Updated on April 7, 2021
Over the last few blog posts, I wrote about the “Latte Factor,” excuses for not saving money, and the ‘why’ for your money. These were lead ups for getting back to the ‘Six Steps of the Rat Race Off Ramp.’ If you can take the time to go through these steps, you can literally make a plan to change your financial future. Today will be an overview of the six steps. Going through these steps can help you change the trajectory of your personal finances, continue to improve your personal finances, or keep your personal finances on a great trajectory. So many people live in the ‘Rat Race’ of life, but few have plans to take an ‘Off Ramp’ and leave the ‘Rat Race’ behind. These six steps can guide you out of the ‘Rat Race.’
Why?
Why does this matter, and why should you even bother with doing any of this? There are a lot of reasons to improve your personal finances and prepare for your future financially, but three reasons rise to the top when looking at the big picture. First, money problems cause stress. Stress for you, your family, your relationships. This can also lead to health problems. Do you have any stress when you’re paying bills, or wonder if you’ll be able to pay all of your bills? Second, a secure financial future is a lot more feasible than you think. We will all have different timelines to get to our own ‘Off Ramp’, but it is within reach for every single one of us. And third, you need to plan for a longer retirement. Do you know what the fastest growing population of Americans is? Centenarians. That’s right, the fastest growing age group is people over 100 years old. So, you need to have a plan to live longer than our ancestors did. Unless you plan on having family support you for 10, 20, or 30 years, you will certainly need to plan for, save, and grow a substantial retirement nest egg.
How to get there and where we are headed
Getting on the right path towards financial freedom can seem daunting, even discouraging, at first. That’s why the first steps will likely be the toughest, but also the most important. You’ll need to take a complete look at your finances in order to see where you are so you can start moving forward. Before we get started there is one thing you need to know, remember, and keep in the back of your mind: The key to building wealth is spending less money than you earn and saving the difference.
Every single one of you reading this and every single person and family you know will have different ‘Off Ramps’. Some people will want to have $1 million saved. Others may want $5 million or more. And even others may be okay with only $500k before stepping away from the ‘Rat Race’. Some of us may want to have a primary home and a vacation home. Some of us may want to take a Caribbean vacation or week-long ski trip every year (or both). Some people may want to golf a few times week. It can all work if you have a plan to accomplish it. Each of us has different factors and goals that will drive our own ‘Off Ramp’, but your goals will change over time. Let’s get moving on the overview of steps we will take to get to that ‘Off Ramp’. Don’t worry if you don’t understand everything in the seven steps below. I’ll cover them in detail over the next few weeks.
Six Steps of the ‘Rat Race Off Ramp’!
You’ll have short, medium, and long-term goals. Some may look easy (short-term goals), but others may seem daunting (long-term goals). But in order to take your ‘Off Ramp’, you need to know what it looks like. Start your planning with setting financial goals for your future. Setting and achieving these goals will help keep you motivated towards reaching your ‘Off Ramp’.
Step 2: Your Financial Snapshot
Basically, you need to know where you stand financially. This is your starting line. It boils down to figuring out your net worth. Your net worth is sum up of all things you own minus all of the money you owe.
Step 3: Dive into Your Income & Spending
For developing a plan going forward, you’ll need to know your income and spending habits. Here is also where you will look to cut back on your expenses to provide more money for paying off debts faster and increasing your savings and investing.
Reducing and eliminating debt will be essential to taking your ‘Off Ramp’. Making extra payments and larger payments to pay down your debt faster will decrease your financial burden, but also rapidly increase your ability to save for the future.
This is where you can really start accelerating towards your ‘Off Ramp’. Once you have tackled most (if not all) of your debt, especially your higher interest rate debt, you can start transitioning from making debt payments to rapidly increasing your savings in retirement accounts, emergency savings, and other investments to build your nest egg.
Step 6: Review Your ‘Race’ Status
Here, you’ll check in on how you are doing in your ‘race.’ This step is very important. During your review, you’ll go over the previous five steps and make adjustments as necessary to keep you moving towards your ‘Off Ramp.’
What’s next?
Over the next few weeks, we will dive deeper into every step to get you moving towards your ‘Off Ramp.’ There are a couple things you can do to prepare: think about some goals for your future and know where all of your financial accounts are.
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