5 Signs You’re Doing Alright Financially in America

woman holding a fan of twenty dollar bills in front of her face

You might not have a million-dollar net worth, but that doesn’t mean you’re not financially doing well. The total value of your assets and money in the bank isn’t necessarily the best gauge of how well you manage your money, nor is it a guarantee that you’ll have a comfortable retirement.

Even highly paid people can spend money faster than they earn it or keep spending more and more to “keep up with the Joneses” all over their social media timelines. The situation could be even worse if they’re using credit to fund a lifestyle they couldn’t afford without it, racking up more and more debt, making their credit score drop lower and lower.

Doing well financially is more about the habits you build around your finances which can set you up for long-term financial success. Here are five signs that you’re actually doing well financially in America, even if you might not feel like you are.

1. You’re Financially Literate

It’s interesting to consider that even though money is an inescapable part of our lives many people aren’t financially literate. If you understand financial terms and concepts (like compound interest and how it works) you will be better positioned to make smart financial decisions. Being financially literate can help you create a budget, track spending, manage debt, invest your savings, and plan for retirement.

For example, if you understand how inflation works you’ll understand how to plan for retirement while accounting for it; and if you know your way around inflation calculators you can calculate how much time and monthly savings you’ll need to reach your financial goals.

Or if you truly know the magic of compound interest and understand inflation you’ll also understand that a dollar invested today is worth much more than a dollar invested tomorrow.

Don’t let not knowing what financial terms mean intimidate you or stop you from becoming financially stable. The good thing is that you can learn these terms just like you can learn to read.

2. You Have a Budget & Follow It

It’s tempting to compare how well you’re doing financially compared to other people based on what the median income in your area is or whether you fall in the range of middle class or not, but that’s not a good measure. That only takes into account how much you’re making and ignores how much you’re spending each month. Whether you’re making the median US salary of $59,428 or the median salary of the top 10% ($167,639 in 2021), if you’re spending just as much as you’re earning you won’t get ahead.

Even if you fall below the median salary, it doesn’t necessarily mean you’re not doing well financially. If you have a budget, spend less than you make, set a portion of your income aside for emergencies and retirement savings, and you avoid lifestyle creep as you earn more money then you’re building healthy habits that will help you build wealth over time.

woman debating buying something online with her credit card

3. You Understand Good vs. Bad Credit & Debt

If you have debt that doesn’t mean you’re finances aren’t in order. All debt isn’t necessarily bad. There are some things you simply can’t do without taking on debt unless you have a wealthy benefactor.

Bad debt is easy to spot. It means that you’re buying things that you don’t need with money you don’t have. It is bad to use debt to fund your lifestyle. You don’t need to eat at nice restaurants every single weekend or have a constant stream of Amazon deliveries, especially if that makes you carry a balance on your credit card.

Credit cards aren’t bad. In fact, you can use them to increase your credit score by paying your balance in full and on time. You don’t have to carry a balance on your card from month to month to build your credit.

But if you’re only making the minimum payment each month, you’re slowly burying yourself in a pile of interest. Your balance may go down, but only slightly. This can hurt your credit score which will make it harder for you to get approved for loans later or force you to accept less favorable terms on those loans.

On the other hand, good debt can help improve your net worth. Mortgages and student loans are often considered good debt since you expect to get a return on your investment. Going to college increases your earning potential and owning a home means you own an appreciating asset. A business loan can also be considered good debt because of the earning potential of the business.

twenty dollar bills in a black envelope

4. You’re Saving Your Money

No matter how much you earn each month, saving a portion of those earnings is a sign you have your financial house in order. Even small amounts add up over time especially if you’re saving in a high-yield savings account. Those kinds of accounts will usually earn you more than the savings account you can get at your traditional bank.

It’s even better if you’ve also set up automatic contributions to a retirement account from your paycheck so you never miss a month. Retirement accounts will often earn you more than other kinds of savings accounts and have tax advantages.

Ideally, you’ll want to have at least a few thousand dollars accessible in an emergency fund and a portion of your salary going toward retirement savings. Your emergency fund should be three to six months of expenses, so if your bare-bones budget (just the bare necessities) is $3,000 per month you should aim to have $9,000 to $18,000 in your emergency fund.

Another sign you’re doing well? You’re willing to build wealth over time, taking the ebbs and flows of market volatility in stride — meaning you don’t panic or make rash decisions when the markets dip.

5. You Understand That Money is a Means to an End

It’s easy to start to feel like you don’t have enough money, but doing well financially isn’t just about accumulating more dollars in a bank account. It’s also not about making more and more money to buy more and more things simply for the sake of having them.

Knowing how much money is enough to live the life you want. That way you’ll still have time and energy for the things you truly care about and are important like spending time with the people you love or pursuing a passion.

Maybe you don’t feel rich right now. But if you’re doing well in these five areas, then you’re doing better than you might realize.

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