There are many articles and books out there on getting out of a rat race with many still unclear of this particular race that is “unscrupulous and sucking the life energy out of many working adults”. It is definitely no mystery since we are all wired into believing that it is a normal cycle to life. We spend an average of 18 years preparing ourselves and acquiring an edge over other fellow “rats”. All so to distinguish ourselves and earn a higher income. I’m sure you have guessed it: a rat race = every other 9-to-5 job.
Our society has grew accustomed to the general trend of spending almost a quarter of our lives in schools, after which we would leave school and enter into our next phase – the working phase. In that phase, in exchange for our contribution and time (5 days a week), we are offered freedom and income to satisfy our wants in the remaining 2 days.
All of these seems like a good deal especially after early years of staving off our desires, we finally have the ability to obtain some of these long-wanted “toys”. This then becomes a cycle where we work harder to maintain or improve our current lifestyle.
So how do we escape from this?
First and foremost, your aim in this race is to accumulate enough money to get out of it and have the freedom to do whatever you want. If you are just an Average Joe, without a large inheritance, it is normal to begin by exchanging time for money. However, instead of working for money to buy more other lifestyle wants; work to improve yourself or your future. Invest in yourself by attending courses or improve your current money inflows by investing in different tools (ETFs, stocks and bonds).
1. To break free of the cycle, you have to either increase your remuneration per hour or reduce your expenses such that you can redirect the excess money to generate other sources of income.
While there are no order as to which step you should take first – increase income or reduce expense, you should mentally prepare yourself first! By that, I mean doing whatever is necessary to maintain your motivation and comfort level. It is important to understand that this is a long route ahead and to sustain it, you must be comfortable with what you are willing to sacrifice and what you are not. For example, for me, I feel comfortable giving up my dessert cravings but not to my daily caffeine urge. Hence, it is important to note your expenses and eliminate those that you are comfortable of giving up in order to meet your monthly/daily budgets.
2. Cut down on your expenses comfortably to the minimum.
The next step is to let your money work for you while you enjoy life. There are many tools out there which you can utilise to make your money work for you, but each of them comes with its own inherent risks and it is hence critical for you to understand what is your risk tolerance level. Balancing returns and risks is key to financial success.
3. Invest your excess cash and balance between risk and returns
It is important to set aside a portion of your monthly salary to save and another portion to invest for your retirement. It is recommended to have up to 6 months of your monthly salary as ’emergency funds’; any other amount above that can be used to invest for your future!
Investment is a much complex topic and requires a lot more read up and learning. But the basic is to invest for the long-term and diversify! An ETF Index Fund is a fairly good and easy way to start!
An Index Fund buys stocks that are listed on an Index (eg; Straits Times Index of Singapore) while an ETF allows you to purchase the Index just like how you would purchase normal stocks on an exchange.
After all these, we will now move to the last and most crucial step: repeating all 3 steps until your investments are able to generate a higher income than your daily expenses. When you finally are able to achieve that, then congratulations, you are now out of the rat race! You are no longer bound by your weekday job and can now enjoy your last-awaited freedom as your reward.
Article by Zi Chao
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