financial benchmark
A standard reference point used to measure financial progress or performance.
Example
“The 50-30-20 rule served as a financial benchmark for allocating her income.”
Memory Tip
BENCHMARK — a fixed point to measure how far you've come.
Why It Matters
Financial benchmarks help you understand whether you are on track with your money goals and how you compare to typical financial outcomes. Without a benchmark, it is difficult to know if your savings rate, investment returns, or debt payoff progress is adequate or needs improvement.
Common Misconception
Many people think that benchmarks are rigid rules that everyone should follow equally, but benchmarks are actually personalized based on your age, income, goals, and life stage. What is appropriate for one person may not be suitable for another, so using benchmarks requires thoughtful adaptation to your specific situation.
In Practice
If you are 35 years old and want to check your retirement savings progress, a common benchmark suggests having three to four times your annual salary saved by this age. If you earn 60,000 dollars per year and have 180,000 dollars saved, you are meeting this benchmark and on track, but if you only have 90,000 dollars saved, you may need to increase your retirement contributions.
Etymology
From the surveyor's mark cut into a stone as a reference point for measurements.
Common Misspellings
Build a budget and track your spending
Related Terms
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See Also
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