Since birth we have been told that the path to success is to study hard, do well in school and get good grades so you can get a good job. So we joined the race of our lives, running hard toward the promised prize of a meaningful existence and prosperity. Many of us stayed on track long enough to clear the many hurdles on track, with some earning our degrees.
You are guaranteed success, huh? How’s that going for you? If you’re like me you have now realized that this is not the full story. The brief fleeting moment of success we tasted was not enough to quell our hunger nor did we “arrive”.
So everyday we continue hit the pavement, in the rat race; chasing cheese…
We all are trying to make it big. We want to be rich. To be wealthy. Some for different reasons:
- to be in a position to repay those who sacrificed greatly for us (the years of “magical free food”, those books we tried desperately to evade reading, and clothes didn’t pay for themselves)
- to live like the true kings and queens we are (mommy and daddy’s lil princes and princesses all grown up)
- or the more modest amongst us “just want to be comfortable” (whatever that is.. 2015 comfort comes with a slightly higher price tag than the good old days.)
Whatever your view point on the wealthy the fact remains we are in some way on our own personal quest for cheese. Even the perfectly altruistic amongst us will admit that it is a helluva lot easier to give when you have something from which to give in the first place. But what is really considered wealthy? How much is enough? What if we could quit the race?
For the purpose of this discussion, I will define “wealthy” as having enough free cashflow from your investments and assets to cover your desired standard of living. Therefore “enough” is really whatever you define it be. In order to quit the rat race, one only need create enough free cash flow to provide enough cheese to sustain himself, whether it be a small morsel or a big block of gouda. You decide…
Taking the whole matter into consideration, it becomes apparent that we can all take various steps to influence our time on the track. Below, are outlined a few:
- Have an end in mind– Know what is your desired standard of living. I mean sit and pencil out what your expenses are and as a consequence what your desired income would be to make you happy. Interestingly studies in the USA have indicated that increments above a certain level of income generate no increased feelings of happiness and satisfaction. This number is unique for each person. Eg: If you can live on $5000/ month, with an earned rate of return of 8% per annum, you need a nest egg of $750,000 (However, it is advised that you plan to withdraw no more than 4% per annum from your nest-egg).
- Develop a budget– track all your spending, every last $1. This will be your financial blueprint. After all, you are constructing your financial future. Much like any other plan, this is meant to keep you on track. By monitoring your expenditure you will be shocked at what you spend on different categories and you can make the required changes.
- Spend Less than you Earn– This bit of advice will win no award for originality, but sometimes simple is best. You cannot invest what you do not have. With the advent of consumer credit, we have effectively found a way to eat tomorrow’s cheese today. This overeating will inevitably lead to financial ill-health and certain ruin. Trim budget of all non-essentials and discretionary items, just to the point of discomfort. Nothing worth having comes easy. Do you really need a 10th pair of blue jeans or that super fast, 100MP, dual processor cell phone with the accompanying teleportation pad? Consider toting the old brick a little bit longer (Keep on silent and answer in private if necessary. Talking a lot takes up call time/ credit anyway!!).
- Pay yourself first– you avoided the temptation of that phone upgrade, now you have this mythical thing called savings. It is recommended that you save at least 10% of your gross income. This should be taken first (use automated withdrawal at the source of payment if you struggle with the discipline).
- Ignore Windfalls- Your parents gave you $10,000 just for being an amazing kid (not yet time to upgrade your car), that annual bonus check (This is not your Big Pimpin starter kit), that annual salary increase (you do not need more clothes, a fancier watch or more dining out). Consider ignoring these windfalls. What would have happened if these did not come your way? I know what… you would have found a way to continue inhaling and exhaling. When you discover the power of compound interest you will never view money the same.
- Pay down debt starting with most expensive- With these savings, begin to pay down debt starting with most expensive loans first. Retire that 40+% credit card before that 12% car loan (unless you want the motivation of checking off smaller loan amounts first).
- Develop an Emergency Fund-It is recommended that you develop an emergency fund of at least 6 months worth of expenses. This will cushion you, should life throw a curveball as it so often does. This guarantees recovery, should the worst come.
- Explore Investment Options– once debts have been cleared and you have your cushion, you now have the opportunity to begin exploring investments. Consult a certified financial planner. Options include: stocks– pieces of ownership in publicly traded companies, bonds– loans to governments or companies usually with the agreement to pay an agreed rate of interest (coupon) and return your principal on a particular date (maturity), Mutual Funds- Allows you to buy a portion of a portfolio of stocks and other instruments in a pooled manner with other investors, real estate– invest in a house, a rental property or commercial real estate, Open a business- research a need, meet it better than the competition, take a profit. As Jim Rohn stated “profits are better than wages, wages make you a living, profits make you a fortune”. Businesses have tax advantages over earned income. The key is to always treat customers right or get left. Note that each investment type comes with its own set of risks and exposures. Explore each with a financial planner/ advisor.
- Develop a passive income stream– R.I.C.H.- Residual Income Creates Happiness. Either from your pool of investments, an online business, network marketing, peer-to-peer lending. Do you have some skill/ talent which you can market? Can you teach a math class (time to dust off that college degree and put it to use)? Think long and hard, the beautiful part of this is you are under no real pressure, no boss to answer to but numero uno.
When all is said and done, whilst money isn’t all, it is a major necessity in affording us and our loved ones the quality of life we want and deserve. With a little planning and discipline over time, we will afford ourselves the luxury of being able to “quit the rat race” . This would then free up time or allow us to do that which we are truly passionate about. Maybe focusing a bit more on our health.
Do you have any other recommendations for those of us on our quest to financial freedom? Please leave your comment or question below.