How to know if you’re on track with money

By C.J. Neff on July 1, 2024

There are three key numbers I regularly check on to help make sure my personal finances are on track: my financial independence number, my spend / save ratio, and the rate of return on my investments.

KPI #1 – Financial Independence Number

Your financial independence number is how much money you need so that you can continue your current lifestyle without needing to work anymore. And, I find this concept to be way more tangible and concrete than words like “rich” or “wealthy”. 

Financial independence is a number you can actually quantify and calculate. It’s a number you can actually know. 

There’s a whole industry out there that helps people calculate their financial independence numbers, and it’s called “financial planning”, but the basics are that you want to add up the cost of all your goals – e.g. paying off your house, sending your kids to college, and retiring with dignity. Add up all those numbers and account for things like inflation and taxes, and that should put you in the ballpark of what your number actually is.

If you’d like help calculating your financial independence number, reach out to us at hello@hightowerlasvegas.com.

KPI #2 – Spend / Save Ratio

How much you can save every month as a percentage of how much you make is akin to the horsepower of your financial engine.

I’m sure you’ve heard before that you’ve got to spend less than you make, and it’s true! You’re never going to accumulate very much wealth if you’re spending everything you make or – worse – spending more than you make.

Even if you’ve already achieved financial independence, spending less than you can afford every month or every year is critical in making sure that you don’t run out of money and that you stay financially independent. So, thinking about and looking at your cash flow every month is something that’s important for everyone.

How do you actually calculate your spend / save ratio? Well, bear with me because I’m about to mention something that sounds pretty boring – data aggregation. I know it sounds boring, but it can make your financial life a lot easier. There are tools like Mint, Tiller, and You Need a Budget, and what they do is aggregate all your transactions into a single list, so it becomes easy to know exactly how much money came in and exactly how much money went out. Having that data is the key to calculating your spend / save ratio.

There’s no need to go overboard with categorizing every single transaction because ultimately it doesn’t really matter how much you spent on lattes last month. What really matters is that you saved X% of what you made.

KPI #3 – Rate of Return

The rate of return on your investments is a measure of how hard compound interest is working for you.

Your financial plan should tell you the rate of return you need on your investments in order to achieve your financial goals. So, you might need to be taking a little more risk than you’re taking now, or – conversely – you might be a point in life where you can ease off the risk and shoot for a little more certainty in your rate of return.

The key thing to keep an eye on is that if your financial plan calls for a certain expected rate of return, are you actually hitting that rate of return?

How often should you look at each of these three KPI’s?

I think the frequency is a little different for each of them.

For your spend / save ratio, that’s where I think you have the most control in the form of your daily decision with money. So, I would say at least monthly you want to take a look at that one.

In terms of your rate of return, there can be a danger of looking at this one too frequently because the markets can be moody. One of the worst things you can do is be tempted to sell when the markets are down. So, I would say more like quarterly is appropriate for this one.

Lastly, in terms of your financial independence number, this one is probably going to change the least frequently, so I think more like annually makes sense for this one.