First of all, what is the rat race? I found several definitions on the web: “a mad scramble or intense competitive struggle, such as in the business world”; “an exhausting routine that leaves no time for relaxation”; “a Rat Race is a term used for an endless, self-defeating or pointless pursuit. It conjures up the image of the futile efforts of a lab rat trying to escape whilst running around a maze or in a wheel”...that race does not end, unless the rat jumps off the wheel.
Who is in the rat race? The vast majority of us. Most of us are rats in our own unique maze, timing the run from the shower to the station turn stiles; learning the timetables and the best position on the platform to speed up the transfer between different trains; saving up for a mortgage to jump onto the property ladder or perhaps for a car; then saving up for an even bigger place because we have outgrown our present property; going to work to the pay bills and so the list continues. Basically, if you are not in a position to quit your job right now and live off your investments until you die...you are in the rat race.
My main aim in life at the moment is to jump out of the rat race. I have a strong / volcanic / burning desire not to be in the rat race. This does not mean I will quit working the moment I am in a position to live off my investments, however, because I actually enjoy my job and working in general. The very thought that I could leave would give me insurmountable pleasure. I enjoy life and always make sure I treat myself when I can afford to but I save all the rest and invest it in whatever seems sensible so that at some point soon (I hope) I can gain financial freedom. A position very few manage to reach. In my advantage is that although I like to be comfortable and have the finer things in life – like most of us do – I am not extravagant and I don’t care about impressing the masses – most people love to floss (show-off) either with their rims or expensive designer clothing or crystal and lavish restaurants but it is these unnecessary pursuits that keep them in the rat race. People that take this approach or shall I say attitude are going to be running and they are probably going to be running for a long time, leaving in their wake, a host of regrets. One of my favourite quotes is “If your outgoings exceed your income, your upkeep will be your downfall”.
God-willing, I will achieve my goal of financial freedom. What advice can I give to my peers? Why would I give advice, you’re probably asking? Because I want us all to do well; glory is no fun if you have no one to bask in it with.
Platinum rule: annualise expenditures. I will explain what this means with an example: recently I wanted to hire a cleaner at the cost of c. £20 a week. Does not sound like very much but there are 52 weeks in a year which means that a cleaner would cost me £1,040 per annum. If I was getting a cleaner to release time to run a business, this would be fine but I just wanted my lazy arse to have a few more hours in front of the tele – not fine. Ultimate decision: cleaner not hired. You can annualise anything – beer money, cigarette money, “entertainment” money…
Golden rule: borrow only to invest, at all costs avoid borrowing for consumption. I hate people who say they are waiting for a slump in the property market before they buy a home. Why would you do that? If you buy a house today for a £100,000 and next year the value falls to £80,000 (possible but improbable), if you bought the house as a home and not an investment, in the long run it really doesn’t matter. At some point, prices will pick up and/or you will finish paying of the debt. Once the debt is paid off, you have a home and income from investments only needs to pay the bills. This golden rule can also be a little tricky. If you have £10,000 and want to buy a car worth £8,000, should you buy cash? Well, if you have an investment opportunity that will give you a good yield, borrow to buy the car and invest the cash you have. If your car loan costs less than the investment yield, it’s a wise decision. Moreover, even if you lose money on an investment, you won’t have lost the lesson. Most other types of debt are bad: pay off all your credit cards and throw them away except one which you can use for emergencies; pay off all your store cards and only keep them to take advantage of discounts or offers that are open to you by virtue of owning the card.
Silver rule: do not make other people’s problems your own. If someone asks to borrow money, understand why they need the money, what they will use it for and how and when they intend to pay it back. Frequently, we feel pressured to lend to friends and family when, deep down we don’t trust that credit exposure – just say no. It can be hard and you may lose a “friend” but you probably won’t regret your decision. If you can, just share them what money you can afford to give. There’s nothing wrong with helping a friend in need.
Bronze rule: educate yourself because it opens up opportunities and educate your children so they too can gain independence at some point.
That’s all from me. If you follow just the golden rule combined with a sprinkling of foresight and burning desire to be financially free you will be fine!
By Heather Katsonga-Woodward
I'm always thinking, debating, considering and revising my views - some of those deliberations will be shared right here.