In today's complex financial landscape, it's easy to feel overwhelmed and unsure about your financial health. Despite common anxieties, there are clear indicators that can help you understand if you're actually doing well financially, even if it doesn't always feel that way.
Nischa Shah, a qualified accountant, former investment banker, and renowned money expert with over 13 years of experience, offers valuable advice on her YouTube channel, which boasts over a million subscribers. According to Shah, financial success can be measured in two distinct ways: through the status game and the wealth game.
The Status Game vs. The Wealth Game
Society often equates financial success with the status game, which involves flaunting wealth through material possessions like houses, cars, and designer clothes. However, Shah advises focusing on the wealth game instead. The wealth game is about investing in self-development and ensuring a positive return on investment (ROI) from side hustles and assets.
Shah highlights a crucial statistic: approximately "40 per cent of people don't have enough money saved to support themselves for one month in the absence of work." This aligns with findings from a recent report, which revealed that nearly 30 per cent of the US population has emergency savings, but not enough to cover three months of expenses. Instead of judging wealth based on visible, high-priced items, Shah suggests that money-makers should measure their wealth "by looking at the things you don't see, rather than the things you do."
Avoid Comparisons: A Personal Financial Journey
Another key piece of advice from Shah is to avoid comparing yourself to others, especially those who earn significantly more. Research indicates that proximity to someone earning at least £50,000 annually can lead to feelings of guilt and inadequacy about one's own income. Shah emphasises that comparing your financial situation to others' is a "never-ending cycle because there will always be someone making more than you."
Instead, she advises treating finances as a personal journey rather than a race against others. This perspective shift can help alleviate unnecessary stress and focus on personal financial goals and achievements.
Recognising Financial Success: Key Indicators
In a recent video, Shah outlined several signs that contribute to financial success, even if you feel like you aren't doing well. Understanding these indicators can help you assess your financial health more accurately and make informed decisions about your financial future.
1. Playing the Wealth Game
Prioritising investments and long-term financial health over short-term status symbols is a crucial aspect of playing the wealth game. Instead of focusing on visible markers of wealth, such as luxury cars or high-end fashion, successful individuals invest in assets that appreciate over time. This includes real estate, stocks, and retirement funds. Shah emphasises that wealth is not about what you can show off, but what you can grow. By investing in side hustles and other income-generating assets, you can ensure a positive return on investment (ROI) and build a more secure financial future.
2. Tracking the Average Annual Wage
Understanding how your income compares to national averages is another important indicator of financial success. According to the Financial Capability Strategy for the UK, knowing where you stand relative to the average wage can provide valuable context for assessing your financial situation. For instance, if you earn more than the average, you might feel more confident about your financial stability. However, if your income is below average, it could highlight areas where you might need to focus on improving your financial health, such as increasing your income through additional qualifications or side hustles.
3. Knowing the Three Fundamentals of Finance
Shah also stresses the importance of mastering the three fundamentals of finance: budgeting, saving, and investing.
- Budgeting: Creating a budget helps you manage your money effectively by tracking income and expenses. It allows you to allocate funds towards essential needs, savings, and discretionary spending, ensuring that you live within your means.
- Saving: Building a savings buffer is crucial for financial stability. Around 11.5 million people in the UK have less than £100 in savings. Having a robust emergency fund can protect you from unexpected expenses and financial shocks.
- Investing: Investing your money wisely can help it grow over time. Whether through stocks, bonds, or other investment vehicles, putting your money to work can provide long-term financial benefits and help you achieve your financial goals.
4. Changing Your Mindset
Adopting a positive and proactive approach to managing your finances is perhaps the most transformative indicator of financial success. Shah advises that changing your mindset involves seeing finances as a personal journey rather than a race against others. This shift can help you focus on your own goals and progress rather than comparing yourself to others, which can be demoralising and counterproductive.
According to research, financial confidence is low among many adults, with around 40 per cent feeling insecure about their earnings. Moreover, a YouGov poll highlighted that financial sentiment can fluctuate based on broader economic conditions. As of January, 28 per cent of Britons expected their financial situation to worsen in the next six months, down from 56 per cent in August 2022. This improvement in sentiment suggests that perceptions of financial health are influenced by both personal circumstances and the economic environment.
