We have a habit of underestimating ourselves. Of course, when money is involved, anxieties can run even higher.
It can be hard not to compare ourselves to those around us or what we see online, but don’t fall into that trap. You may think others have it all together financially while you’re floundering, but that may not be the case.
For instance, a 2023 survey from Credit Karma found that 76% of Gen Z and 83% of millennial respondents said they’re willing to take on debt to finance travel. Others even planned to dip into their savings. Many said they’re influenced by seeing other people’s travels on social media.
So while it may seem like everyone can afford luxuries you can’t, know that appearances can be deceiving. Not living a life of luxury doesn’t mean you’re failing.
You may not be giving yourself the credit you deserve, so Money Talks News asked experts across the country about how to get a clearer picture of your financial responsibility. Here’s what they say are signs that you’re better with your money than you may think.
1. You have a healthy debt-to-income ratio
Your debt-to-income ratio is “a pretty solid indicator of the health of your cash flow,” says Anthony Gizzarelli, a certified financial planner and owner of Covenant Wealth Partners.
You can determine your DTI by adding up your monthly debt payments and then dividing that number by your before-tax monthly income. If your monthly debt payments total $1,500 and your monthly income is $5,000, for example, your DTI would be 30%.
Gizzarelli tells Money Talks News that, in his opinion, a healthy DTI is between 36% and 45%. Any more than that and you could have trouble meeting your monthly obligations. And for those with a DTI below that range, Gizzarelli advises people to ensure they are saving some of their discretionary income rather than spending it all.
Scott S. Van Den Berg, the president of Century Management, tells Money Talks News, “Keeping debt under control or steadily paying it off means you’re effectively managing your obligations. Knowing that you are trending toward low or no debt is a great sign you are financially astute and heading in the right direction.”
2. You set goals, and reach them
Buying a house and having a comfortable retirement are amazing goals to have, but they’re also hefty tasks that take years to reach. It can be easy to feel defeated when you go so long without a sense of accomplishment. So, start with smaller goals that you can tackle in shorter windows.
Setting small and measurable goals can feel much more rewarding and give you a better idea of how successful you are at handling your money.
You’re saving for a home or car? Set a goal for how much you want to save every month, or even every week. Or are you just hoping to have some extra spending money? Determine how much you’d need for that, then analyze your current spending and cut down where you can. You can know you’re doing something right if you successfully put aside that extra money.
Anna Sergunina, CFP, CEO and senior financial advisor at MainStreet Financial Planning, says that it helps to set clear, achievable financial goals.
“It shifts the focus away from the unrealistic expectation of being perfect with money,” she tells Money Talks News. “The guilt associated with not being perfect often leads to negative thinking and prevents people from recognizing their smaller wins.”
3. You’ve built emergency savings
A Bankrate study reveals that about 1 in 4 Americans have no emergency savings. So, if you do, you’re already in a safer position than many others.
“Saving three to six months’ worth of expenses is a strong safety net and indicates prudent planning,” says Van Den Berg, who holds multiple financial designations, including CFP.
Only 28% of Americans can reach that six-month benchmark and an additional 16% have between three and five months’ worth of savings, according to Bankrate.
4. You say ‘no’
Building wealth means living within your means and growing your savings instead of your spending.
“Ultimately, if you save more than you spend, you demonstrate control over your finances. Having the discipline and self-control not to buy something even though you can afford it is a wonderful trait,” Van Den Berg says. “Whenever you buy something, remember that the money you are spending could be worth three times to eight times more in 20 years, and possibly as much as four times to 17 times more in 30 years.”
For example, he says, if you spend $5,000 less on a car — even if you can afford it — and put that $5,000 into an investment that grows between 5% and 10% annually, it could be worth $13,200 to $33,600 in 20 years.
“This type of mindset will help ensure good financial health and success,” Van Den Berg says.
5. You’re saving for retirement
Putting money toward your future is a big indicator of your financial responsibility in the present.
“Are you regularly setting aside even a small amount each month through your 401(k), IRA or taxable savings and investment accounts?” Van Den Berg says. “If you are, this shows you have discipline and foresight, which are crucial for financial health.”
Van Den Berg suggests saving, on average, about 10% to 15% of your pre-tax income.
This can vary based on your age and stage of life, though.
Gizzarelli notes one rule of thumb suggests that those under age 32 save a minimum of 12%. If you don’t begin saving until age 40 or later, that percentage should be increased to 22% to 25%.
“These are just rules of thumb, and each individual should work with their advisor to determine the saving ratio that’s right for them, rather than relying on these,” Gizzarelli says. “They’re still pretty good benchmarks, though.”
6. You keep track of your accounts
Little things can be indicators of much larger habits and mindsets. Just knowing what you have isn’t a universal skill.
“I would say if you know what you have [financially] and where you have it, you are starting from a good place,” says Crystal McKeon, CFP and chief compliance officer at TSA Wealth Management. “It is surprising how often accounts are lost or forgotten about.”
Just one example: C+R Research surveyed 1,000 Americans about their subscription services in 2022, and 42% said they had forgotten about recurring monthly subscriptions that they continued to pay for without using.
Respondents also underestimated what they spend on subscriptions every month by $133, on average. About one-third underestimated by $100 to $199.
7. You know there’s more to learn
When it comes to personal finance, ignorance isn’t bliss.
“I have found that intelligent and inquisitive people are often more aware of what they don’t know than what they do know,” McKeon tells Money Talks News. “There is so much to learn financially. It is almost a cycle that the more you learn, the more it makes you realize how much more you still don’t know or fully understand.”
Simply being concerned about your financial management, ready to learn and willing to take suggested steps from a trusted professional is a sign that you’re better off than you might think.
Add a Comment