As time passes it is quite normal and even constructive to measure your progress in different areas of your life. You may look at where you are professionally to make decisions on what needs to be done in that arena.
You might reassess your relationship to shake things up there as well. Personal finances should be no different. It helps to take a close look at how you have progressed over the years to be able to either get back on track or continue with your winning strategy.
There are actually quite a few acceptable ways to measure financial progress. Some of them are more all-encompassing than others, but each of the suggestions listed below can help to indicate if you are moving forward financially, or if you are sliding backward.
1. Increasing Income
Probably the most straightforward way to measure financial progress is to look at whether or not your income is increasing year on year. This does not necessarily have to come from a raise at your full time job, but from other sources of income such as investments or passive income. Starting a part time business is a great way to build your income without letting go of your main source of money.
2. Decreasing Debt Load
Another way to tell if you are making financial progress is by measuring your debt load. This is especially pertinent if reducing debt is one of your goals, but it is a good measure of performance regardless.
Falling debt inadvertently means rising incomes because less of your income will be directed to making loan payments and can be used to build your savings or investments instead.
3. Net Worth
This is arguably the most complete form of measuring financial progress because it takes into account both the income and expenditure sides of the equation. Your net worth is simply the difference between your assets and your liabilities. It represents much more than liquid cash because it covers fixed assets as well as the debt that they may be tied to.
In order for your net worth to increase, the value of your assets must be worth more than your liabilities. For instance, you may have a house that is tied to a mortgage, but if your property’s value falls and your mortgage is higher than the value of your home, your net worth would fall.
4. Impressive Retirement Fund
Yet another way to look at making financial progress is to assess the store of value in your retirement nest egg. If your retirement income is healthy and robust this can be an indicator of overall financial health and progress because saving for retirement is usually one of the first things to be cut when incomes contract.
5. Keeping Up With the Joneses
Finally, measuring how you compare to others in your income bracket can help to illuminate your overall financial progress. Of course, this is a very unscientific approach to take, but it can give you a quick impression of where you are in comparison to your contemporaries.
Many people do this without even noticing. When you take in the fact that the neighbor has a new car and make a determination of whether or not you could afford to do the same you are mentally “keeping up with the Joneses”. You may not actually try to compete, but it can be an impulse to compare your situation with that of others in your circle.
Measuring your financial progress is a healthy part of increasing your financial awareness. These methods can all help to gauge your performance and should be used from time to time to give a snapshot of where you stand so you can better understand how much further you have to go.