How am I doing financially?

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:

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:

Singles

Couples starting out

Couples established

Net Worth

$163,535

$87,841

$382,759

Income

$39,196

$76,531

$72,857

Real Estate

$240,370

$261,717

$328,409

mortgage

$97,314

$163,357

$105,179

Credit card

$5,342

$4,716

$6,401

Loan

$14,465

$18,948

$19,877

LOC

$26,339

$22,035

$30,741

Family with kids under 12

Family with kids 12 to 18

Family with kids over 18

Net Worth

$159,973

$201,214

$279,551

Income

$77,315

$75,069

$81,371

Real Estate

$317,276

$310,987

$326,754

Mortgage

$162,283

$124,448

$118,185

Credit card

$6,355

$6,417

$7,467

Loan

$18,398

$20,609

$19,612

LOC

$29,639

$33,084

$37,811

 

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

QuestionsAs much as this data can be fun and interesting, it has a lot of flaws.  Although the data is broken down into six specific categories, the people in the categories can be very different.

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.

Personal Benchmarking

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 (934) right here.

If you like the guide, pass it on  . . .  it’s free to all!

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

4 Responses to How am I doing financially?

  1. Oh, I agree with you here Jim. I have so many people searching for numbers wanting to know what others make, save and budget. The truth is that you can’t just follow what someone else does or has as a comparison for one’s financial health. It’s the principal behind the numbers as to how one arrived at them. Circumstances are different for everyone.Comparing is never an accurate benchmark unless you are comparing against yourself. Like you mention,know where you started and how far you have come.That in itself is the best way to know if the path you are digging will lead you towards your goals. Great post Jim.

  2. Great post, Jim! Comparing investments to a benchmark is the norm these days. Why not compare your personal finances to a benchmark, too?

    Of course the personal comparison is only the starting point. You also need to follow it up with why you maybe better/worse than the benchmark, and set realistic goals for improvement.

  3. I try not to compare myself to others.

    I’d rather focus on what I can achieve with my means and not worry about others. Too many variables to make any relevant comparisons.

    On the topic of net worth, I tend to focus on cash flow over net worth but NW is a great measure, helps you focus on your liabilities.

    Cheers!
    Mark

  4. For the most part I do personal benchmarking, referring to categories similar to these to get a complete picture. It is still nice to see what’s possible and what’s above average. Since we match or beat the numbers for people who are 1 – 2 levels ahead of us in most categories that’s a good sign we’re not wasting our time.

    That’s not where I plan to stop though. I like to look at the (positive) extremes for comparison and see how we can get closer, for example with a savings rate that is currently 49% of our net income.

    With another 11 years to get to the next level I plan to be off the charts :)

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