7 Ways to Measure Your Financial Success
Point of Interest
Measuring your financial success requires you to look at several different factors that make up your overall financial success and growth progress while identifying the areas requiring improvement.
While TV and movies might lead you to believe that financial success is measured by yachts and sports cars, the reality is much different. Being financially successful is all about having control over your finances, financial flexibility, and an insulated and protected future. With so many different ways to be financially successful, people need to know how to measure their success and progress while identifying areas that need improvement.
This becomes especially important for younger individuals and people who are just graduating from college. By understanding the right metrics of financial success, you can get you and your family (or future family) on the right track.
7 measures of personal financial success
Personal financial success is something that should be monitored at all stages of your life, even if you are just starting out. By knowing what constitutes financial success, you can have a better idea of what goals to set and how to get there.
For young professionals, financial stability can go a long way toward setting the tone for your entire life. It affords you the ability to begin investing, building for retirement, acquiring assets and getting a step ahead. Financial instability at a young age is a recipe for trouble. Entering life without a firm grip on good financial goals, an understanding of fiscally responsible practices and a plan to measure financial successes can compound as you get older.
Measurement #1: Create a budget.
One of the best ways to be financially successful is to create a budget. Determine what you can and can’t spend and stick to it. The earlier in your life that you can get this arranged, the better. What’s great is that there are plenty of resources and even some helpful budgeting apps that can help you get squared away.
The measure of financial success here is someone who has a well thought out budget that accommodates for all expenses, provides flexibility for life and separates cash out for savings. Additionally, a strong success metric is how well you follow the budget.
Measurement #2: Save an emergency fund.
Financial success does not just look at your ability to meet your current financial needs. It looks at your preparation for the future and your ability to handle unexpected occurrences. Having an established emergency fund is a great sign of financial success.
While there are no official requirements for an emergency fund, this is a good metric to help measure your success. If you have the equivalent of three months’ worth of expenses saved, give yourself a good rating. If you have six months’ worth of expenses saved, give yourself a great rating. Anything over that and you can give yourself a perfect score for financial success when it comes to emergency funds.
Tip: Start by saving enough for three months worth of expenses. Once you achieve that, aim for six months. Consider anything over that as extra credit.
Measurement #3: Gradually increase your 401(k) contributions.
When you’re at a point that you can start saving more and more for retirement, you’re making big strides towards financial success. You may only be able to make minimal contributions to your 401(k) early on in your career, which is fine.
As you move forward in your career, you should be aiming to up your 401(k) contributions, especially if you’re getting any sort of employee matching. Consider making any contribution annually a good rating for financial success. When you’re able to max out the allowed contribution, give yourself the gold star.
Measurement #4: Invest in your career.
Financial success is not just about the dollars and cents in your bank account. It can also be measured by your earning power and ability to continue the growth. If you’re serious about reaching the pinnacle of financial success, invest in your career. This includes things like additional training, extra certifications, building out your resume and increasing your overall “stock” as an employee.
This metric is hard to quantify. However, as long as you continually work to invest in your career, you can consider it a success.
Measurement #5: Focus on your credit score.
Having a great credit score is a big sign of financial success, even if you aren’t planning any major financial moves soon. The higher your score, the more financial flexibility you have to make major purchases like houses, cars and other investments.
You don’t come out of the gate with a great credit score, though. You must build your credit score from the ground up by demonstrating good borrowing habits. You can do this by using credit cards or loans responsibly. Some online banks even offer special credit building products.
Measurement #6: Learn about investing.
Another way to increase your earning power is by learning about traditional investing. Financially stable people know how to make their money work for them.
Take some time to learn about the different types of investment options you have. By doing so, you can continue to build your financial stability and your ability to earn. There’s no requirement to become the next Warren Buffet, but you should have enough basic knowledge to diversify your funds properly.
Measurement #7: Rethink your expenses.
The measure of a fiscally responsible business is one that knows how to produce the same results by running lean. In other words, they can make the same amount of money without using as much money. The same approach applies to individuals.
If you’re able to trim down your expenses and maintain a good quality of life, you can see financial improvements across all fronts. Freeing up more cash means the ability to invest more, save more and continue building wealth. There’s nothing wrong with enjoying a little quality of life, but if you can cut a few things out, you’re on your way to a brighter future.
The final word
Taking the time to measure and track your financial success shows that you care about your financial future. If you focus on measuring your financial success with quantifiable metrics, you can get an accurate and helpful picture of where you stand, how far you’ve come and areas where you have room to grow. Keeping a close eye on these metrics is the key to long-term financial freedom.