The beginning of the year is a great time to assess where you are financially and see about ways to improve your financial situation.
Doesn’t everyone want to know the answer to this question: How am I doing financially? In my workshops, everyone wants to get a sense of where they stand financially. Are they in a good position? Are they failing miserably? How can they improve? Many people are wanting to know things like:
- Are you saving enough?
- Do you have too much debt?
- Will you be able to retire?
- Do you have enough life insurance?
Comparing yourself to others
One of the ways to judge how you are doing is to look at how you are doing compared to other Canadians.
Statistically, we call this relative benchmarking. I ran across the Royal Bank website that shares how your current financial state compares with others in Canada. You can visit the site but I have summarized some of the key data points for you:
Couples starting out
Family with kids under 12
Family with kids 12 to 18
Family with kids over 18
The data is broken down into 6 categories. Three of the categories benchmark against others with no kids. The other three categories benchmark against those that have kids.
The flaw of relative benchmarking
For example, the singles could include 20 year olds just starting out as well at 50 year old singles that are more financially established. Although the average income may be $39,196 the range of income of those in the category can range dramatically.
Another example closer to home is the Family with kids under 12. I have 4 boys under 12. My situation might be really different that another family with one child under 2. I know my food bill would prevent me from living off at $77,000 family income.
As much as I enjoyed the quiz and the results on this site, I will always preach the importance of personal benchmarking. It doesn’t matter what anyone else’s finances look like. It’s what your finances look like and what you choose to do about it. Answering the question “How am I doing financially?” is really personal.
I’ve seen people who make $200,000 per year of income but they spend all of it and more and thus are swimming in debt and payments. I’ve also met people who live within their means on $50,000 per year. Who cares if the average income is $77,000 or $100,000 per year. What matters most is your ability to work with your income and finances and work to improve it each and every year.
The best form of benchmarking is comparing your situation at two different points in time. For example, how does your financial situation look today compared to a year ago or a year from now.
How am I doing financially?
So, if you really want to know how you are doing financially, you need to do a personal financial check up. Start with a current assessment. If you think about it, it’s no different that wanting to lose weight or improve your financial health. If you want to lose weight the first piece of data you need is your current weight. How would you know if you are going in the right direction if you do not have a starting weight?
When it comes to personal finance, I believe the first thing you must know is your net worth. Your net worth is simply your assets minus your liabilities. Once you know your net worth, you goal in the future should be to improve your net worth each and every year. If the formula for your net worth is assets minus liabilities, then there are only 2 ways to increase your net worth: increase assets or decrease liabilities.
Related article: Calculating your net worth
The second thing you need to know is your income and your expenses. Some call this an income statement or a cashflow statement.
Related article: Budgeting, Spending and Cashflow
The net worth statement and the Cashflow statement form the foundation of a financial check-up. If you want to get more detailed, you may want to look at some other aspects of personal finance like:
To help you with a financial check up, you can download my ANNUAL FINANCIAL CHECK UP GUIDE (1049) right here.
If you like the guide, pass it on . . . it’s free to all!