I ran into something interesting the other week. There’s a tool in a Slate article that shares the average and median income of your neighbors in your zipcode. The information is based on what American Community Survey gathered. I admit, it’s kind of neat to see how you’re doing compared to the neighbors. As I looked at the numbers, I realized there was so much more that wasn’t being mentioned.
Looking at the Big Picture
I hate just looking at income because there are certain factors you don’t know or control. How many of my neighbors are DINKs? How many have kids? What kinds of careers do they have? Dual income families may be making quite a bit more than single income families. There’s another big factor that’s missing from the chart. Expenses are mentioned in it, so you may be missing a huge piece of the puzzle. Your neighbor might be making $75,000/year, but his/her expenses add up to $80,000/ year.
You can, however, you the general information as a tool to motivate yourself and your family to improve your finances. Have you looked into asking for a raise at your current job? Are you looking at starting a side hustle?
Using Information as Motivation
It’s one thing to sit and moan about how bad you’re doing, it’s another to get up and actually do something.
Set One Financial Goal
Setting up too many goals will actually decrease your chances of reaching them. Instead focus on one attainable goal at a time. That doesn’t mean you can’t have multiple goals – we have several for saving. It means that you should focus on one goal, get it set up and then move on to the next. For example, we went ahead and started with an emergency fund, we then moved to start a vacations. As we got the automated savings transfers in place, we could then give our attention to other goals.
Make it a SMART Goal
Now that you have a goal created, let’s refine it and make it a SMART goal.
- Specific: Choose a specific goal. Don’t say ’save more’, but instead choose ‘put aside 5% of my paycheck into a savings account.’
- Measurable: How do you know when you reached your goal? If you are saving an emergency fund up, consider setting aside 3-6 months of living expenses.
- Attainable: Work on 1 or 2 goals at a time so you don’t feel overwhelmed.
- Realistic: Make sure your goal is something you can do and truly believe in.
- Time Based: By setting a deadline, you can work backwards and break down the steps into mini goals.
From personal experience I learned that having specific goals helps me get more done.
Track It Regularly
How do you plan on tracking it? There are so many different ways to do it- from low tech and cheap pen and paper to a fully featured program designed to handle everything you’d ever need. You need to find something that you’re comfortable with and something you can use consistently.
What are some tools you can use? Here’s a list of some budgeting tools that can function as financial goal trackers as well.
- Mint: I use this often to keep track of my spending habits for our monthly reviews. It’s free, it’s very easy to use, and the charts make it easy for you to see your personal progress. The goal feature allows you to get monthly updates from the site.
- Quicken: The most popular money management software has a lot of capabilities with budgets, investing, real estate, and more. Examine the features of the different editions before you buy to make sure you grab the best fit for you. For me, I use the Home and Business Edition.
- Pocket Smith: Introduced to this by Baker of Man vs Debt, this is a really useful budgeting calendar and forecasting web tool. If you’re more of a visual/date oriented person this might be perfect for you.
- You Need a Budget: While this is not free ($59.95 after trial), some personal finance bloggers find YNAB more than worth it.
- BudgetPulse: A strength of BudgetPulse is the visualization of expenses and income.
Don’t get too hung up on the method you should use, just implement what works best for you and your finances.
What may surprise you is what makes the biggest difference. You may thought cutting back on your morning Starbucks run would give you a lot of cash for your debt snowball, but you then notice that getting your cell phone plan reduced gave you 80% of your snowball’s total. Look for the biggest bang for your buck.
Share Your Progress
Accountability has a huge role in helping you reach your goals. For me, blogging has been extremely helpful way for me to keep to our program. At the end of every month, I sit down and look at the hard, cold numbers to see how we did. Knowing that we’re sharing both our triumphs and failures, kind of lights a fire for me to work hard at making it work. While I’m not going to sabotage our long term future just to get the numbers ‘right’ for the net worth reviews, keeping the blog in mind when making financial decisions has been a big help.
It allows me to step back and ask myself – “Do I really need to do this?” instead of just impulsively doing it and regretting or doubting it later.
Thoughts on Determining Your Financial Condition
I’m pretty sure I’m not the only one keeping track of their goals. How about you? Have do you set up and organize your goals? How has it been working out for you? If you’re a personal finance blogger, has your blog been a big help for you?
RESOURCES FOR A BETTER LIFE
Manage Your Finances In One Place: One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.
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Updated for 2015
You can also use networthiq – its a great tool for comparing your networth to those with similar incomes, education, age etc. From memory its now owned by Mint. I update it every month and it has a neat little widget for your blog.
