6 Signs You're Doing Well Financially (Even If It Doesn’t Feel Like It)
Financial stability is everyone's dream.
We all want to be in a position where we have total control of our finances, have confidence about the future, and don't struggle to make ends meet.
However, the average person spends most of his life chasing financial stability, which is difficult to attain.
Most of us fall into this category of working, getting paid, and spending the money on bills and repeating the cycle.
We hardly have any time for leisure activities.
Now before we start, this is Ivan here from the Vanilla Investor, a former investment analyst and with over $100k invested in the markets.
My goal is to bring you simple finance at your fingertips.
After spending over 6 years in the finance field—three years studying finance and another three years working in asset management—I've learned to spot the key signs of financial success.
In this article, I want to share 6 important things that tend to determine whether or not you're doing well financially.
- Which game are you playing in life, is it the status game or is it the wealth game?
- The amount of money that you should be earning.
- What’s your relationship with money?
- Whether you have an emergency fund.
- And also how much debt you have?
- Your perspective on this game of life (how you look at things).
So these are the 6 things that we will go over today, so by the end of this, you should have a better idea of where you stand financially and also know what you can do to become better and stay on track.
So without further ado, let’s begin.
#1: The Status Game vs The Wealth Game
Are you playing the right game?
One crucial factor in assessing your financial success is determining whether you're playing the right game.
There are two main financial games people tend to play: the status game and the wealth game.
Many people feel financially behind because they're playing the wrong game—the status game.
The Status Game
In the status game, people measure success by comparing themselves to others.
Naval Ravikant highlights that winning the status game involves putting others down, leading to a competitive and often unhappy mindset.
This game focuses on external markers like:
- the size of your home,
- the brand of your clothes,
- or the car you drive.
For example, owning a Porsche only boosts your status if others don't have one.
You're constantly using others as a benchmark for your success, which can leave you feeling anxious and inadequate because someone else always has to lose for you to win.
The Wealth Game
On the other hand, the wealth game is about what's happening behind the scenes.
It’s not about outward appearances but about accumulating real financial assets.
This includes:
- money in the bank,
- investments,
- building a business,
- and spending on self-development.
The wealth game focuses on things with a positive return on investment (ROI) that can ultimately give you financial freedom and the ability to live life on your own terms.
Shifting Your Focus
The key is to shift your focus from the status game to the wealth game.
As the book "The Millionaire Next Door" puts it,
Wealth is not the same as income. If you make a good income each year and spend it all, you’re not getting wealthier; you are just living high.
When you stop measuring your success by external status and start focusing on building wealth, you might realize you're doing much better financially than you thought.
The status game is like a movie trailer—it shows the highlights and leaves out the rest.
#2: Are You Earning More/Less Than You Should Be?
One way to gauge this is by comparing your salary to average wages.
According to Forbes, the average annual salary in the US is $59,428, while the average hourly rate is $28.34.
However, these numbers don’t significantly impact how we perceive our financial standing.
Influence of Friends and Peers:
Research shows that our friends and peers have a bigger influence on our self-assessment of financial success than society as a whole.
Regardless of our earnings, it's easier to feel bad about the number than good.
This is tied to the concept of loss aversion, where the pain of losing is psychologically more powerful than the pleasure of gaining.
Loss Aversion and Earnings:
For example, finding $100 would make us happy, but losing the same amount would cause us much more distress.
The same principle applies to our income.
If you discover you earn more than your friends or colleagues, you might briefly feel content.
However, learning you earn less than them would have a greater negative impact on your happiness and satisfaction with your earnings.
Psychological Impact of Comparison:
We can outperform 99% of the people around us, but if one person in our circle seems to be doing better, it can make us doubt our success.
This creates a never-ending cycle of dissatisfaction.
As we earn more and move up in our careers, our peer group and the benchmarks we compare ourselves to also change, often keeping us in this cycle of discontent.
So, how can you escape this cycle?
I'll share some actionable steps to help you in just a moment.
#3: Your Relationship With Money
But first let’s talk about your relationship with money.
This means knowing your financial health, including your income and expenses, and finding ways to live below your means.
In other words, either increase your income or reduce your spending so you have money left to save or invest.
One way to achieve this is by using a tracker to monitor your finances and ensure you're spending less than you earn.
I have a free tracker available here that even lets you know real-time as you fill it in whether you are on track on the goals you set.
Try it out if you’d like and let me know if it works for you.
#4: Having An Emergency Fund (Cash Buffer)
And that leads me to having an emergency fund or cash buffer, whatever you want to call it.
This is a specific amount of savings you can access in case of an emergency.
Having this puts you ahead of many people.
For instance, nearly half of Americans have $500 or less in their savings account, and this translates to only 44% of Americans who are able to cover an unexpected $1,000 expense.
If you have a healthy emergency fund tucked away, even if it’s just one month of living expenses to start with, you’re already doing a lot better than most people.
#5: Having Manageable Debt
Having manageable debt is easier said than done, especially nowadays where prices keep rising everywhere.
This doesn't just mean avoiding unnecessary purchases with debt, but also, not relying on debt to pay your bills.
The average American has $22,713 in debt, excluding their mortgage.
If you were to include their mortgage, then that number would go up to $104,215.
And by the way, this is with Gen X and Millennials carrying the most total personal debt.
With around 40% across both age groups saying their personal debt level is at or near its highest level ever.
And an additional 19.3 million new credit accounts were opened, indicating that people are borrowing more to maintain their lifestyles amidst rising inflation.
So, if you can:
- save part of your income,
- have an emergency fund (cash buffer),
- and pay your bills on time without accruing debt,
you’re already doing better than most.
But knowing this, doesn’t necessarily make you feel better, right?
Probably not, thanks to loss aversion.
#6: Your Perspective On Life (How You Look At Things)
And this leads us to how you view success in life.
It makes a huge difference based on how you see things, whether it’s via your own lens, or if it’s based on society’s standards.
There's a quote that says,
If you change the way you look at things, the things you look at change.
Nowadays, our perception of success is heavily influenced by society's expectations and comparisons.
Society often praises:
- extravagant lifestyles,
- external rankings,
- and financial achievements.
However, if we shift our perspective to evaluate our success based on our own standards, rather than society's, we can free ourselves from comparison and societal pressures.
This approach allows us to escape the game where others set the rules.
Warren Buffett advocates for this 'inner scorecard' method, suggesting you should consider this question:
Would you rather be the world's greatest lover but have everyone think you're the worst, or be the world's worst lover but have everyone think you're the best?
In other words, would you prefer societal approval even if it's based on a false image, or would you rather be genuine and true to yourself, regardless of what others think?
So these are the 6 things that tend to dictate whether you are doing well financially.
If you think you are doing better than you initially thought, or if you aren’t, then maybe you would like to check out this article next, where I go over how you can retire in 10 years starting with zero dollars saved.
Thanks for reading, cheers!
- Ivan