Zain K.

The only way to get rich: Quit the rat race

July 13, 2021

Have you ever wondered what will it take for you to become rich? Will having a super high-paying job make you rich or will saving a fixed amount every month be better?

The simple answer is none. All you need is financial independence.

The entire concept I am going to talk about is taken from the book ‘Rich Dad Poor Dad‘ and if you haven’t read it yet, I would highly recommend it. The concept is simple. We are in a rat race trying to earn money and save. But as our earnings grow, so do our expenses and the taxes- leaving us very little to save.

So, to get rich we must find a way to quit the rat race. How? Have side incomes that equal your monthly expenses. If you achieve this, then your entire paycheck will be surplus. You will no longer depend on your paychecks. You will not be financially dependent on your job. The salary you get will be additional income-which then can be invested to give exponential returns.

A simple example: If you have a monthly salary of Rs 100,000 and expenses of Rs 60,000 then you can only save around Rs 40,000 per month. And on bad months, that figure would drop further. Let’s say you someone manage to invest these Rs 40,000 every month in good schemes and get monthly returns. Hypothetically, one day these investments would grow to give you monthly returns of Rs 60,000. That day, you will be financially independent of your job. All your Rs 100,000 paycheck will be extra money. All of which can then be invested. This is what is known as quitting the rat race. At this point, you will be rich and your assets will continue to multiply.

I know reaching this point is hard. I know your expenses will increase with time. I know inflation will play its part. But it is possible. And not that hard either.

Build a financial Statement

You need to know exactly how much extra money you need monthly to quit the rat race. This is the first step in trying to attain financial independence. Build a financial statement. A simple one would do. For those of you who are not familiar with what this is, it is a simple one-pager that shows your inflows and outflows. So list down your monthly inflows (salary, investment dividends, bank profits, etc) and your outflows (food, rent, car expense, loan payments, etc). A true financial statement is detailed and lists down the assets as well but for our purpose, we can leave it out. Just write down your monthly inflows and outflows. Then calculate the difference between your inflows (except for salary) and the outflows. This is the amount that you need to add to your inflows every month to achieve financial independence.

Invest before you save

Get into a habit of investing before saving. If you try to invest from your savings, chances are you will end up not investing much. So the better way is to set aside a fixed amount every month as soon as you get your paycheck and invest it. You can have two bank accounts and put a fixed amount into your secondary account every month automatically using periodic transfers. From this secondary account, you can invest. And you mold yourself to live with the money that is left in your primary account. It will be tough at first but once you learn to cut down on expenses, it becomes manageable. By investing a fixed amount every month, you will be able to reach your dream of quitting the rat race sooner.

Saving is better than earning

Remember this, saving is way better than earning more. Often we become so focused on trying to increase our inflows through better investments or getting the next promotion that we forget that we can actually have the same net effect by reducing the outflows. And in most cases, it is way easier. Cancel ALL your current subscriptions. See how many you ACTUALLY need at the end of the month and only get those back. See how much you are paying in taxes and see if there is an option of getting a tax rebate. I personally saved quite a bit of money from the tax rebate with minimal effort. All it took was 1 hr of my time. So look out for other areas to save money before you look for areas to earn more. After all, your ultimate objective is to equal your expenses to your inflows (except salary), nothing else.

Start on your journey to quitting the rat race. It will take time. Maybe 10 years or maybe 20 years. But it will be worth it. I am on the way and you too should get started soon.

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