5 Ways to Tell if You're on the Right Financial Path
Personal finance is full of well-worn basics. Pay yourself first when saving, create a budget, don’t use high-interest types of credit. Easy enough to say, but these basics can get tricky to balance during life changes. Even the most practiced of us in our money can feel overwhelmed by the financial decisions we face during major life events. From marriage to having a baby to going back to school or transitioning jobs, money always gets complicated when life does. So how can we ever know if what we’re doing with our money is the best thing for us? How can we know if we’re truly on the right financial path? The simple answer is this. You won’t know if you’re making the right decision until all is said and done. But in times of uncertainty or change, I find it’s best to make the most informed decision you can and then fully commit to it. After all, finance isn’t a one-size-fits-all exercise. Money is incredibly emotional. That's why, even with the basics, finance varies from person to person. And it can get really complicated at times. For these reasons, I’m not going to come up with advice for you on what you should be doing on your financial path. Instead, I’m going to talk about a few ways you can tell if the path you’re on is the right one for you.
How to Tell You’re on the Right Financial Path in Five Steps
Step #1: You’ve figured out your money mentality, and are using it to make your money work for you rather than against you
Everyone’s relationship with money is different. That's why recognizing your own money personality or “money mentality” is a critical step in figuring out the best way to approach your financial goals. For example, someone with a money worship mentality might find more value in being able to afford a bigger house. Someone with a scarcity mentality might only feel comfortable with a lot of money in the bank. The way you feel about money deeply affects how you handle your money. Because of this, it’s important to hone in on your money mentality so you can use it to your best advantage. In my own life, I’ve struggled with a shopping addiction in the past. While I’ve since gotten it under control, my abundant money mentality remains. This means I like to buy (even if it’s groceries or office supplies) and always think there’s money in the bank to do so, even when there isn’t. To combat this, I’ve had to rework my financial routine. I now allow myself to indulge in my expensive tastes - but only when I hit another financial target. If you’re always falling short of your financial goals, it could be that your financial routine doesn’t jive with your money mentality. If that's the case, it's time to rethink your plan.
Step #2: You’re clear on what you want your life to look like
Once you’ve figured out your money mentality, it’s time to get clear on what you really want out of life. Ask yourself this: “What do I really want right now? What is it that will truly make me happy and, most importantly, why?” Maybe you want to start a family or move to a new city. Perhaps you’d like to quit your job and travel around the world. Whatever it is your heart desires, remember that money can be the tool to help you get it (it doesn't have to be the thing holding you back). In 2015 I was struggling in my life and career. I’d been running my blog for 2.5 years and wasn’t sure if I wanted to continue in corporate America. But I also wasn't sure if I wanted to leave my stable job for the unknown of freelancing. My financial picture at the time added to the uncertainty I was feeling. I had debt and little savings and worried a freelancer career wouldn’t pan out, or worse - leave me destitute. Once I was able to clearly articulate what I wanted my life to look like, however, things came together. I decided I did want to take the chance and work for myself. So I set out on a $8k in 90 Day Challenge and paid off all my debt before I left my job (and in under 90 days!) Being free of debt took a lot of financial worry off my plate. This allowed me to focus on growing the business in my first few months of self-employment instead of worrying about the debt payments. If you’re not sure how to get a clear picture of what you want in life, try something outside of the box (or budgeting spreadsheet). My “go tos” are journaling, meditation, or creating a vision board. Sometimes it can take months to mull over a big life (and money) move. Give yourself the time and space to properly think.
Step #3: You spend mindfully
Sometimes we do things with our money that doesn't serve us. More often than not, it's usually when we do things with money we think we’re “supposed” to. Like when we accept social invitations we prefer not to because we fear we'll look like the bad guy if we decline. Or when we feel the urge to buy a home because “everyone else is doing it” or because "renting is throwing money away." A lot of times we feel pressure to go with the flow of those around us without even realizing it doesn't fit with our current lifestyle or desire. The right financial path involves spending mindfully on the things that bring you the most joy. Think about purchases that feed you emotionally, spiritually, or intellectually. The things you’d gladly pay double for: like an experience, time with a loved one, or a coat you’ll wear forever. Basically, if a purchase isn’t fulfilling a basic need, investing in something important to you, or lighting up your face with happiness each time you interact with it, then that purchase wasn't made mindfully.
Step #4: Your net worth goes up
Your net worth is calculated by a simple formula:
Assets - Debts = Net worth
If you have a lot of debt, your net worth number may be negative or just barely in the black. No matter what happens with my finances on a daily or weekly basis, as long as my net worth goes up instead of down at the end of the month, I feel I’m doing the right thing, financially. I don’t get mired in the details. Even if I’m not checking every box, or making every savings contribution, if my net worth number is growing, it means I did at least something right with my money during that period of time.
Step #5: You’re consistent in treating yourself with kindness and acceptance
When making the decision to leave my full-time job, I had to embrace the fact that building a career as a blogger isn't traditional - and that meant my finances weren't going to look like everyone else's. As someone who has always wanted to keep up with the crowd and seriously fears being “left behind,” this was a hard pill to swallow at first. For example, because I had to take a lower rate of pay my first year of business, I wasn’t able to make any retirement contributions. I felt terrible that I wasn’t checking a box on my personal money checklist - especially since I make a living suggesting to others how to best manage their money. I felt horribly guilty. I had to make a daily habit of reminding myself that I’m building a business, and sometimes that means having to sacrifice short term goals to reach success in the long term. My circumstances are wildly different than everyone else’s which means my goals, progress, and outcome will be different too. The first year in business is always tough, but now that I’m earning more than I did in an office, I’m glad I was able to sacrifice financial stability for long-term income growth. Now I don’t envy my corporate friends anymore.
It can be difficult at times not to compare yourself and your finances to others (especially in the age of social media). You might browse photos online and think: How do they afford to travel all the time? Doesn’t so-and-so have student loan debt? Look at that huge house! How can they afford to have him/her stay at home..? And so forth. You may wonder where all that money comes from, and sometimes it’s fun to gossip. The question is - does it matter? Either they’re making sound financial choices or they’re not. It isn’t for you to be concerned about. Even if they’re flush with cash, don’t be jealous. Instead, remember they’re on a different financial path than you are. Focus your energy on your own financial journey. You’ll be the better for it. At the end of the day, it doesn’t really matter which financial path you take - so long as it’s the path that will help you live the happiest, most fulfilling life you choose to live. Only you can decide what that looks like.