We are all at different places when it comes to financial progress. Indeed, some of us may not even measure progress the same way. Just as being “rich” means different things to different people, the way you measure financial progress might vary from the way your neighbor measures it. But it is important to understand how you feel about your finances, and be prepared to measure your progress in a way that works for you. Here are some suggestions of how to do it:
One way to keep track of your financial progress is to track the way that your net worth grows. Your net worth represents the total value of your assets after your liabilities have been subtracted out. This can be a good way to keep track of how close you are to reaching a financial goal, since you can see results as you reduce liabilities and increase your assets.
Some people measure their financial progress by how much money they make. If they can increase their income a little bit each year, they feel as though they are making good financial progress. This does not mean that you have to get a raise from your 9 to 5 job every year; rather, you can work to cultivate additional income streams (from a side business, dividend investments, a web site, or royalties) to help you meet your income goals.
For those who are in a great deal of debt, financial progress can be measured by debt reduction. Being in debt can be a rather discouraging thing, so being able to pay it down can be a big help. Choose a method of debt reduction that works for you (the debt snowball is one of the most popular), and set to work. As you pay down your debt — especially when you pay off a loan — you will feel a sense of accomplishment and well being.
Size of Your Nest Egg
Some people are not as concerned with what is going on now as they are with what is likely to happen in the future. If you are building toward a certain goal, the size of your retirement account can be a great indicator of where you are at financially. As you set more money aside, and as your nest egg grows, you can measure your financial progress — and how close you are to your retirement goal.
Comparing Yourself to Others
Of course, one of the the age-old measures of financial progress is still how you stack up, in terms of possessions, to people you associate with. While this is not the best way to gauge your financial progress, it is difficult not to look at what others have (or appear to have) and use that as a measure of ourselves. Unfortunately, measuring your financial progress by how much stuff you have compared to someone else is a short road to ruin. This is especially true if you are basing your estimation of what someone else has by stuff without knowledge of his or her finances. You could be simply racing your neighbor to see who can rack up the most debt, and that doesn’t help anyone.
Take a few minutes to think about what defines financial progress for you, and sort out your financial priorities. Once you have a better idea of what financial progress means for you, you can begin to set solid goals to help you see the progress that helps you on the road to financial freedom.
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence. They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
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