Thoughts on Escaping The Rat Race
|December 22, 2009||Posted by Roshawn Watson under Uncategorized|
What Is The Rat Race?
The Sad State of American Finances
Even with the never-ceasing coverage of bad economic news, we still have poor fiscal management. According to the 2009 Consumer Financial Literacy Survey, less than half of adults keep close track of their spending, and several had no idea of food costs, housing costs, entertainment costs, and do not monitor their overall spending. I would argue that much fewer people rigorously budget than this study indicates. Additionally, one-third of adults put no part of their annual household income towards retirement. 57% of adults spend less than they did a year ago although 45% of those now spending less admit that if their financial situation were to improve, they would resume their previous spending habits. One-third of adults report having no savings, and only 23% save more than they did a year ago. 48% Generation Y adults have no savings. Also, many of us are well aware of our poor financial awareness. 41% of U.S. adults gave themselves a grade of C, D, or F on their knowledge of personal finance (I wonder what percentage of us are in denial).
To be Free, This Just Won’t Do
If we truly desire to escape the rat race, we obviously must increase our financial literacy and execute better financial decisions, regardless of our income. Consider that even a household making a modest $40,000 per year income will bring in over $2 million during the typical working life-time. One of the biggest misconceptions about millionaires is that they all have huge incomes. While the median millionaire income is in excess of $100K, there are still plenty who make less than six figures who cross the mark through conscientious financial planning. If you want to retire early, some of the best ways to prepare are…
- Eliminate your consumer debt. The reason this is so key is because as long as you are mired in debt, it will be difficult to build any real wealth unless you have an exceptional income.
- Stash between 15 to 33% of your income away for retirement, regardless of your net worth. Consider that the majority of millionaires invest at least 15% of their incomes and live on less than 7% of their overall net worth.
- Consider owning investment real estate. 46% of millionaire households own investment real estate. Yes, owning and managing property can be a hassle, especially if you have no business acumen and no people skills. Few people enjoy the stress of being a landlord, for example, but learning how to be a good one can be key to increasing your cash flow.
- Make savings and investing automatic. If money is funneled directly from your paycheck into your investment account, you won’t give it a chance to get spent.
- Start as early as possible. Beginning at age 30, if you save $671 each month at an 8% return, you’ll have $1 million by age 60. Begin at age 40, and you need to save $1,698 each month.
- Cut your expenses. A recent article in the WSJ suggests most middle-class household budgets can be cut. The most common advice is to look at your current expenditures and see where you can pare back.
These are all tried and proven tips, but unfortunately, the real problem lies not in an inability to grasp these concepts or even a lack of available information but rather a lack of desire. For most people, being financially inept reflects irresponsibility or disinterest, especially considering all the resources available. I have purchased books and audio books for several people, only to find them unread years later. If you never get fed up enough, you won’t act. Get disgusted with your financial situation today. Don’t leave your family’s financial destiny to chance. Even if you don’t plan to retire, you should still change. Just because you are financially able to leave your job doesn’t mean you have to. Becoming a financial champion is about giving your family more choices, so choose freedom.
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Image Credit: sunnymarry
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.