If he then were to ask how you thought you were doing compared to other people, you might need to think for a moment. There are a lot of people out there on the road with shiny, new cars. There are a lot of people at those resorts with you. How could you tell how well you were doing compared to them?
The way to really tell how well you are doing financially is to look at your level of safety. How far away are you from the cliff? If the ground were to start crumbling off of the edge, how long would it take for you to be pulled into the abyss? If you walked into work today and the boss greeted you with a cardboard box, saying that the firm was downsizing, how long would it be before you missed a car payment? Or a mortgage payment? How long until you would need to start selling things? How long until the bank would repossess the car and evict you from your home?
On the flip side, what will your retirement life be like, given your current trajectory? Are you going to have all the money you need to do the things you want to do? Will you not really care is Social Security is there or will you be waiting for that meager check to come so that you can buy food for the week? (My guess is it will not be there, unless the current system is scrapped and accounts privatized, given our demographics and $20T in debt.) Will you only be able to go to places with a senior discount, or will you be treating everyone at top restaurants? Will you need to move back in with the kids, or be able to stay independent? Will you leave your children a pile of cash, or even start a family scholarship fund or another legacy, or will you leave with a pile of debt?
Thomas Stanley developed a measure to determine which people were likely to become multi-millionaires and which people had large incomes, but very little financially security. He wrote about his system and his findings in his books, The Millionaire Next Door and The Millionaire Mind, books that everyone should read. He said the place to look was net worth, not income. He found that those with a net worth greater than one-tenth of the product of their salary and their age were exceptional wealth builders and likely to become multi-millionaires if they weren't already. For those who have forgotten your mathematic jargon, that criterion is:
Net Worth > (Income) x (Age)/10
For example, if you are 35 and have an income of $50,000 per year, if you have a net worth (the value of everything you have, including retirement accounts, stock options, bank accounts, things you could sell, properties, home equity, etc...) of more than $175,000, then you are one of the rare individuals who has the potential to become very wealthy and reach a high level of economic security. Think about it - if you had $175,000 and $50,000 of it was liquid, you could go an entire year without a job without changing your lifestyle a bit. The chances of not finding a job in that period of time are pretty slim, so you have a high level of economic security. If you cut back a bit, you could probably go a year and a half. After that, you could sell your home and move into an apartment to regain your home equity, or tap into retirement savings to sustain yourself. These aren't things you would want to do, but it is better than sleeping on the street. You would have a few years of economic security.
Of course, this criterion doesn't work well for those just starting a job. If you're 25 and just starting a $60,000 per year job, you aren't going to have $150,000 instantly. It also doesn't work well late in life. For example, if you're 60 and have a $100,000 per year job, hopefully you'll have a net worth of a few million dollars since you have retirement in your near future, rather than just $600,000. It is best applied for people who have been working five to ten years but less than maybe 25 to 30 years.
So what do these people with high net worth look like? Well, they won't be the people next to you in the shiny new car. They will probably be the ones in the older, nondescript car. They also won't be the ones in the McMansion in the posh subdivision full of McMansions. They'll be in a safe but modest neighborhood, probably in a modest home with a well-kept yard. You can find many examples on the blog, The Surprise Millionaire. They often won't be CEOs or bank presidents. They may be janitors, teachers, lunch ladies, small business owners, engineers, professors, plumbers, or secretaries. They will be the ones who seem calm during times of layoffs or turbulence. They won't need to be repaid immediately for expenses because they'll have plenty of money to float the bill. They'll be financially secure, which is worth forgoing a big home and a shiny new car every couple of years.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.