5 key criteria to know where you stand

Most people know how they feel about their finances. They may feel stressed, insecure, or falling behind or making progress on their goals. But relying on your feelings alone will not give you a clear picture of your financial situation.

Whether you make $50,000 or $500,000 a year, evaluating your financial health on a semi-regular basis will help you understand whether you’re actually building wealth or hurting your financial future.

Using financial benchmarks will provide you with a clear, actionable framework to evaluate where you stand, identify any gaps, and help you make informed decisions about your finances.

Here are five criteria that help paint a complete financial picture of your financial health and standing.

Criterion 1 – Net Worth (Big Picture)

Your net worth is the primary measure of your wealth. The math is simple: take everything you own (assets) and subtract everything you owe (liabilities). The number you get, whether positive or negative, represents your total wealth and financial situation.

Calculate your net worth

Assets – Liabilities = Net Worth

To calculate your net worth, start by listing all of your assets. This can include:

• Checking accounts
• Savings accounts
• Retirement accounts
• Investment portfolios
• Real estate stocks
• Valuable personal property (cars, jewelry, etc.)

Next, list your obligations. This can include:

• Mortgage balance
• Student loans
• Credit card debt
• Car loans
• Any other money you owe

The difference between these two totals is your net worth.

Why net worth matters

Net worth provides context that your income alone cannot provide. Someone who earns $200,000 a year and has $300,000 in debt may be in a worse financial position than someone who earns $75,000 with no debt and retirement savings.

RJ Weiss, CFP, founder and CEO of The Ways to Wealth, warns against falling into the common trap of comparing your financial situation to someone else’s.

“Net worth is a good measure of yourself, and a way to provide feedback about your financial performance,” he explained. “However, I avoid using net worth comparisons, because they are not very useful as a measure of others. Focusing too much on how you compare to others can be detrimental to your financial well-being and state of mind.”

Instead, Weiss recommended using net worth “as a tool to measure an individual’s individual circumstances and as a way to provide feedback on the general direction someone is headed by tracking them over time.”

Milestones based on age

“As a general rule, your first goal should be to get out of debt in your 30s,” said Jay Zygmunt, CFP and founder of Childfree Wealth. “Getting out of debt will get you to zero net worth, which tends to be the hardest to achieve.”

“In your 40s, your goal should be to maximize your retirement accounts,” Zygmunt added. “If you had no debt and maxed out your retirement accounts in your 40s, you would have more than a quarter million in net worth.”

“The key with regard to net worth is to realize that net worth does not equal self-worth,” Zygmunt stressed. “I encourage people to check their net worth twice a year and make sure it’s going in the right direction.”

Criterion 2 – Savings Rate (Your Wealth Building Engine)

While net worth shows where you currently stand, your savings rate will reveal where your money is going. This measure measures the percentage of your income you devote to future goals, and is arguably the most powerful tool for building wealth.

Calculate your savings rate by dividing the amount you save each month by your gross monthly income (pre-tax income), then multiplying it by 100. Financial experts recommend saving at least 15% to 20% of your total income, though the ideal rate will depend on your goals, age, and schedule. It is your savings rate, not your income level, that determines how quickly you build wealth. A person who earns $80,000 a year and saves 20% ($16,000 a year) builds wealth faster than someone who earns $150,000 but saves only 5% ($7,500 a year).

When 15% to 20% is unrealistic

“With more than half of the U.S. population living paycheck to paycheck, saving 15% to 20% may be unrealistic,” Zygmunt said. “The key is to make progress. First, focus on paying off your debt, then saving and investing. It’s not about specific percentages, it’s about moving in the right direction.”

If you’re not currently saving anything, reaching 3% is important progress. For people who struggle to save at all, Zygmunt suggested focusing first on getting out of debt. “Focus on getting out of debt. You will get a better return on your money by paying off your debt rather than saving in a high-yield savings account.”

Criterion 3 – Debt to Income Ratio (Hidden Wealth Killer)

Your debt-to-income (DTI) ratio measures how much debt you carry relative to your income. Calculate your DTI by dividing your total monthly debt payments by your total monthly income, then multiplying by 100.

Lenders generally consider a DTI ratio of less than 36% healthy, with no more than 28% allocated to housing costs. A DTI ratio above 45% often indicates financial stress and may result in you being denied certain types of loans. More importantly, a high DTI means you’re allocating income to pay for past decisions rather than building future wealth.

Change your perspective on debt

“If you have consumer debt, especially credit card debt, it’s time to press the alarm button,” Zygmunt said. “The concepts of ‘good’ and ‘bad’ debt have been created by people who want to sell you debt, and that shouldn’t be how you live your life.”

