Are You Secretly Doing Better With Your Money Than You Think? Here Are Some Signs You’re Financially Healthy

Many people worry about their finances, stressing over whether they’re saving enough, spending too much or heading toward a debt crisis.

But several often-overlooked signs may indicate that you’re in better financial shape than you realize. While having a significant nest egg or being debt-free are obvious indicators of financial wellness, there are more subtle clues that your money-management skills are on point.

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You Have More Than $5,000 In Your Savings

One way to gauge whether you’re in better financial shape than you realize is by looking at your savings account balance relative to national averages. The Motley Fool Ascent survey found that 71% of Americans have $5,000 or less in savings, with 41% having $500 or less set aside.

Specifically, the survey revealed:

  • 11% have $0 in savings

  • 30% have between $1-$500

  • 8% have $500-$1,000

  • 22% have $1,001-$5,000

So if your savings exceed $5,000, you are already outpacing most American households in terms of having a financial cushion. And if your balance tops $10,000, you find yourself in the minority of only 21% of people who have managed to amass a five-figure safety net.

Your Net Worth Is Above The Median For Age Group

Looking at net worth, which is the total of all assets (retirement accounts, home equity, investments, etc.) minus total debts, can provide perspective. If your net worth exceeds the median level for your age group, it signals you have accumulated more wealth than the typical household in your cohort.

For example, according to the Federal Reserve’s Survey Of Consumer Finances published in October 2023, the median net worth for ages 35-44 is $135,600. For ages 45-54 it’s $247,200. Having a net worth higher than these medians suggests you are ahead of the curve in building up a financial backbone.

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Your Mortgage Debt Is Less Than The Remaining Principal

With a mortgage being most families’ largest debt, having paid down more principal than what remains outstanding is an encouraging sign. Once you owe the bank less than your home’s value, you are positioned with some protective equity.

Nationally, the average mortgage debt is around $241,815, according to Bankrate. If your remaining balance is comfortably below this level, it implies you’ve made serious headway in reducing your housing debt burden.

Less Than 15% Of Your Income Is Going Toward Non-mortgage Debt Payments

Experts advise keeping consumer debt payments (student loans, auto loans, credit cards, etc.) below 15% of your gross monthly income. If you meet this threshold, it means you likely have affordable, manageable debt loads that don’t risk putting you in an overly strained cash flow situation.

For the average U.S. household income of around $70,000 per year, 15% would equate to debt payments of less than $875 per month. Lower debt obligations give you more financial breathing room.

You Have Three Months’ Worth of Living Expenses In Cash Reserves

A general personal finance rule of thumb is to have enough readily accessible cash savings to cover approximately three to six months’ worth of basic living expenses in case of job loss or income disruption. If your liquid cash reserves allow you to meet at least the lower three-month benchmark, it demonstrates an ability to weather short-term financial hardships.

Based on the average monthly expenditure of $6,081, three months’ worth of expenses would require cash savings of $18,243 to meet the lower benchmark of the three- to six-month rule of thumb for financial preparedness.

You’re Actively Contributing To Your Retirement Savings

Regular contributions to retirement accounts such as a 401(k), individual retirement account (IRA) or another pension plan are indicative of forward-thinking financial planning. Starting early and contributing consistently to your retirement savings can leverage the power of compound interest, significantly impacting your financial security in later years.

A professional advisor can analyze your current savings levels, projected retirement expenses and risk tolerance to determine whether you’re on track to reach your retirement goals or if you need to make adjustments. They can also ensure your investment portfolio is properly allocated and diversified based on your age and retirement timeline.

Making the effort to consult an adviser every few years demonstrates a commitment to objectively assessing your retirement readiness. Small course corrections now can have a significant positive impact down the road versus leaving your retirement planning on autopilot indefinitely.

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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.

Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.

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