“How are you doing?” is a question many of us are asked every day. Treated as an extended greeting, the typical response is “Good, thanks!” or “I’m great, how are you?”
We’re willing to bet most of you rarely give a true answer – preferring instead to move on and not focus too hard on how you really are.
But stopping to ask yourself, “How am I doing?” and pausing to consider the answer can be a great way to encourage you to reflect on how you’re progressing in any facet of life. An honest answer can also help you to address issues or change track, making success more likely.
Of course, we’d encourage you to ask this question while thinking about your financial life. Indeed, it’s the question we ask and seek to answer in every client meeting – particularly in our regular reviews.
1 question, 2 very different but equally unhelpful answers
There are two typical responses when people ask, “How am I doing financially?”:
- Leaning on market returns, people quote exact movements they’ve read about in market reports and the news.
- Mentioning financial success they’ve heard about other people enjoying, with stories telling of numbers they have seen themselves.
While both end up being used as benchmarks to measure success, neither response helps you answer how you’re doing.
The first answer is unhelpful because stock markets don’t have goals. They don’t have education fees to pay, they don’t need to draw income next month, and they don’t have to consider their tax position. While there are many things at play, a like-for-like comparison is impossible.
As for the second answer, in any rolling 12-month period, your diversified portfolio will have a sector or product that has underperformed. This is why it’s diversified. And just because you know what has performed well recently, after the fact is never as good as knowing in advance.
Likewise, a friend boasting about impressive returns rarely comments on the risk they took to achieve them. The investment they made might have been focused on a single business or sector, borrowed against, or simply held by someone who could afford to lose the lot.
Plus, of course you’re only going to hear the stories that have a happy ending, because bets that don’t play out well never get told.
So, the question isn’t about how well you did against the stock market, a friend, or a colleague – it’s whether you received the returns you’d anticipated and whether the results will support your goals.
5 questions to better measure your financial success
To help you understand and measure how you’re doing, asking the following five questions, preferably with our help, could give you a far better idea of your progress:
- Am I on track to fund the life I want?
- Is my savings rate where it needs to be?
- Will my income last for as long as I do?
- Have I avoided any permanent mistakes?
- Is the money helping me afford the life I want?
If you answer “no” to any of these questions, there’s usually something you can do to change that. You may be able to save more, adjust your spending, alter the income you draw, or shift the timing of something you have planned for the future.
Meanwhile, the stock market index remains beyond your control; last year’s return doesn’t change anything you can do now.
What you measure tends to change how you behave
Judging your financial success against an index or a story from a friend may tempt you to fix your portfolio even when nothing is wrong.
Instead, judging your financial plan against what’s within your control usually leads to something you can do.
We’re here to help you understand and measure what matters most to you.
While conversations may return to what’s happening in the stock market, we’re far more interested in looking at whether you’re on track and if we need to make any adjustments.
So, “How are you really doing?”
If you’d like to talk about how to better measure your financial plan or simply check in to make sure you’re on track to meet your goals, we’re here to help.