High-interest credit card debt, which carries interest rates ranging from 18% to 30%, creates a financial situation that makes accumulating wealth nearly impossible. If you pay $500 a month in credit card interest alone, that means you could have invested $6,000 in one year.

If your DTI is currently holding you back from growing your wealth and financial situation, Zygmunt recommended that you “start by closing your credit cards so you can’t get into any more debt. Then make paying off debt a priority, not something you do with the money you have left.”

Fourth criterion – preparing for retirement (securing your wealth in the future)

Retirement readiness measures whether you are on track to maintain your desired lifestyle in retirement. Start by estimating how much money you will need. Although this will vary depending on your lifestyle, health care needs and other factors, people typically need 55% to 80% of their income before retirement.

Many financial professionals suggest saving one year of your annual salary at age 30, three times your salary at age 40, six times at age 50, eight times at age 60, and 10 times at age 67.

Why one retirement amount doesn’t fit all

“All the retirement standards are like a one-size-fits-all shirt. It really doesn’t fit anyone,” Zygmunt said. “For example, your retirement goal is very different if you are single and have no children than if you are married with three children. The key is to make progress every year.”

Retirement needs vary greatly based on lifestyle choices, location, and personal preferences or priorities. The power of compound growth means that even small increases in retirement contributions made early can have big impacts decades later.

Often times, the truth is that the best time to start saving for retirement was 20 years ago; The second best time is now.

Standard 5 – Liquidity and emergency funds (your financial safety net)

You can have an impressive net worth on paper and still face financial disaster if all of your wealth is locked away. Liquidity, or your ability to convert assets into cash to cover unexpected expenses, separates true financial security from fragility.

The standard recommendation is to keep basic expenses for three to six months in an easily accessible savings account.

Determine the amount you need

“If your life or job is more stable, you may be able to get three months in your emergency fund. If your life or job is a bit more risky or dynamic, you may need six months or more. It’s not just your job, but also your life and your overall situation,” Zygmunt said.

Freelancing, commission-based income, unstable industries, being a single parent, health issues, or limited job markets will set you back six months or more. Dual-income families with stable jobs may only need three months.

The risk of illiquidity

“One can have high net worth and watch it grow during boom times, but this can mask liquidity and cash flow problems,” Weiss said. Without adequate liquid reserves, you may be forced to sell investments at a bad time in the market or take on expensive debt to cover emergencies – both of which can derail your progress in building wealth.

Where do you keep emergency funds?

“In general, the best place to keep your emergency fund is in a high-yield savings account,” Zygmunt advised. “You want your money to be safe and available when you need it, which is what a HYSA provides. The key is not to invest or gamble with your emergency account.”

Think of your emergency fund as insurance for your wealth building plan. It allows you to continue investing during market downturns and maintain your savings rate even if your income changes or is disrupted.

Put it all together

Assessing your wealth is not about focusing on any one metric, but rather about understanding how these metrics interact. You may have a strong net worth, but low liquidity, or a high savings rate that is undermined by an excessive amount of high-interest debt.

Create a priority frame

You may have weaknesses in multiple areas of your finances. “The first priority should always be getting out of debt,” Zygmunt said. “Once you’re out of debt, fill your emergency fund with three to six months of expenses. Then focus on maximizing your retirement accounts. Tidying matters.”

Working in this order helps avoid burnout and follows mathematical logic — paying off high-interest debt provides a guaranteed return, emergency funds protect your progress, and retirement accounts benefit from consistent, long-term contributions.

Think long term

Make wealth assessment a regular practice. Both advisors recommend checking in periodically rather than obsessively monitoring your net worth. Zygmunt suggested checking your net worth twice a year, while Weiss emphasized the importance of maintaining a long-term perspective, even when markets fluctuate, which they will.

“If their sole focus is net worth as a criterion, it may lead them to make short-term decisions that protect their net worth but are poor decisions in the long term,” Weiss said. This is especially important during market downturns, which can lead to panic selling, a decision that will lock in your losses and give up the power of compound investing.

Bottom line

Life is constantly changing, and your financial approach should change too. Regular check-ins allow you to adjust your financial trajectory as your life circumstances change.

Remember, these standards are there to empower you, not to make you feel inadequate. As Zygmunt said: “As a CFP, sometimes the best thing I can do is provide a client with an unemotional view of their finances. Money is not just a number. We all have a good or bad relationship with money, and our financial behaviors are more likely to impact our goals than actual dollars and cents.”

Instead, focus on what you can control: spending less than you earn, eliminating debt, building emergency savings, and continually saving for the future. Assessing wealth is not just for the rich; It’s a tool that can help anyone become financially secure, no matter where they’re starting.