Personal Finance

How do you stack up financially?

“The race is long, and in the end it is only with yourself.” – Buz Luhrmann

Several times a year, Stats Canada publishes data on the financial health of Canada and Canadians. It’s a quick and easy way to see how your situation compares to that of other Canadians but, while it can be interesting to see how our own situation compares to the situation of the “average” Canadian, the reality is that the best way for us to gauge where we stand is to compare our current situation to where we used to be.

Are your finances hot or cold?

Just like with blood pressure, while the general definition of “normal”exists, what actually constitutes normal varies from person to person. Some people have lower blood pressure than the 120/80 ‘ideal’ and some people have higher. Doctors use the’ideal’pressure as a guideline but they use your normal as the benchmark for determining whether your blood pressure isthe same, better or worse than usual. It’s exactly the same with finances:the only way to truly know whether we’re moving forwards or moving backwards is to compare where we are right now to where we were in the past.

Related article: How are you doing financially?

Monitoring your “financial temperature” helps you determine whether you’re financially healthy, running a mild fever or in serious danger of burning up. It helps you see where you stand in comparison to the average but more importantly it lets you track where you stand in relation to bothyour past self and your future goals. Monitoring your temperature helps you keep track of your situation and shows you whether you’re moving forward, moving backwards or simply spinning in circles.In this post, I’ve highlightedfour areas that I believe it makes sense to monitor along with some suggestions for how to ‘grade’ yourself.Please keep in mindthat the parameters I used here are the guidelines I use in my own journey and they’re definitely not intended as a finite definition of success! Your “normal” may well be very different from mine and you should adapt accordingly. Let’s see how you stack up financially:

Income: How huch do you earn?

Depending on your job, you may or may not get a pay raise on a regular basis. Switching jobs, taking on additional responsibility or having the ability to work overtime can all impact our income. With the cost of living rising by about 2-3% each year, if your salary stays the same over a long period of time then chances are your disposable income (the amount you have left after bills are paid and savings goals are met) is actually decreasing. Similarly, if your salary is increasing but your spending is rising along with it then you’re technically no further ahead. An easy way to track changes in your income is to compare your income tax returns each spring when you file your taxes.

Related article: The importance of earning money

Temperature check:

Healthy: Earning more than last year

Mild Fever: Earning the same as last year

Danger Zone: A lower income than last year.

Spending: How much do you spend?

Our spending rate has a profound impact on our financial temperature. The effects of a decrease in income can either be compounded or countered by our spending patterns. If we decrease our spending to match our income, then we can maintain a healthy equilibrium but if we maintain or increase our spending levels we send our financial temperature sky-rocketing into the danger zone. Similarly, if our debt levels are too high but we adjust our spending to be able to put more money against that debt then we can steadily bring ourselves back towards a healthy range. Keeping track of our spending (and adjusting when we get off track) is key to maintaining good financial health.

Related article: A simple way to keep track of spending

Healthy: Outgoings are significantly less than income. All bills are paid and savings goals are met. Debt is under control or non-existent

Mild Fever: Outgoings are close to income but all bills are paid, savings goals are met and debts are manageable.

Danger Zone: Outgoings often exceed income, savings are minimal or non-existent and only minimum payments are being made on debts..

Savings: How much do you save?

Your savings rate is the percentage of your gross salary that you save each year. The average savings rate in Canada has been in decline for a long time. At the beginning of 2015, Stats Canada reported that the average savings rate had dropped to 3.6% (the lowest since 2010). This is a problem when you consider that most experts agree we should be saving at least 10% of our gross income towards retirement and an additional 10% for other savings goals including a contingency fund.

The average savings rate is a good example of why comparing ourselves to the average can be dangerous. Someone saving 7% a year who compares themselves to the national average might think that they’re doing well when in fact they’re falling 3% short of the recommended retirement savings rate and might not have any additional savings for emergencies or unexpected expenses.

