Updated: Sep 10, 2023

How Can I Tell if I'm on the Right Financial Path?

When focused on your immediate goals, it can be easy to lose sight of your finances. This checklist can help you find - and get on - your right financial path.
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Every day after lunch, from 7th-9th grade, I went to art class. Perched atop my stool, pencil in hand, I spent the majority of the class comparing my work to those around me. From strikingly real portraits to still life drawings that leapt off the page, what I produced paled in comparison to my peers' work (in my opinion). Seeing their skill made me feel light years behind.

I was routinely praised for my artwork, but after making the switch from public school to art school, I was in an entirely new class of talent. This is where I learned that personal accomplishments can quickly lose their sheen when comparison comes into play.

Years later, a few dates into a new relationship, my now-boyfriend and I started talking finances (as two people in the financial services sector tend to do). After working at a public pension fund, I was convinced my retirement savings exceeded the majority of my peers. I was proud of my double digit balance and confident of the financial track I was on.

Then he told me the dollar goal he planned to hit before his 30th birthday and my jaw hit the floor.

I wasn’t even close. He was on mile ten and I was just starting the race.

The reality is we were both on track - the track fitting our particular situations, income levels, and financial goals. But sometimes it can take a glance at the financial decisions of our peers to get our bearings and decide if we need to change course.

There are a plethora of things to think about when determining if your money actions now will take you where you want to go later. That’s why a little check in and recalibration of your financial GPS can be helpful.

As you take a look at this list, remember one thing. Comparison is only helpful when used as a tool to better yourself. Comparison is not helpful when used to tear down your own accomplishments or discount your own decisions.

Now, let’s get started.

Check In On Your Savings

As someone who used to funnel everything extra into the same savings bucket, learning to divide savings by short and long-term goals has been a challenge.

But, as we get older, purchases and financial responsibilities get larger. And each of these purchases and responsibilities are tied to different timelines, requiring different dollar amounts. This is when saving requires more than just a “drop it and forget it” approach. It’s about having all your bases covered - the good, bad, exciting, and unexpected.

  • Short-term savings should cover financial goals or expenditures happening within the next 0-2 years. (Think: saving for a vacation.)
  • Mid-term savings should cover financial goals or expenditures happening within the next 3-5 years. (Think: saving for a down payment on a house.)
  • Long-term savings should cover financial goals or expenditures happening within the next 6+ years. (Think: retirement.)

Regardless of the timeline or size of the goal, the process of determining how much to save is the same:

  • Determine how much you will need. (Try using a mortgage down payment calculator or a retirement calculator for these larger goals you might not have a dollar amount for.)
  • Decide the goal date for having these funds.
  • Divide the amount you will need by the time you have to accumulate it. This should tell you how much you will need to put away monthly or yearly to reach your goal.

This process has a multitude of benefits, regardless of whether you’re a spender or saver. It requires you to consider your financial goals and priorities. It ties hard numbers and dates to these goals. And it allows you to see if you need to adjust what you’re doing now in order to do, see, and have what you want later.

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Analyze Your Spending

After a taking a deep dive into my monthly spending, I noticed something that left me kicking myself. I had five subscription services that I was barely using, or not using at all. Two of them were essentially offering the same thing. And all of them had gone unnoticed for months.

I’m not one to have a bare bones budget. I don’t mind paying for services - or anything else - if it provides value to my life. However, when I absentmindedly pay for things that add little to no value to my life, I feel a surge of guilt.

This is when I need to remind myself that analyzing where my money is going isn’t necessarily about pulling back the reigns on things I’m enjoying. It’s about ensuring that my money is actually going to those things - and not being frittered away on things that don’t matter to me.

While there are plenty of rules of thumb that say you should spend X% on rent and X% on food, here’s another, less one-size-fits-all approach to analyzing your spending:

  • What’s your net pay?
  • What percentage of that is being dropped in the savings buckets discussed above?
  • What amount is going to service your debt?
  • What amount is left over to cover necessities: rent, utilities, food, transportation?

The amount you have to cover necessities can be divided any way you see fit, as long as it fits within that dollar amount designated for these expenditures. This is where your priorities come into play.

If your living space doesn’t matter to you much but you’re a foodie who loves to try every new restaurant in town, you might opt to have roommates instead of living alone and reserve the extra cash for food. This is just one example. The point is you can have what you want - just not in addition to all the things you don’t want as much.

