So, you've been googling how to tell if you're doing well financially?
“The best person to compare yourself to is the person that you were yesterday.”
This is a super common question that I thought about a lot in my 20s. Maybe you've also searched "average salary by age 25" or "average savings by age 30"? Actually, since I recently entered my 30s, I'm reminded to go google "average retirement savings by 30"...BRB while I go check mine!
🥳 phew, I'm on track! It says I should have 1x my annual income saved. This year, because I decided to quit my old job and start a business, so I'm making a lot less annual income, I have like 72x my annual income invested for retirement!
But I don't think that's what they really mean. Maybe I should instead use my last salary before I left my job? Then I have 2x my old annual income saved...but I was underpaid by a LOT!
So if we're going for my target salary, I have .87 my annual (ideal) salary...😥 I guess maybe I'm behind then.
But this doesn't take into account my income changing every year!
So I decided to see what that might look like by creating an example below where your salary starts at $50k per year and increases by $10k per year (wouldn't that be nice?). Here's what it looks like:
The numbers really change don't they?
Kind of makes you think that maybe this isn't the best way to measure your financial success - although I do acknowledge that it's a rule of thumb, or a starting place.
So what should you do to figure out how well you're doing financially?
Enter the "financial balance sheet" and "financial net worth."
1. Create a financial balance sheet.
Here's my handy template for you to use - you have to make a copy of it in google drive, or download it as an excel/sheets file.
On this financial balance sheet, you're going to input everything you own (your financial assets) and everything you owe (your financial liabilities or your debts).
Then the spreadsheet will add everything you own (your financial assets) up and subtract everything you owe (your debts). Make sure that the formulas are adding up everything correctly - if you need help, feel free to schedule a free 30-min call with me.
The number at the end is your "financial net worth."
If you need more guidance on how to do this, check out my youtube video above!
2. Track your financial net worth.
Please remember that your self-worth is NOT your financial net worth!
Your financial net worth is one measure of your overall health. I like to use this wheel of life template with my clients to think about your health being measured in many different ways:
(Feel free to click on it to make a copy for yourself!)
Track your financial net worth periodically so that you can just check-in and make sure things look good. If not, take this as a starting point to think about what you'd like to change about your life and your finances.
3. Set a calendar reminder
Make sure to set a calendar reminder at minimum once every year to check-in on your financial net worth. I usually check every 3 months or so because I find it really motivating to see the numbers increasing - although there have definitely been times when the numbers DIDN'T increase or even went DOWN.
Remember, progress isn't linear - here's a classic image as a reminder:
4. If you're not happy with your financial net worth, expand your network & skills!
Today I read an article that talked about how hard work doesn't actually pay off - at least not working super hard at a single job. As the article mentions, often the people who are most successful are only moderately talented and extremely lucky. The article might be a downer to read, but the key point I took away from it was at the end - that you won't find your lucky break if you stay in one place all the time. Kind of a variation on "madness is doing the same thing over and over again with the same results." So if you're unhappy with your financial net worth, or financial progress, I highly suggest you focus on expanding your network and increasing your marketable/valuable skills.
Expanding your network & Upskilling
I already know that you're saying "YUCK" lol.
Look, I find genuine joy out of attending events and learning. I like talking to new folks and I like attending as many workshops and webinars as possible - I recognize that this is just lucky I was born this way.
But I have gotten almost every job from going to professional events and I started off my career very ANTI-NETWORKING!
I didn't think it was fair for people to get jobs based on who they knew - so I became a teacher instead, because I thought that hiring for teachers would be meritocracy-based vs 'who you know.'
Boy, was I wrong !
After deciding I couldn't afford to live on a teacher's salary in the Bay Area, I sucked it up and asked for advice on how to switch to a new career path. The best advice was:
Start your CERTIFIED FINANCIAL PLANNER™ classes (upskill yourself!)
Attend the FPA Far West Round Up conference to meet other financial planners and figure out what they do.
The 3rd unspoken advice, that nobody really shares, is also "Get lucky!" - but I wouldn't have gotten lucky if I didn't do the two above first.
I paid $850 (or so) to attend that conference and $2,500 (ish) to start taking my CERTIFIED FINANCIAL PLANNER™ classes.
I used my little savings and went all-in. And then I got lucky, too!
5. Once you ARE happy with your financial net worth, consider what other areas you're ready to grow
As shown above, our lives are not confined to our financial health. If right now is the season for you to focus on improving your finances, great! You're in the right spot. And if it's not, and you're happy with where you are, then it's time to consider life outside of your money.
I am a big believer that money touches almost everything in our lives - but if your money is good, what about your physical health? What about your relationships? How's your involvement with your community, or with the land?
Again, financial health is important, but it's not the only thing. You're a whole ass person - so go act like it!
If you're feeling overwhelmed, take some time to regulate your nervous system (something even as simple as a few deep breaths really helps!) and take things one small step at time. That could look like just watching the video above or copying the template. Then maybe a few weeks or months later, you fill it in yourself. It's okay to go slow - just as long as you go!