Related article: Principles of Saving Money

Temperature check:

Healthy: You’re saving 15% or more of your gross salary each year.

Mild Fever: You’re saving 7-15% of your gross salary each year.

Danger Zone: You’re saving less than 7% of your gross salary.

These numbers might seem high but they do include both retirement and non-retirement savings. I’ve learned the hard way that saving is the single most powerful thing we can do to secure our financial future and protect ourselves from life’s curveballs so it’s something I now make a high priority. If you’re working and you’re not saving then you’re setting yourself up for difficult times.

Debt: How much do you owe?

The average debt to income ratio in Canada is currently around 163%. This means that for every dollar we earn, we owe $1.63: so someone earning $75,000/year would be carrying, on average, $122,250 of debt. This rate includes mortgage debt as well as car loans, credit cards and other consumer debts so it’s easy to be misled by the numbers. Younger people with high mortgage balances might feel that they’re doing worse while older people with a smaller mortgages and a higher amount of consumer debt might feel like they’re ahead of the game. Monitoring your financial temperature means keeping track of your debt levels, trying to keep them as low as possible and to decrease your debts year by year.

Related article: How much debt is too much debt?

Temperature Check:

Healthy: Your loan payments are manageable (meaning that you can save as well as pay off debt) and you pay off your credit cards in full each month.

Mild Fever: You’re carrying a balance on your cards but paying off significantly more than the minimum balance each month. Debt levels are declining year over year.

Danger Zone: You’re only managing to pay the minimums or you’re behind with payments.

It’s important to remember that everyone’s situation is different and that our financial health can be impacted by an infinite number of factors including our stage in life, our physical health and our family situation. What’s importantis that each of us makes positive financial progress each year: that we earn enough to pay our bills, that we put aside something for our future self and that we keep our debt under control.

Each one of us is on a different financial path and this is why it’s important that we become the benchmark for our own journey and that we compare our current self to our past self to determine whether or not we’ve moved forwards. As always I’m interested to hear your thoughts (and your personal benchmarks). How do you stack up financially?


  1. Claude Mayrand

    How do you stack up financially?

    Everything – almost – you’ve said is rational, logical and for many, achievable.

    If someone’s earnings are at poverty level, ±$20,000, they cannot save 15% or $3,000 or $250 a month. Even $1,500 a year is a struggle.

    A mortgage is not a debt in the same breath as consumer or car debt. If the mortgage is $2,500 a month and a three bedroom family apartment is $1,700 a month, then the difference may be a debt. Y’a gotta live somewhere.

    Emergency fund:
    Let me propose something, especially for those who are starting out. I hate to leave money idle and often an emergency fund can be confused with cash sitting somewhere.

    Take $1,000 – a first goal for the retirement fund – and open a Margin account at an online discount broker. Do not do this in a registered account. Buy a closed-end fund, let’s say 100 shares at $10 that pay $1.20 a year per share. The commission is about $25 to $30. Because it’s a Margin account, you might be able to buy more than 100 shares; do so if you can.

    Then set up an automatic purchase program using the monthly distribution; there is no fee for these automatic purchases. If the broker doesn’t offer such a purchase program, call another and ask: Margin account and automatic share purchase plan with the distributions.

    Should an emergency arise, you have 2 options:
    1. borrow what you need on the Margin – the interest is tax deductible – then discontinue the automatic purchase program until the borrowed money is automatically repaid;

    2. sell the stock for cash; start this process at a later date.

    PS: I use red-amber-green instead of temperature as it’s easier to show on a spreadsheet.

  2. Charles Dickens

    Mr Micawber’s famous, and oft-quoted, recipe for happiness:

    “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

    Charles Dickens, David Copperfield

    • Claude Mayrand

      Where does the twenty pounds come from?

      I’m always concerned about the income; could it not become twenty-one pounds? Or more?

  3. Sw

    20 pounds of what? I am so confused.

    • Claude Mayrand

      …Dickens, England, currency…

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