You might be wondering why savings was deducted from your net pay before determining what’s left for necessities. It’s simple: savings is a non-negotiable. If you take this amount out before everything else, then you have a true picture of what you can spend while still maintaining a financial cushion and reaching financial goals. It’s all about paying yourself first.

Now, if you notice your current spending doesn't fit with your available funds after saving, it’s time to decide what to cut. For me, I have five subscription services on the chopping block.

Consider your debt load and payoff plan.

Debt has a tendency to stick around until you determine an eviction date. So just like reaching your savings goals, debt is always easier to tackle with a plan. Here are a few things to look at:

Is Your Debt Increasing or Decreasing?

It could be increasing if you're only paying the minimum credit card accounts. Your debt could also increase if you’re charging purchases to cards that have a balance.

What Types and Amounts of Debt Do You Have?

Making a comprehensive list of the types of debt you have (student loans, credit cards, etc.) and the terms of the debt (interest rates, the length of the loan, etc.) can help you to see if you’re tackling it in the quickest, most effective way possible.

Do You Currently Have a Plan for Your Debt?

If you’re already sticking to a plan and you know your debt payoff date, congrats! If instead you’re paying minimum balances and hoping to be debt-free on your deathbed, it’s time to take some stress off those shoulders. This is when you:

  • Determine how much can go towards paying off your debt (while still staying stable in the rest of your financial life).
  • Decide which debt is better to attack first (it could be the account with the highest interest rate).
  • Outline how your monthly debt payments will map out (what amounts will go to which creditor) and when this will get you to that coveted end goal: debt freedom.

If debt is keeping you from achieving the rest of your financial goals and it’s too big of a burden to carry on your own, it might be time to consider debt consolidation.

Think Worst Case Scenario

There’s nothing that can derail a solid financial path like the unexpected. Whether it’s a health scare, a car accident, or flooding in your basement, these things can quickly take you from the black into the red.

As someone who only likes to spend on things I know I will use, this is an area I struggle with. I don’t remember the last time I went to the doctor or had a car insurance claim. So, instead, I think of this as a way of knowing that I won’t have to start back at square one should something happen - which is something I hate even more than buying things I “don’t need.”

Here are a few things you need to ensure you won’t be pulled off your financial path by the unexpected:

Health Insurance

Health insurance is a complicated beast, but one you’ll have to tackle. If you’re confused by HMOs, PPOs, FSAs, and HSAs, this guide will help.

Life Insurance

If you’re single with no kids to speak of, this is an expense you can forgo. But if you have kids or a spouse that rely on your income, this is something you will need in case of your untimely death.

Auto Insurance

I received a big lesson in not just selecting the minimum amount of insurance your state allows when a friend got into an accident with catastrophic financial consequences. Here are a few helpful things to think about when buying auto insurance.

Home or Renter’s Insurance

The things in your home might not seem valuable enough to insure...until everything is stolen (as my boyfriend discovered once). If you have a mortgage, homeowner’s insurance is a requirement for your loan, but renter’s insurance is just as important.

Give Your Credit a Check

After being schooled by my dad on the potentially damaging effects a late library fine could have on my credit, I’ve always tried my best to protect it. (Ok, maybe I just rolled my eyes back then, but clearly, it stuck with me.)

I didn’t realize how essential this was until I recently went to buy a house. Years of on-time payments, not closing accounts, and very low credit utilization landed me the best loan terms I could have asked for. This translated to a savings of a few hundred dollars a month, and thousands over the life of the loan.

As I learned, protecting and building credit is an essential component of your financial path even when you don’t currently have a purchase in mind that requires it. Why? Credit can be destroyed quickly, but rebuilding it can take years. So protecting it now gives your future self the ability to buy a home or start a small business without jumping through costly hoops.

Check your credit often and make sure it will help you - not hinder you - when it comes time to cash in on those financial goals you’ve been saving for.

And Lastly, Give Yourself a Break

Instead of getting comfortable with the amazing talent of my peers and working to sharpen my own skills, I eventually left art school. Looking back now, I wish I would have measured my successes by my own past accomplishments and future goals. I now work to do that in other areas of my life - including my finances.

Whether you're just carving out your financial path or your current path needs some adjusting, you’re being proactive just by reading this - and that deserves a giant pat on the back.

And remember this above all else: the right financial path is the one that provides you with the ability to live your life on your terms - not one dictated by the actions and accomplishments of others.