In this month of love, I’m reaching out about a different kind of relationship than you might have in mind — the one you have with money!
During my years as a financial advisor, I have found that everyone is different when it comes to managing their finances. Some people are extremely cautious with their money, while others prefer to spend more recklessly. Likewise, an individual may want to take a big risk in the market, while another would prefer their money to stay right where they can see it- under the mattress. I wish I could say that there is a correlation between wealth and financial behaviors, but like I said- everyone is different. At the end of the day, however, I have come to find that it is rare for people to have only positive feelings when they think about money. Money, or the lack thereof, is scary and often times a center of stress for individuals and families.
With that in mind, I thought I would take this opportunity to share some guidance for improving relationships with money.
Start by understanding where you are starting from.
It may seem obvious that you should know how much money you earn and spend, but a study showed that 51% of Americans do not know how to calculate their net worth, let alone know what their net worth is. Even more shocking was that one third of respondents said they did not know their own net worth, but they knew the net worth of at least one celebrity!
I believe that knowing what your net worth is remains a crucial part of having a strong relationship with money.
Net worth is the measure of an individual's financial health, derived from the total value of their assets minus their liabilities. To calculate your net worth, add up all your assets, including cash, investments, trusts, real estate, and personal properties, then subtract your liabilities, such as loans, mortgages, and credit card debt. Some of these numbers, depending on your circumstances, will need to be estimated. The remaining amount represents your net worth. I find it helpful for clients to sit down annually and evaluate their net worth so they can see what they are doing right financially, or spot where some changes may need to be made.
Now, you may be wondering what a good net worth is for you. I cannot answer that question bluntly because it is an individualized and often circumstantial figure. I can, however, share with you the average family net worth released by the Federal Reserve in October 2023. These numbers are re-calculated every three years. Please note that the average will be much higher than the median due to extremely wealthy outliers. It may be more realistic for the average family to look at the median.
35 and under: average of $183,500 and median of $39,000
35 to 44: average of $549,600 and median of $135,600
45 to 54: average of $975,800 and median of $247,200
55 to 64: average of $1,566,900 and median of $364,500
65 to 74: average of $1,794,600 and median of $409,900
75 and older: average of $1,624,100 and median of $355,600
If this is causing you to panic, stop! There are many reasons why net worth fluctuates. Likewise, there are many ways to improve your net worth. Like I said, net worth is very individualized and circumstantial.
Become aware of any negative financial patterns.
These patterns might include avoiding regular checks of your bank balances, indulging in frequent online shopping sprees when you are bored or upset, or ignoring debt. Everyone’s financial patterns look different. Just for reference, here are 4 of the most common financial pitfalls that I see when working with clients.
- Regular “small” purchases: A recent survey by LendU revealed that millennials who frequently buy coffee spend an average of $38 per month on their favorite drink. If this is you, that is fine…but are you saving that much for your retirement? Make sure you prioritize your future self when making regular purchases.
Not budgeting on a regular basis: If you keep a blind eye to your spending, you may struggle to invest and save at a successful rate. I encourage all of my clients to walk through a budget with me in all of our free consultations and reviews. Click here for a free budgeting consultation.
Missing saving goals: It can be easy to worry more about the present than the future, but if you are regularly missing your saving mark, you may want to reconsider your spending.
Racking up the credit card debt: This tends to be a big one, but with proper care, budgeting, and consistency, it can be avoidable/remedied. I encourage you when budgeting to thoroughly look at "regular month" credit card statements to see what you spend month to month. By “regular months,” I mean months that do not include a major holiday, vacation, etc. If you are spending more on the credit card than you make in a month, take some time to evaluate where that money is going.
Understand the internal narratives and emotions that drive these patterns.
These behaviors, though seemingly harmless at times, can often be indications of deeper psychological narratives that have formed from lived experiences. Emotions in particular can significantly influence spending, leading to actions like “retail therapy” or the opposite—extreme couponing—during times of stress.
Your background might also play a role; for example, coming from a financially unstable environment could lead to either hoarding money out of fear or spending impulsively when you have it, as a reaction to previous scarcity.
Ultimately, this examination should not lead to self-judgment. The goal of this exercise is to challenge and change detrimental financial habits for more balanced and thoughtful money management.
Just like any relationship, the one you have with money takes intention and will never be perfect. As always, I’m here to help you navigate your financial journey in whatever way I can. Please reach out should you have any questions or concerns about your financial picture.