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Most of the world’s population is trapped in a race that cannot be won — the rat race.
We spend most of our lives climbing a corporate ladder that never ends when we can simply own the ladder!
In this post, we’ll discuss what the rat race is, some of the root causes, plus ways that you can escape the rat race and achieve financial independence.
Let’s get started!
The term ‘rat race’ means:
Any exhausting, unremitting, and usually competitive activity or routine, especially a pressured urban working life spent trying to get ahead with little time left for leisure, contemplation, etc.
Does this sound familiar? Here’s an illustration of the rat race cycle:
An illustration of the rat race cycle
Unfortunately, being stuck in a 9-5 job that doesn’t satisfy you, where you have little to no time to enjoy your life, is considered the norm.
But living an unpleasant life where you’re trapped in a vicious cycle to make ends meet doesn’t have to be your fate.
Ordinary people can escape the rat race!
According to Robert Kiyosaki, what separates the rich from the poor and middle class is as simple as this:
The rich invest in assets, whereas the poor and middle-class invest in liabilities.
He explains that an asset puts money in your pocket, and a liability takes money out of your pocket — those in the rat race invest in the latter.
Examples of common assets and liabilities
Instead of investing in assets like stocks or real estate, we invest our hard-earned cash in the latest iPhone or other liabilities.
This results in even those with a high-paying job finding themselves in debt and strapped for cash.
All those possessions won’t get you closer to freeing yourself from the rat race.
To escape, you need to invest in assets, not liabilities.
2 main factors have made the rat race an unfortunate way of life for many individuals:
1. The education system
2. Lack of effort
Let’s examine these in some more detail.
We don’t want to waste our lives away being slaves for money, but at the same time, we weren’t taught how to make money work for us.
As Olivier Roland, successful blogger and author of The Way of the Intelligent Rebel, puts it — the education system is outdated.
He goes on to say that the system was never designed for people who want to create their own path.
The education system primes us for the corporate world: we’re taught to go to college, get a steady job, and work 9-5 until we retire.
This not only becomes very unappealing to many, but our brains become wired to see the ‘norm’ as the only way to earn money.
Instead of finding creative ways to make a living, we feel trapped in this rat race, so we continue to work harder and harder to make ends meet.
A high-paying job doesn’t stop us from living paycheck to paycheck either, instead, when our salaries increase, our expenses tend to increase too.
This is because we weren’t taught the value of investing in assets.
Instead, we do what everybody else does; we play it “safe”, and invest in more liabilities — this keeps us safe in the grips of the rat race.
Not only is the education system to blame, but we’ve become content with it. To swing our fates, we need to be willing to put the effort in.
Most people want to escape the rat race, but very few take the necessary steps and temporary sacrifices to actually make it a reality.
To escape the 9-5, we need to make the necessary educational investment, and we need to invest our time and energy into making it happen.
All passive streams of income are fueled by active income generated from a day job — it’s just a matter of how we choose to spend our earnings.
It won’t be easy, but investing in passive sources of income will be worth it, and eventually, they’ll require little to no effort on your part.
Let’s dive into what you need to do to become financially independent.
Steps to achieving financial independence
The good news is that the rat race isn’t the only way to live. In reality, there are many ways that we can get money to work for us.
Escaping the rat race entails changing your spending habits — you’ll need to keep track of your spending and make cuts where you can.
We can’t be on a never-ending pursuit for the latest gadgets or cars, you’ll need to stop spending money unnecessarily.
Always ask yourself, would this be better spent elsewhere?
Buying more stuff increases your chance of living paycheck to paycheck, and it makes reaching financial security very difficult.
Stop buying more things, reduce your expenses, and start saving for a better future — living within your means will be worth it in the long haul!
To save, you not only need a good handle on your financial situation, but you’ll also need a good idea of what you’ll be saving for.
Let’s get into how much you should look to save.
You’ll want to save money to invest, but you also want to ensure that you’ve got a safety net in place for when any unexpected expenses pop up.
The idea is to get your invested capital to multiply. With an emergency fund, you’ll be less likely to draw your invested sum in an emergency.
The recommended savings amount for emergencies equates to at least 3-6 months’ worth of expenses.
For many, this is commonly how retirement pans out:
1. Throughout your working years, you’d amass a big enough nest egg to hopefully support you in your retirement years
2. You would slowly begin spending a certain percentage of your savings every year when you retire
Withdrawal rates of 3%-4% are typically recommended, but any unexpected expenses will increase a retirees’ withdrawal rates.
This increases the likelihood that you’ll run out of funds prematurely, and it requires decades of grinding 9-5.
If you plan on retiring before the traditional age of 65, you’ll need a larger nest egg to support you for longer.
This is because early retirement comes with these 2 challenges:
1. You’ll have less time to save for your retirement
2. You’ll have more time to spend your savings
How much you should save for retirement is dependent on several factors, which is why there’s no one-size-fits-all answer.
The FIRE movement
The FIRE movement
The Financial Independence, Retire Early movement involves saving and investing to the extreme to retire younger.
With this strategy, members of the FIRE community have managed to retire in their 30s, 40s, or 50s, and live off of small withdrawals from their portfolios.
