Personal benchmarking is a powerful tool to assess and improve your financial health. It involves comparing your financial situation—such as income, savings, debt, and expenses—to key benchmarks or standards. This process helps you understand where you stand financially and identifies areas for growth or adjustment.
Common benchmarks include savings rates, debt-to-income ratios, retirement readiness, and spending habits. For example, saving 15-20% of your income for retirement or maintaining a debt-to-income ratio below 36% are typical benchmarks that can guide your financial planning. By comparing your numbers to these standards, you can identify gaps and develop a strategy to reach your financial goals.
A Certified Public Accountant (CPA) can assist with personal benchmarking by analyzing your financial data, setting realistic targets, and providing actionable insights. With their guidance, you can make informed decisions about budgeting, investing, and managing debt.
Personal benchmarking is not a one-time exercise; it’s an ongoing process that adapts to your changing circumstances. Regularly reviewing your financial position ensures you stay on track and make adjustments as needed.