries about money to some extent, no matter how much they have. This is just something you're going to have to come to terms with. Even the ultra-wealthy have some money-related fears. But if these financial fears aren't keeping you up every night, you're doing well financially.
Financially stable people are able to minimize their money fears because they're in control of their situation. They have a calm, confident approach because they know they're going to be able to pay their bills. They're making strides to be better off in the future by investing, and they're protected against major downsides. They're not going to sleep every night afraid of not being able to pay their mortgage. As you continue to make smart decisions with money, the less you worry.
You have money in savings. Simply having a little bit of money in a savings account set aside for a rainy day is an indication you're doing all right and probably better than you think. That extra cushion should provide peace of mind, knowing you have that much of a buffer in the event that something unfortunate occurs, which it probably will at some point.
Having some money put away is a stepping stone to becoming wealthy, and even if you're not where you'd like to be yet, this is a great accomplishment. Ideally, you'll have almost half of one year's expenses saved up, but even one or two thousand dollars is better than nothing, and it means you're headed in the right direction. It's not unusual for it to take years to build up a well-funded savings account, so don't worry if yours is just a fraction of what you need.
Your net worth is growing. You'd be surprised just how many people never see an increase in their net worth. Many people actually see their net worth decrease and go negative due to borrowing excessive amounts of money. Student loans and credit cards are two popular debts that cause an individual's net worth to drop below zero. Seeing your net worth rise over time is a major accomplishment and a sign you're on the right track. Your net worth doesn't have to double every year or even go up every single year. In fact, that isn't all that common because, as you build wealth, your net worth will be more dependent on asset prices that rise and fall. If you see your net worth rising steadily during most periods thanks to a combination of earning money and seeing your investments grow, this is a great sign.
You have manageable debt. Having any debt at all can be discouraging because it takes a long time to pay off, not to mention the interest you're paying. But keeping debt at manageable levels and making progress toward becoming debt-free is fantastic.
On the surface, it can seem like your friends, family, and everyone you see on social media is making effortless purchases like expensive education, new cars, large homes, extravagant gifts, and frequent vacations. Everything seems perfect for them, but they probably have debt too. If they're spending frivolously, there's a good chance they have a lot of it. This isn't necessarily the case, and there certainly are some people making large purchases with zero debt, but it's not always what it seems. Making any progress at all toward reducing your debt is something to be happy about, regardless of what others are doing.
You have a steady source of income. You don't have to be bringing in hundreds of thousands of dollars per year to be doing well financially. Just earning a steady income is one indication you're doing all right, and you should be thankful to have that money coming in on a regular basis. If you're not currently earning quite as much as you'd like, that's okay. It's safe to say that most people aren't earning as much as they want, but that doesn't have to stop them from moving forward. You can always focus on increasing your earnings by finding a new job, becoming more qualified in the workplace, or developing a new income stream.
Your income is your largest wealth-building tool, and the money you earn will help you make progress in other areas of your finances, such as paying down debt, making large purchases in the future, and becoming financially free.
The fact is that there will always be someone who is better off than you financially, but obsessing over others' perceived accomplishments is of no benefit to you. It's important to recognize smaller achievements when it comes to your finances, even if they're incremental stepping stones to becoming wealthy. Building wealth takes time and patience, and recognizing these smaller milestones will make the process more seamless and enjoyable.