Here’s how it works:
Here, the idea is that it’ll give you the chance to live off of your savings for at least 30 years.
This strategy does, however, rely on the idea that you’ve got a portfolio income with about 50% bonds and interest rates high enough to live off of, despite inflation.
Most experts agree that your retirement income should be about 80% of your final annual income before you retire.
This means that if you make $100,000/year at retirement, then you’ll need at least $80,000/year to live comfortably when you retire.
But how much you’ll need will also depend on the lifestyle that you intend on living when you retire.
To get started, you’ll want to:
1. Estimate your retirement expenses
How much money will you spend monthly when you retire?
This includes everything from housing, food, healthcare, clothing, etc. Ideally, you’ll also want to be debt-free when you retire.
If you’ve still got student loans or other debt, factor these costs into your budget too.
Don’t let debt demotivate you, even if you can’t retire early, you can still aim to retire earlier.
2. Calculate how much you’ll need to retire comfortably
Next, you’ll want to estimate how much you’ll need to save to make it a reality.
One way you could do this is to save 25x-30x your expected yearly expenses, plus cash to cover one year’s worth of expenses.
So, you’d multiply your monthly expenses by 12 to get an annual estimate, plus one year’s worth of expenses in cash. Here’s an example:
Calculating how much you’d need to save to retire
This means that you’ll need between $1.5-$1.8 million to retire, plus $60,000 in cash.
Alternatively, you can take your estimated annual expenses and divide them by 4% to determine the minimum you’ll need:
You can also give yourself some wiggle room and divide it by 3%:
These methods will give you an estimate to strive for to ensure that you can retire with a big enough nest egg.
Research shows that a 3.5% rate should last 50 years or more with a portfolio consisting of 60% in stocks, and 40% in bonds.
Remember to also factor in any other retirement income sources that you may have, these may include:
Or any other sources — these funds will lessen the amount you’ll need to save to reach your retirement goals.
3. Work with a financial advisor
There are several benefits to working with a financial advisor, more so if you intend on retiring earlier than what’s considered normal.
Because retiring earlier means that you’ll have less time to save, and more time to spend, a financial advisor can help you:
The sooner you can start saving and investing, the better. Investing is the key to quitting your day job and escaping the rat race!
Let’s get into some of the main investment options that are worth considering.
1. Buy assets that generate cash flow (i.e. rental properties)
2. Use the passive income from the assets to pay for your living expenses
3. When the passive income generated from your assets equals/exceeds your monthly living expenses — you’ve reached financial success
In other words, if you can build up enough money in investments, then you can live off of the interest for the rest of your life.
You can invest in either traditional investments or alternative investments (or both), here are some examples of each:
Let’s take a look at 3 of the best income options available.
3 of the best passive income opportunities
Passive income means that your investments continue to make you more money without any added effort on your part.
In contrast, active income requires that you work daily to earn a return — employees and self-employed individuals earn an active income.
Passive vs active income
2. Income from a paycheck
3. Rental income from real estate
4. Royalty income from selling rights
5. Capital gains from selling appreciated assets
6. Profits from businesses they own
7. Interests from savings or bonds
Regardless of the income stream, all of them will require either an upfront capital investment, an upfront time investment, or both.
In this post, we’ll only be focusing on the top 3 passive income opportunities, these include:
1. Real estate
2. Stock market
Let’s explore these in some more detail.
Between the 3, real estate requires the largest upfront capital investment, but you do have some options. You can:
REITs are perfect for beginners because they’re like mutual funds.
This means that, like mutual funds, you can invest in portfolios of real estate assets without having to manage the properties yourself.
Although there are a lot of advantages to investing in real estate, there are some disadvantages that you need to be aware of.
Besides offering a reliable passive income stream, investing in real estate has several other benefits, these include:
Investing in real estate properties also has its own set of risks, such as:
The biggest downfall to real estate investing is that you lose liquidity.
This means that, unlike stocks or bonds, it can take months to turn your real estate assets into cash.
Investing in stocks can be one of the easiest ways to earn a passive income, but as with real estate investing, it isn’t without its risks.
These are the 2 ways that you can profit from investing in stocks:
1. Capital gains — Selling shares when their market value increases
2. Dividends — Monthly, quarterly, or annual dividend payments from the company in cash or stock to the stockholder
The price of shares is based on supply and demand; more buyers will increase the price, and more sellers will decrease the price.
Regular investments into stocks, no matter how small, can add up and offer you a solid income in the long run.
How much you decide to invest depends on 3 factors:
1. Your investment goals
2. How much risk you’re willing to take on
3. How much money you’re comfortable with potentially losing
Because the market fluctuates, there’s the opportunity for substantial profits to be made, but there’s also the risk that you’ll lose your investment.
Many of the wealthiest Americans have their wealth invested in stocks, but building a stock portfolio income that covers your expenses will take time — so consistency is key.
To minimize the risk, it’s also advised that you don’t place all your eggs in one basket — instead, you should aim to diversify your portfolio.
Diversification simply means that you invest in many different stocks as opposed to investing all of your investment capital in one or two.
