What is the first thing that comes into your mind when you hear the phrase “rat race”? We define it as “The endless routine of working for everyone but yourself.” You do all the leg work, while the others (your bosses, the government etc.) take the majority of the reward.
Most of us wants to build an empire, to put up our own business and be financially free. By doing so, we believe that this is the formula to success and getting out of the rat race. We all want to get out of the rat race, true or true? So why do we keep racing?
It is because most people’s lives are dominated by their fear of society’s disapproval. When most people see you doing something new and different, they often give you a negative notion. This Rich Dad Poor Dad free book summary will explain why and how to get out of a rat race.
“Go to school, study hard and get a good job.” Sounds familiar? You probably heard this from your parents. We still teach this mantra, but it is already an outdated advice. Back then, you are likely to land a job right out of college, work for the same company for years and retire with a lump sum. This formula no longer works and is not the ideal plan if you want to be financially free.
You can still follow this formula and live a comfortable life. We may be avoiding poverty but we’re certainly not growing any wealthier. Because you’re still stuck in the rat race, your bosses, not you, are the ones getting rich from all your hard work.
Greed and Fear
If you have money, you are likely to focus on all the things it can buy, we call that greed. If you don’t have money, you worry you might never have enough, that’s fear. These are the two emotions we all experience about money.
People who doesn’t know how to properly manage their money are prone to letting these emotions drive their decision-making. For example, you just received your biggest commission ever. You could invest the extra money in the stock market which would earn you money over time, or you could purchase a new car or buy the latest iPhone as a gift for a job well done.
If you’re a financially ignorant person, this is where emotion takes the wheel. The fear of losing money is so powerful it prevents you from investing in the stock market even though you know it would bring you wealth in the long-term. Greed on the other hand, encourages you to spend all your extra money for a better lifestyle like buying tangible items like a new car or a new phone rather than buying shares in a company.
So how can you handle these emotions?
Know more about financial management. Research about investing and familiarize yourself with the risks. This will place you in a better position to make rational decisions, even in the face of greed and fear. If you think education is expensive, try ignorance.
We receive no training in financial intelligence.
Most people think that in order for us to be rich, is to be talented and capable. The world is full of such people, and most of them are poor. What we lack is financial intelligence. We are raised without this intelligence. In school, we are taught about different useful subjects but financial intelligence is not one of them. We don’t have subjects that teach students on how to save and invest.
Politicians are generally regarded as the brightest and most well-educated people in a society. But why do countries end up in a staggering national debt? Most of them have little to no financial intelligence.
Even ordinary people who graduated from their school wi
th flying colors. Why do most of them depend on their family when they retire? It’s because they weren’t able to plan for their retirement. Again, lack of financial intelligence.
Appraising your finances and setting a goal.
Get started by appraising your finances, setting some goals, then acquiring the education necessary to reach them.
Take a look at your current financial state. With where you are now, what kind of income can you expect now and in the future? What kind of expenses can you sustainably handle? After answering these questions, you can now set a realistic financial goal. For example, I would want a new Mercedes car within five years.
Next step would be to invest in yourself. Start building your financial intelligence. Consider this an investment into the greatest asset available to you, your mind. One good approach is to shift focus: work for what you learn, not what you earn. For example, if you are afraid of rejections, try working for an insurance company or network marketing company. Definitely you will get a lot of rejections but you will gain a lot of sales experience and improve your self-confidence, which will be very useful in the future.
You can also enroll in different classes and seminars about financial management, read financial books and try to network with experts. This will absolutely improve your financial intelligence.
You must learn to take risks to become wealthy.
If you want to expect different results, then stop doing the same thing over and over again. If you are looking to change your current financial state, you’ll need to start changing your money habits and start handling your
To become wealthy, you must learn to take risks. All successful people have taken risks to get where they are. They are successful because they were able to manage these risks and not fear it. Instead of playing it safe, try investing in the stock market or real estate. While these are considered more risky than typical bank accounts, they have a better chance of accumulating wealth in the long term, sometimes even in a very short period of time.
You must keep yourself motivated.
You’ll need to find ways to stay motivated. Journey to being financially free is not going to be easy. There will be a lot of hurdles and setbacks. One way to boost motivation is to create a list of “wants” and “don’t wants” for your personal reference.
For example: “I do not want to end up like my parents” and “I want to be free of my debts within three years.” Recite these lists whenever you need a reminder of why you must persevere on your journey to wealth.
Another way to be motivated is to pay yourself first before paying your monthly bills. This way, you get to enjoy your hard-earned money and not feel deprived. The extra pressure of paying off your bills afterward will inspire you to find creative ways to make enough money to satisfy both.
This will also develop your financial self-discipline, which is a key trait of all financially successful people.
Assets and Liabilities
Know the difference between an asset and a liability. This will help you with your investment decisions.
An asset is somethings that makes you money, while a liability costs you money. Clearly, for us to be wealthy, you need to invest in assets. Assets include businesses, stocks, bonds, mutual funds, properties that generate money, and anything else with value that produces income, appreciates over time and can be sold readily.
When investing in assets, think of your money as your employees working to create income for you. We call this passive income. Meaning the more “employees” (money) you commit, the better. Passive income means the money you invest is working for you rather than you working for money. The goal is to get your income higher than your expenses, and then reinvest the excess income into your assets.
Many actually mistake liabilities for assets. A house for example is often considered an asset but it’s actually a liability unless it’s being rented out. Buying a house often means working for your entire life to pay off a 20-year mortgage and property taxes.
Ensuring that you know the difference between an asset and a liability means you’ll be able to soundly judge what to invest your money in and what to avoid.
Your profession pays the bills, but your business is what will make you wealthy.
Your profession pays the bills, buy groceries, and cover other living costs. While your business, on the other hand, is what you invest time and money in to help grow your assets. It’s unlikely for you to be wealthy if you depend on your profession alone. Yes, it covers your expenses but to achieve wealth you must build a business while working at your profession.
Your profession often funds your business initially; therefore, it’s wise to keep your day job until your business starts to show sustainable growth. When you see your assets working for you and starts creating passive income that can cover your monthly expenses, that indeed, is the sign of being financially free.
Understand the tax code to help you minimize your taxes.
Most people don’t bother to find out how they can minimize the taxes they pay. There are many ways this can be legally achieved.
One way is to invest your money through the coverage of a corporation instead of investing in your own name. When you’re an employee, you earn, get taxed, and then try to live on what’s left. When you’re protected by a corporation, you earn, invest or spend as much as you can, and then get taxed on what’s left. Now you understand why corporations can help people get rich very quickly
I’m no expert in this matter, but there are other ways you can minimize your taxes. You just have to be aware, do your research and educate yourself on the many loopholes and benefits of the tax system. For me, I leave it all to my accounting friends.
We don’t get the privilege to learn financial intelligence in school, it’s now up to us as individuals to develop this trait by ourselves. Develop your growth mindset and increase your financial IQ. Support it with the right mindset and you will see results. What you invest in your mind is what brings you success, because your mind is your most important asset in any financial situation.
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