So Your Finances Aren't as Bad as Everyone Else's? Don't Celebrate Just Yet


There’s no shortage of studies that show Americans are in financial hot water—from an average household credit card balance of $15,000 and 70 percent of college students graduating with student loans (to the tune of $37,000) to 56 percent of millennials not having adequate savings to cover a $500 to $1,000 emergency expense.

If you read these numbers and think, “Umm, this pretty much defines my financial situation,” here’s the good news: You know you’re on shaky ground, and you can start taking steps to wipe out your credit card debt, hack your student loan payments and save more. Use the sense of urgency that comes with knowing you’re in trouble to fuel your motivation. This essay isn’t for you.

I’m talking to those who look at these stats, breath a sigh of relief and think: “My finances might not look great, but at least they’re not as bad as everyone else. Guess I’m doing pretty well!” Because that is the most dangerous attitude of all.

“Humans are social-comparison beings—it’s hardwired in us to compare ourselves to others in our social group,” says Maggie Baker, PhD, financial therapist and author of “Crazy About Money.” “As long as somebody doesn’t come in last place, they aren’t humiliated because at least they did better than somebody. But the fact is, doing a little bit better than everyone else, in the case of finances, really isn’t doing too well at all.”

Case in point: When everyone else has $15,000 in credit card debt and you have $7,000, it’s easy to justify treating yourself to $500 NFL tickets on credit because, hey, you’ll still only have half as much debt as everyone else. Or when everyone you know has upwards of $40,000 in student loans, and you’re down to $10,000, you might just make the minimum payments. Why worry about paying debt faster when you’re already ahead? And while your brother only has $200 saved up, you’ve got a much healthier emergency fund of $800. Of course, that might not cover the repair bill if your car breaks down—but maybe that’ll never happen!

In each of these scenarios, you’re giving yourself a false sense of security, says Baker. That, in turn, makes mediocrity look like something to be celebrated, rather than something to overcome. Worst of all, you’re robbing yourself of the urgency you should feel toward bettering your financial picture.

“People don’t like to think about how easy it is for something to go wrong, whether it comes to health or finances,” says Baker. “But the truth is, the average American is one setback away from being in financial crisis.”

So how can you kick this better-than-the-average-Joe mindset?

First, sit down with your numbers—savings account balance, debt, retirement projections—and take an honest look at how you’re really doing. If you need a benchmark, don’t look to your friends or the average American—rather, research experts’ guidelines and recommendations or figure out what you’ll actually need to have saved up to afford the lifestyle you want. Good rules of thumb are to aim to put away 10 to 20 percent of your paycheck, maxing out your retirement accounts and building an emergency fund that can cover three to six months’ worth of expenses. And, of course, zero out consumer debt as quickly as possible.

Once you have a good idea of where you stand in relation to these targets, you can formulate a plan to hit them. That might mean adopting tricks like automating savings transfers, investing contributions and bill payments; funneling your future bonuses and raises toward your goals; and checking in regularly to ensure you haven’t veered off track.

Another strategy: Baker’s a fan of breaking down your objectives into mini milestones, as well as medium- and longer-term challenges. (Say, first save $1,000 in an emergency fund, then $5,000, on your way to a total goal of $10,000.) As you start reaching smaller goals, you’ll likely be motivated by your progress and eager to shift your focus to the next ones. “Think of your personal finances as a song you’re writing,” Baker says. “Each goal you reach is another stanza added as you progress to your long-term financial goals.”

Of course, you should celebrate each win along the way. Just be careful not to let complacency creep back in. Once you’re on solid ground, pat yourself on the back and relax a little—but not before then.