Let’s get into some of the main pros and cons of investing in the stock market.
Besides the fact that investing in stock can be an efficient way to build your wealth over time, here are some of the other benefits:
You can invest as little or as much as you’d like, but the potential for gaining high returns is there.
Stocks have proven to perform well, where a projected return of 7%-9%/annum would be realistic.
Some of the main disadvantages to investing in stocks include:
Because there’s risk involved, it’s wise to first make the educational investment and start saving capital that you’d like to invest.
Actually doing it can also help you gain a better understanding of how it works — you could always start very small with stock mutual funds.
Stock mutual funds are great for beginners because they’re a low-cost way to invest in the stock market.
We’ve saved the best for last — entrepreneurship.
Being a business owner is one of the best ways to break free and become your own boss.
Many of the richest people in America owe their success to entrepreneurship.
Not only are you in full control, but working on your own business venture can be far more rewarding than any of the other investment options.
These are some of the benefits of escaping the rat race to run a business of your own:
Escaping the rat race through entrepreneurship also has its own potential risks, for example:
Being an entrepreneur is challenging, but being able to work on what truly matters to you increases the chance of you finding ways to make it work.
If having your business fail is a major concern of yours, read this.
Many of the top reasons why businesses tend to fail can be avoided!
The cost of starting an online business can also be worrisome — but launching a business doesn’t have to cost you hundreds of dollars.
In fact, with a tool like systeme.io, you can launch your business for free.
But, if you’re not yet keen on leaving your current job to start your own full-fledged business, then you could instead start with a side hustle.
Some of the main pros of starting a side hustle
Investing your spare time into establishing a side hustle allows you to eventually turn it into your main source of income.
Being self-employed does require a hefty upfront time and effort investment, but many side hustles can offer you a passive income opportunity.
These are some of the best side hustle ideas to bring in more money:
And so much more!
With a platform like systeme.io, you can do all of the above (and more), for free, without any technical or design experience.
A side hustle can continue bringing in money long after you’ve completed the project.
And because running many of them require little or no running costs with tools like systeme.io, you can use the profits to invest in more assets.
Eventually, you may even have enough money coming in to cover your expenses without the need for decades of grinding in the rat race.
Systeme.io is an all-in-one business-building platform that was made by entrepreneurs, for entrepreneurs.
We know that being a business owner is scary because businesses fail and not everyone has the capital needed to start their own online business.
It’s free forever, and no credit card details are required.
We have a finite amount of time, so it’s important to ask this one simple question:
Are you happy with how you’re spending yours?
For the majority of people, the work-life balance isn’t quite balanced. This means that they’re working their lives away to make somebody else rich.
At the end of the day, this leads to nothing but regret, especially when you consider that, on average, most people spend about 25-30 years working!
Time is the most valuable thing in the world, and money can’t buy you more of it.
Are you living your best life?
Or is it time to hit the brakes and start building a future where you won’t have regrets about how you spent your time?
To escape the rat race, you don’t need loads of money, you just need to invest in assets to let money work for you.
You can start with any amount and just keep building up your investment savings.
You know you’ve made it when you have enough passive income coming in to cover your monthly expenses.
It’s as simple as that — and you don’t need to slave away for the rest of your life to attain that level of financial security.
The secret lies in discipline and our priorities, start small and keep building — as with anything that provides a return, it’ll take some time.
These 2 practices are crucial to helping you escape the rat race:
1. Determine your ‘why’ and your goals
2. Pay yourself first
Let’s discuss these in some more detail.
Before you do anything, you need to know your ‘why’:
Let your reasons burn a fire within you — you’ll need the motivation to keep pushing if things get tough.
Once you have a clear idea of your ‘why’, you’ll want to establish a clear path of how you plan on achieving your goal of escaping the rat race.
As with any goal setting, you’ll want to break your big goal up into smaller goals that’ll guide your daily choices without overwhelming you.
Write your ‘why’ and your goals down for a constant reminder of why you’re wanting to escape the shackles of the rat race.
Remember that having no plan is to plan for failure.
Most people pay themselves last — once everything has come off, and there’s pretty much nothing left, they get the scraps.
As explained by Robert Kiyosaki in his book ‘Rich Dad Poor Dad’, this doesn’t motivate you.
You should pay yourself first (whether it’s paying off debt, or putting money away for your saving goals) and then pay your expenses.
He recommends this because if you fall short, you’ll be driven to find an income stream and live within your means so that you don’t fall into debt.
As we mentioned at the beginning of this post, we haven’t been taught to find creative means to earn money.
This is exactly what is encouraged by Robert to help us escape the rat race and achieve financial independence.
It’s no surprise that you, and many others, are looking for the nearest escape route — the rat race sucks!
The rat race was never a safe place — don’t stay complacent because it’s never too late to work toward creating your dream life.
There are risks with all 3 passive income opportunities mentioned, so be sure to make the educational investment before you make the financial commitment.
The option with the least amount of risk is starting your own business, that is, if you use a tool like systeme.io.
Forget climbing the ladder, sign up for your free systeme.io account today, and instead own the ladder!
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