I was working with a new client of mine last week and after doing that initial assessment of what he had in savings, in his retirement account and so on, he asked me a question that the majority of people ask me all the time – “how am I doing compared to others just like me?”

And although it is not always the best thing to compare yourself against your peers, it is perfectly normal. Research, which began the year I was born (1970) has shown that we base our self-esteem on how much money we make compared to others, than what our real financial situation actually is, so it is just human nature to compare ourselves to those around us.

However, there are many people I meet who think they are doing something wrong because they see people who might live near them, who might work with them, who might be related to them are wealthy and doing much better than them because they have a bigger house, a bigger car, more expensive clothes etc. but I would say in 99.9% of cases the opposite is true.

Let me tell you about two women who come looking for financial advice from me. One lady drives a 12 reg Lexus car, is dripping in jewellery, dressed in designer clothes and always looks terrific. Another women of a similar age drives to me in a 06 reg Fiat car, one hubcap is missing, she is always dressed very well but no obvious labels on her clothes. 

From first glance you would think that the Lexus women is very successful, she has the car and the clothes that only successful and wealthy people could afford and if you lived near her I am sure you would be envious of her. BUT, if you looked at her car a little closer you would notice that it isn’t taxed or insured and if you knew her story and why she calls to me, it is not for advice about what you would think were the millions she had on deposit – no she calls to me because she is 4 months in arrears on her Ulster Bank mortgage and wants to know what to do.

My “fiat” client is looking for advice on what to do with the €100,000 she has on deposit not earning as much as she would like. So our perceptions of how people are successful based on what they appear to have or haven’t and comparing ourselves to them based on this is very dangerous because it makes people do stupid things what is commonly known as keeping up with the Joneses – but unless you know for an absolute fact that your neighbours or friends have millions in cash sitting in their bank account, don’t assume you know their financial position, know only your own.

Having said all of that, it is good at times to check and benchmark yourself financially against those who are of similar age, similar income and so on. And the purpose of this is to see what is working for them and what they are doing (it might spur you into action) or it might show you how well you are doing.

So, if you want to compare yourself to others, let me give you some best practice guidelines for those people you want to be like and I am going to look at two areas, (A) how much you should have in your pension account and (B) how much debt you have.

So, how much should you have in your pension fund? This is a good question and an area that you can legitimately compare yourself against others to. So, I am going to give you a chart which shows you how much I personally recommend people have accumulated based on their age which is directly linked to their current annual salary – this is a very simple table that you can use which is based on replacing two thirds of your current salary inclusive of the annual state pension. For this example I am basing my figures off an annual income of €50k.

Another area to compare yourself against others is not how much total debt you have but how much what is called revolving debt you have. The recommended level of revolving debt is 20% or less of the total amount of debt available to you.

Let me explain what revolving debt is. Let’s assume you have a credit card limit of €5,000 and an overdraft limit of €2,000 and between both you owe €3,000 then your revolving debt % is 43% (€3,000/€7,000) in this instance you should pay down your credit card and overdraft to no more than €1,400 which is 20% of the amount of credit available to you.

I always tell my clients that it doesn’t matter what everyone else’s finances look like, it’s what your finances look like and what you choose to do about it that matters most. And it starts by being proactive and getting what I call a personal financial check-up and that starts with where you are right now and you know it’s no different to wanting to lose weight – if you want to lose weight the first thing you need to do is weigh yourself because how would you know if you were heading in the right direction if you didn’t know your starting weight – the same applies to your finances.