I didn’t know you can break it down by different demographics; thanks for passing on that information! It’s really interesting and motivating to see how others are handling their finances. Net worths don’t give you clear pictures, but it’s a neat snapshot.
I loved this post because I help people make SMART goals too!! You are spot on about not getting up on the “how” you are keeping track and just going out and doing it. People really shouldn’t be shy about it too – when you tell people about your success and not so successes it helps to create accountability which means you stay on task for longer. Great post!!
I love this quote from you… “It’s one thing to sit and moan about how bad you’re doing, it’s another to get up and actually do something.”
Thanks for the great ideas. Many people will need sound financial advice in this economical season.
Thanks Wil; I love reading and hearing about how others improve their finances through determination and work. We can’t control all factors, but those make a big difference.
I post our net worth updates every month on my blog and it keeps my mind on track. I don’t splurge as much when I know the whole world will see the results, lol.
Not going to lie, we don’t want to explain why we blew our budget for video games to CM readers. Accountability can be quite motivating :)
I also put up my net worth on the blog monthly (Well, not the actual number) but I do have an accurate picture of my finances on my blog every month, and to get that I calculate my net worth.
The number that concerns me the most (right now) is my total debt level – I’m looking at getting that to 0. So instead of sitting and moaning about my financial situation, I got a second job and I started a blog that I make a small income from. I’m also looking into other small ventures that I can do.
Hopefully next year I’ll be able to do some of them!
Jeff, I respect that you’ve decided to up the ante and get a second job. It’s hard work, but it’ll pay off in the end!
Great post. Yes, it is intriguing to find out what our neighbors are bringing in for income, but you’re right; who knows what their expenses are! If they have a new boat and new cars in the driveway, chances are that that their expenses are higher than yours.
My wife and I have a goal to get out of debt! We’re getting there…. we’ll most likely be free in April 2011! Can’t wait.
Congrats on being so close to your goals! Getting motivation and ideas from other people can be helpful, but getting stressed over it is counterproductive.
Good info. I am a fan of Baker’s site. He has a number of useful tools that help the budget conscious.
Love Baker and his extremely helpful guides! Automating finances has some huge financial benefits, but it also has some pitfalls as well. He is a great example of how conscious spending can help you achieve a dream.
You are right that the goal must be specific and not vague. I liked your SMART plan. Thanks for the budget resources; budget is something I struggle with. I can make the numbers work on paper, but we don’t always follow it. I also keep track of my financial goals once a month on my blog.
I always thought one good way of keeping up with the Jones was to direct it at a more productive aspect of your life. So instead of buying a car to match your neighbor, you use that money to match the 401(k) savings of someone you know. This is easier now because as some of the other commenters have shared, you can find personal finance blogs where the authors publish their networth.
Thanks for sharing the link to that article, Elle. I enjoy reading about historical trends, and that Slate article touches upon the whole income inequality trend over the past century. However, I also believe that instead of whining about inequality, the best thing to do is do something, like you said. Of course, I might just be one of those dreamers who believes that I can actually make a difference!
Elle, this is a really meaty article with some very important points and resources. I can’t wait to look at the inspiration link as well as some of the others. Thanks for a thought provoking article with viable success tips. Not setting too many goals is key!
I never competed with my neighbors! I reached to higher goals that I established. It reminds me of an article I wrote on my blog (www.krantcents.com) titled “How to Get What You Want?”
I have my 10 and 20 year pro forma calculations all mapped out 30 line items deep of assets and liabilities, but I maybe check once every two months, or whenever I read a post that asks me to check.
Not much changes b/c i now every month it gains by X amount +/-.
Instead, my blog has been more about thinking things out, outloud and making sure I’m not missing something. I try and keep a low profile and blend in. In fact, I try to appear lower income in real life!
First assume that the size of the house is roughly determined by someone’s income. I said roughly, because with all the late creative financing … Now drive by on a Sunday when people are airing out their garages. If the garage is full of junk, their net worth is small compared to their salary. You can also see whether people overstuff their trash cans on the day of pick up. Overstuffed likely means they waste a lot of stuff/money.
Blogging definitely help with accountability. I post our credit card usage every month and go over what shouldn’t be on there. September and October were great, but November bill is going to be terrible because of Black Friday. :P
I only have one 2011 goal – get a 4plex, triplex or duplex might work too. It’ll be a lot of hard work, but I think now is the time to get more investment property.
But on Black Friday, the more you spend, the more you save though right?! :) I didn’t end up spending anything. Tried to get a new LED TV, but all sold out! lol
Hahaha! The more you spend, the less you saved. :D
I don’t believe in the more you spend, the more you save these days. That’s why I am not a Costco member.
