Personal Financial Health Check: How do You Measure Up

 



Is comparing your finances to the average person beneficial? In short: no. The average savings figures, as detailed below, simply aren't sufficient to beat inflation and support the lifestyle we aim for in retirement.

Here's the problem: What most people consider "average" is often well below what's needed for true financial security. When the average person has far too little saved to retire comfortably, aligning your progress with their standards is setting yourself up for failure.

The truth is, being average financially means you’re likely underprepared. Inflation keeps eating away at stagnant savings, cost of living continues to rise, and retirement goals keep shifting further away. When you measure yourself against mediocrity, you lower your own standards. Instead, establish your own clear financial goals, understand precisely what's needed to achieve them, and diligently work toward them. Your financial future deserves better than average.

Step 1: Review Your Current Financial Status

Begin by gathering details about your:

  • Savings Accounts: Total balance across all savings accounts.
  • Retirement Accounts: Balances in pensions or other retirement plans.
  • Investments: Value of stocks, bonds, mutual funds, etc.
  • Debts: Outstanding balances on mortgages, loans, credit cards, etc.

Example: At age 35, you might have £10,000 in savings, £30,000 in a pension, and £5,000 in credit card debt.

Step 2: Compare Your Savings to National Averages

Understanding how your savings stack up against peers can highlight areas for improvement. According to recent data, the average cash savings by age in the UK are:

  • 18-24 years: £4,759
  • 25-34 years: £9,357
  • 35-44 years: £7,434
  • 45-54 years: £13,318
  • 55+ years: £27,949

Here's the catch: Being above the average doesn’t necessarily mean you’re doing well. If the average person can’t afford to retire comfortably, being above their level, although better could still mean that you're in trouble. That's why comparison is a dangerous game.

Step 3: Assess Your Retirement Savings

Retirement savings are crucial for long-term financial security. According to the Social Mobility Commission, the average pension wealth by age in the UK is:

  • 25-34 years: £16,728
  • 35-44 years: £63,724
  • 45-54 years: £173,131
  • 55-64 years: £305,689

Most people will need between £500,000 and £1,000,000 to retire comfortably. This means that even if you're at the average for your age group, you are well below what you should be aiming for. Most people in retirement end up becoming completely reliant on the state, why should you settle for this? Take control.

Step 4: Evaluate Your Debt Levels

High debt can hinder financial progress. Compare your debt-to-income ratio to recommended levels:

  • Healthy Ratio: Below 36%
  • Manageable: 36%-42%
  • Concerning: Above 43%

Example: With an annual income of £40,000 and total debt payments of £1,000/month, your debt-to-income ratio is 30% (£1,000 x 12 / £40,000), which is within a healthy range.

Step 5: Set Financial Goals

Based on your assessment:

  • Short-Term: Build an emergency fund covering 3-6 months of expenses.
  • Medium-Term: Save for a home deposit, education, etc.
  • Long-Term: Increase retirement contributions to meet or exceed average savings for your age group.

Example: Aim to increase pension contributions by 2% annually until reaching 15% of your income.

Step 6: Monitor and Adjust Regularly

Schedule quarterly reviews to:

  • Track progress toward goals.
  • Adjust budgets and savings plans as needed.
  • Rebalance investment portfolios in response to market changes.

Example: After six months, reassess your savings and adjust discretionary spending to stay on track.

Conclusion

Here’s the harsh truth: The "average" is a low bar. If you’re aiming to match what most people are doing, you’re likely setting yourself up for failure. Life is getting more expensive and we are focusing less on the future and more on the now. I predict that future generations will have less savings should this continue. Create a clear structured plan and focus on having fun but also being financially stable with a set structure to achieve financial independence in place. Or if this sounds like too much work, employ someone like to sort this all out for you.


Book an appointment below and start your journey to financial freedom:

https://outlook.office365.com/book/SkyboundWealthManagement4@skyboundwealth.com/s/GxL75GQxr0KaVOmhTMCyZg2

Comments

Post a Comment

Popular posts from this blog

Personal Finance Assessment: A Wake Up Call

Image
Are You Financially Fit? A Personal Finance Assessment That Could Change Everything How long have you been working—and how much have you saved? Be honest. Now take that number, divide it by the years you’ve worked, and project that average forward to retirement. Still feel confident? If you stopped working tomorrow, could you live off what you’ve saved for the next 30, 40, even 50 years? For most people, the answer is a hard no. But here’s the thing: it's not because you're not earning enough. It’s because you're not paying attention. Most people believe they’re 'doing okay' with money—until they realise they’ve been winging it their whole adult life. They’ve never sat down to actually assess their financial health. They don’t track their spending. They don’t have a clear plan. And they certainly don’t know if they’re on track to retire. This article isn’t here to sugar-coat things. It’s here to hold up a mirror and make you take a hard look at your financial habits...
Read more

Why Most People Stay Broke (Even If They Earn a Good Salary)

Image
   Let’s be honest: earning a good salary should mean financial security, right? But for many people, that's far from the truth. In fact, a surprising number of high earners find themselves living paycheck to paycheck. Why? Because they fall into financial traps that quietly drain their wealth. Here’s a wake-up call: it’s not about how much you make—it’s about how well you manage it. Let’s dive into the biggest reasons people stay broke, even with a healthy income, and how to break free from this cycle. 1. Lifestyle Inflation: The Silent Wealth Killer As your income grows, so do your expenses. You get a raise, and suddenly that old car doesn’t feel good enough. You move into a bigger house, dine at fancier restaurants, and upgrade your wardrobe. Before you know it, your spending matches (or exceeds) your income. The Myth: "I deserve to enjoy my money!" The Reality: You can enjoy your money and build wealth—but only if you have a plan. I had a client who doubled hi...
Read more