When it comes to managing your money, figure out what works for you without worrying too much about others.

Have you ever peeked over the fence to see if the grass is greener on your neighbor's financial lawn? It's a human trait to wonder how we stack up against others, especially when it comes to managing our money. Whether it's a friend who seems to vacation twice a year, a cousin buying their second home, or a colleague driving a new car every other year, these glimpses into others' lives can make us question: What is "normal" spending, credit scores, and debt? 

But trying to define financial normalcy is like searching for a mirage. It shifts and changes based on who you ask, where they live, and their life stage. Recognizing this variability is the first step toward setting personal financial goals tailored to your unique circumstances, not an elusive average.

When thinking about your financial situation, embracing a growth mindset is vital. A growth mindset - the belief that your abilities and intelligence can be developed over time - is a powerful tool when applied to managing your finances. It encourages resilience, learning from setbacks, and viewing challenges as opportunities for growth. As we delve into what statistics and anecdotes reveal about "normal" financial behaviors, remember that these benchmarks are not prescriptions but starting points. Your financial journey is uniquely yours, filled with opportunities to learn, grow, and redefine what success means to you.

Understanding Financial Norms and Setting Personal Goals

When it comes to personal finance, most people like to think of themselves as "normal." While some might relish the idea of being unique or unconventional, many find comfort in knowing that their financial situation is similar to that of their peers. However, defining what's "normal" regarding spending, credit scores, and debt can be challenging. To better understand financial norms, it's helpful to examine both anecdotal evidence from those around you and statistical data.

While understanding financial norms can provide valuable context, it's essential to remember that personal finance is just that – personal. Comparing yourself to others or striving to meet arbitrary standards of "normalcy" can be counterproductive and even detrimental to your financial well-being. Instead, consider setting personal financial goals aligning with your values, priorities, and circumstances. Begin by assessing your current financial situation, including your income, expenses, debts, and assets. That said, let's look at some national personal finance averages.

The Average Household

According to a 2023 report by the Federal Reserve, the average American household has a net worth of approximately $122,000, with about $58,000 in debt (excluding mortgages). The median household income, as reported by the U.S. Census Bureau in 2023, was around $75,000. While these figures might serve as a general benchmark, it's crucial to remember that personal financial situations vary greatly depending on factors such as age, location, and individual circumstances.

A Pew Research survey conducted in 2022 asked participants about their perceived financial security and stability. The findings revealed that 62% of respondents rated their financial situation positively, while only 30% gave the overall economy a favorable rating. Interestingly, these numbers have improved since a similar survey in 2019, suggesting a growing sense of optimism among Americans regarding their finances.

However, the survey also highlighted some common financial concerns. Nearly 55% of participants reported experiencing a "financial shock" within the past year, such as job loss, unexpected medical expenses, or major home or vehicle repairs. Additionally, 40% of respondents indicated they had no savings for emergencies or retirement. These findings underscore the importance of building financial resilience and preparedness, which many may overlook.

Setting Personal Financial Goals

Given the variability in what constitutes "normal" spending, credit scores, and debt, the focus shifts to the importance of setting personal financial goals. These goals should stem from your unique circumstances, aspirations, and values. Goals could range from achieving a specific net worth or savings target to reducing debt or investing in ways that align with personal beliefs and plans.

  • Assessment - Begin by conducting a thorough evaluation of your current financial situation, including income, expenses, debts, and assets. This reality check forms the foundation of any goal-setting exercise.
  • Prioritization - Given that resources are finite, prioritizing goals is crucial. For some, building an emergency fund might take precedence, while for others, paying down high-interest debt could be more urgent.
  • Realistic Objectives - Goals should be ambitious yet achievable. Setting unrealistic targets can lead to frustration and demotivation. Break down larger goals into smaller, actionable steps to maintain momentum.
  • Flexibility - Life is unpredictable. Be prepared to adjust your goals as circumstances change. Flexibility ensures that your financial plan remains relevant and aligned with your current needs and future aspirations.
  • Reflection and Adjustment - Regularly reflect on your progress towards your financial goals. Celebrate successes, learn from setbacks, and adjust your strategies as needed to stay on track.

As you work on your goals, consider building an emergency fund to cover unexpected expenses or income disruptions. Aim to save at least a few months' living expenses in a separate savings account (though even a small emergency fund can still be very useful). This safety net can provide peace of mind and minimize using high-interest credit cards or other loans in times of crisis - helping to keep you on track for reaching your goals.

When it comes to debt, it's important to recognize that not all debt is created equal. While some forms of debt, such as mortgages and student loans, can be considered investments in your future, high-interest consumer debt can significantly drain your financial resources. If you're carrying credit card balances or other high-interest debt, prioritize paying these off as quickly as possible to minimize the interest you pay over time.

Finally, remember that financial success is a journey, not a destination. It's okay if your financial situation doesn't match that of others or align with national averages. What matters most is that you're taking steps to improve your financial well-being and working towards your personal goals. Celebrate your progress along the way, and don't be afraid to seek guidance from a trusted financial professional if needed.

The Takeaway

In a world where financial benchmarks and social media exert considerable influence, it's natural to wonder about norms. Yet, what truly matters is not how you compare to others but how you progress towards your financial goals. 

Adopting a growth mindset means celebrating each step forward, learning from setbacks, and understanding that every challenge is an opportunity to grow financially stronger. By focusing on personal financial goals rather than external benchmarks, individuals can chart a course toward financial well-being that is both meaningful and achievable. This approach fosters a healthier relationship with money. It supports a more nuanced appreciation of financial success that celebrates individual choice rather than simply keeping up appearances.