Updated: May 2021
We’ve completed the first five steps of the ‘Rat Race Off Ramp’. Now, we are on to the final step: Step 6: Review Your ‘Race’ Status. Building wealth and achieving financial freedom is a lifelong endeavor, and as such, the sixth step is periodically revisiting the first five steps of the ‘Rat Race Off Ramp’. This can be something you do at a set time interval (i.e. every three months, every six months, every year), or when something major changes your financial situation like a promotion at work, changing jobs, achieving a goal, paying off a debt, getting married, having a child, or moving. I recommend you Review Your ‘Race’ Status at least every six months.
After going through the first five steps once, going back to review where you stand should be a quick and simple process. It shouldn’t take more than an hour (probably closer to 30 minutes) to check where you are in approaching your ‘Off Ramp’. A big question is: Is checking up on your personal finances worth spending one hour less on social media or delaying one episode of the new series you are watching once every few months? That’s for you to decide. As you periodically review your ‘Race’ Status, you’ll make adjustments and see your financial situation transform throughout your life. Below, I’ll highlight some adjustments you’ll make during Step 6: Review Your ‘Race’ Status.
Review the First Five Steps
Step 1: Set YOUR Goals
You will achieve some goals, set new goals, and have some goals change over time. Every time you achieve a goal, you should be able to move closer to other goals and make new goals. Your financial goals can drastically change, especially around a life event like moving, getting married, or having children. Periodically review your goals to see if you need to change any or make new ones.
Step 2: Your Financial Snapshot
This may be the most important part of your ‘Race’ status because it will tell you where you are in relation to your ‘Off Ramp’. Checking your net worth periodically will allow you to check on how you are doing in relation to your goals, especially your long-term goals. This is where you should see progress towards your ‘Off Ramp.’ If you’re not happy with your progress, you may need to take a closer look when reviewing steps three, four, and five.
NOTE: Your net worth may occasionally be lower due to fluctuations in your investments. As long as the long-term trend of your net worth is increasing, you’re moving in the right direction.
Step 3: Dive Into Your Income & Spending
Over time, your income and spending will change. Whether it is from moving to a more or less expensive location or getting a pay raise or having children, you’ll need to adjust your plan and potentially the amount you can spend and save based on your life changes. Reviewing your income and spending will also allow you to find any unexpected changes in spending. If you find you’re spending more, you need to figure out if the extra spending is something you want to continue, eliminate or reduce.
Step 4: Tackle Your Debt
Hopefully once you’ve tackled your debt, especially high interest rate debt, you will enjoy the reduced stress coming from having less debt, and you won’t go back to holding any debt with high interest rates. There will be times where you may take out a loan for a big purchase, but if you plan ahead and save, you may be able to limit any future loans to only mortgages.
Step 5: Ramp Up Your Savings
After reviewing the first four steps, your savings rate can be reevaluated. Remember that once your debt is reduced (at least your high interest rate debt) or eliminated, your savings rate is ultimately what will drive how quickly you approach your ‘Off Ramp’, achieve financial stability and independence, and ultimately retire. If you keep increasing your savings rate, you’ll move towards your ‘Off Ramp’ faster.
One of the best things about reviewing your ‘Race’ status is technology. You could literally put a reminder in your phone calendar for every three months, six months or a year. If you worked through the first five steps of the ‘Rat Race Off Ramp’, checking back to see how you are doing is well worth the time and can keep you conscious of your finances. Without checking in on your ‘status’, will you really know where you are or where you’re actually going in your ‘Race’?
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