Signs You're Doing Financially Well From An Accountant.
Most of us are pre-loaded with feelings about our financial situation based on what our friends talk about, what we see on social media, and what we see on the news. These factors all create an emotional response in us.
But does that necessarily reflect the factual situation we're in?
No...
When we look at our financial situation from an emotional standpoint we subconsciously let biases impact what we feel. These biases come from the media, our friends, and our family.
I've helped loads of people with their finances and businesses in my life and I've put together 4 of the key signs that say you're doing financially well. No matter what your age or cost of living area you live in these are 4 relevant signs you're doing financially well.
You Get The Fundamentals Right
There is something called the Pareto Principle that states 80% of the outcomes are from 20% of the inputs. In personal finance, most of your financial health will come from 3 key fundamentals that, if you can get them right, will get you 80% of the way there.
You Have a Budget or Spending Plan
If you have a budget or a spending plan, this means you've taken the first step to getting a hold of your finances. Having this in place is more than the average person.
On average most people don't have a budget or even a good idea of what they spend every month.
If you've taken the first step and built a budget or spending plan to track your monthly spending then you're doing better than most people with your money.
You Have an Emergency Fund
The second fundamental that people who do well with their money get right is having an emergency fund. An emergency fund is 3 to 6 months' worth of expenses that you have in a high-interest savings account in case of emergencies.
Pretty self-explanatory right?
Like a budget, most people don't have an emergency fund which increases their day-to-day stress in cases of their car breaking down or if a pipe bursts in their house.
Get an emergency fund and you're on your way to doing better than most people. If you already have one, then you're doing a good job.
You Have Financial Goals
Most people don't have clear financial goals. The issue with most people is that their financial goals are "I want to buy a house" or something else generic and vague.
In response to that goal, I ask "When do you want to buy? how much are you putting towards it each month? what is the budget for your house? what do you want to put down as a deposit?"
Most people can't answer these kinds of questions when it comes to their financial goals. It's usually "I don't know, soonish."
Be specific when setting your goals, this is how you set good financial goals.
If you're already on top of these 3 fundamentals, then good job! you're taking steps in the right direction.
You Know The Game You're Playing
Something I was obsessed with after reading "The Psychology of Money" by Morgan Housel is the concept of knowing the game that you are playing.
Success is not an objective concept. You might think that a billionaire entrepreneur is more successful than you, but that's only true if your goal is the same as theirs and you're playing the same game as them.
Know the game that you're playing.
This is a big concept in the push for people to start their own businesses. A lot of us in the finance content creator space push for starting a business but if you're truly happy with what you're pursuing then that's all that matters.
Most people get caught up in other people's financial, business, or career games rather than focusing on their own game.
We're all playing different games and if you're confident that you're on the right track for the game that you're playing, then you're doing better than most people with your money.
One big aspect of knowing the game you're playing is whether your focus is on wealth or status. There is a big difference between the two.
Status is what most people think of when they think of wealthy or successful people, we think of nice cars, clothes, jewelry, etc. This is not necessarily wealth. This just means that they have income.
If you have income and spend it all then you're not growing your wealth you're just growing your status. These people are playing the status game, not the wealth game.
Wealth is knowing you never have to work again, knowing that you have enough saved that you can quit and spend genuine time with your family, knowing that you have enough assets and savings that you can face most challenges head-on without the stress of money. Wealth is knowing that your assets will continue to grow and build for you.
Make sure you're playing the right game for your life and don't get caught up comparing your journey to other people's, you're playing different games that aren't comparable.
You Have The Right Mindset
Most people operate on a day-to-day basis with the wrong mindset. Most people operate under a negative mindset.
"What will they think of my clothes?"
"Will they judge me for my house?"
"Will they judge me for my job?"
People who are doing financially well don't have the mindset of worrying about what people think of them or if they're being judged. Once you are in a healthy financial situation, your mindset changes from worrying to being confident in what you have and what you're doing.
This ties into whether you're playing a status or wealth game but if you are truly doing well with your finances and accumulating genuine wealth rather than status or objects, you tend not to care what others think.
I don't worry about what people think of me driving my beat-up, hail-damaged Hyundai because I know I am in a financially secure spot and I'm confident in the journey I'm taking. I don't want a nicer car just to impress people (putting aside the fact that nice cars are a shitty place to put your money).
Once you are on the right track, your mindset changes completely.
How Much Should You Be Earning For Each Stage Of Your Life?
How much do you need to earn is a loaded question with a lot of complexity. There is no right answer, it depends on where you live, how you live, and what you're living for.
A lot of people focus on income as the source of wealth, which may not necessarily be true. If you make a lot of money but spend a lot of money, you'll likely have a smaller net worth than someone earning less but saving more.
I used to have a friend who earned a fair bit more than me at the time, but I was a diligent saver and saved as much as I could. He would often comment and joke that he earned much more than me but I knew for a fact that I had more in savings than he did and that I saved more every pay period than he did.
Income does not necessarily equal wealth.
With that out of the way, let's talk about income assuming you aren't a frivolous spender and you can manage your pretty money well.
A "good" income is entirely dependent on what stage of life you're at and what you spend your money on. In my opinion, a "good" income is defined as below:
50-60% of your income (after-tax) goes to fixed expenses. This includes your rent, mortgage, groceries, bills, car, pet costs, and so on. These are the expenses you can't just stop paying.
20% of your after-tax income goes to investments & savings. Notice how I treat savings and investing like a bill, this helps me stay consistent.
20-30% goes to all the rest including guilt-free spending like dining out.
Notice how this isn't necessarily income, but expenses. That's because $50,000 a year is worth different amounts in a low-cost-of-living area compared to a high-cost-of-living area.
If you can match these percentages with your current living conditions and income then I would say you have a good income. If you aren't able to meet these percentages then maybe your cost of living is too high for your income. In this case, you can either try to cut down on spending or increase your income.
There is no dollar figure for a "good" income.
Thanks for reading, hope you all have a wonderful day.