Hello Elle!
Neat calculator–thank you for posting it!
Interesting calculator. Good tool to determine if your neighbors are faking it or making it. I would love to move my family to the next town over, but would make us too house rich and cash poor.
I already know I earn twice as much as my roommates do… and definitely more than the people around us. Working in accounting is definitely a nice introduction to “real life”.
@early retirement extreme: that finally answers the question why every week our neighbors have 2 trash cans overflowing with stuff, while we only ever have one trashcan about halfway full! (My mom’s theory was that it’s because my father and I hoard “junk”. Ridiculous idea.)
I’ve used SMART goals personally and professionally and can attest to the effectiveness. I did start Bucksome Boomer to keep my accountable and it has definitely worked. I never counted on getting to know such wonderful people here and elsewhere in the blogosphere or the opportunities that would present.
Staying accountable to oneself is a good way to stay on track. As far as keeping up with the Joneses goes, that sort of thinking is counterproductive. I think it’s good to surround yourself with people who are better than you because of their qualities, as that encourages you to become a better person yourself. Trying to keep up with the Joneses just puts you into more debt or adds stress to your life by trying to take shortcuts to riches, and it encourages envy and jealousy. The better path to wealth might be by taking a more holistic view of things.
P.S. You’ll be much happier around people that aren’t trying to keep up with you! It gets annoying to be around people that constantly feel the need to show off because of low-self esteem or a need to “be better”. ;)
You are so right Elle, looking only at the income is looking at just one piece of the puzzle. So incomplete. There’s tons of things that we don’t know, outside of what we see. SMART goals, yes, read about these all the time.. whoever came up with that terminology is certainly a smart guy (or gal). And yeah, they help me a lot, too.
another great reinforcement of why short sightedness is dangerous. i have several friends all over the world and we often discuss salaries, taxes, and cost of living to determine which jurisdiction is truly favorable from a net gain perspective. it’s like the whole discussion about making 20% more by working in NYC, but at what incremental cost? what’s the bottom line impact?
the same holds true when two households are compared. there are many variables and unknowns (i.e. how much each household spends) to truly realize an accurate picture.
i am totally with invest it wisely on this one. you are or become who you congregate with. choose your company, who you aspire to, idolize et all carefully…
my rule has always been to benchmark my success and progress to what i am able to do for my family, friends and community. for example, if my family is happy in what they have and are provided for, i consider what i (or we) are doing a success. it keeps things very simple as there are never any joneses in the picture
I am certainly not keeping up with the jonesses when I look at my phone… It’s pre-historic. In fact, I went to pre-paid rather than moving up to expensive data plans.
What blogging has helped me with is to have regular reviews of where I am at. It’s a lot harder to diverge from your plans when you regularly review them and face the music. It kind of raises my accountability. No swiping under the carpet …
Now that mint is in Canada, I have most of my accounts setup. I am pretty pleased with it for quick budgeting but I still make heavy use of Quicken for my full accounting. I have the data and I have no excuse to not have it in control.
As far as keeping up with jonesses, it’s easy to see the surface spending but not the behind the scene. My wife often asks why others can do this and that (while I know their salary is less), I usually mention that they probably don’t have savings. We have retirement savings (RRSP in Canada) and education savings (RESP in Canada) and it all starts to add up.
Beautiful post I love the way you break down everything
[…] Elle Couple Money wrote an article, Keeping up with the Jone’s-More Like Winning at Yakezie.com. This post includes a link to a cool metric which gives the income level in your zip code! […]
Hi Elle,
This is a really great article. It was jam packed with information. I love the SMART principle that you laid out, and I really liked all of the resources that you’ve mentioned to get your goals in line. I like to use GNUCash for budgeting and tracking, but it does have a bit of a learning curve. It is a free program though. :) I’ve heard great things about YNAB, but I’ve never used it. Mint is a great site, and it’s convenient having access from any computer anywhere. I’m really impressed, great job!
Thanks,
Timothy
Hey Elle,
Just figured I would drop by and let you know that I may start using the pocketsmith website. It looks like a great little tool, and I like that they offer a free option. Thanks for the heads up!
Thanks,
Timothy
I’m very good at saving. But my weakness is investing – to make my money work for me. So hopefully being part of this community will help me develop that skill.
Love the acronym DINK (Dual Income No Kids). Having 5 daughters on a single income, its hard to be compared to other family situations.
Very well written Elle especially the Smart Goals! I think net worth is a much more useful number as it shows weather or not you are living within your means. I use Pageonce Pro to keep track of my finances and am pretty happy with it.