MoneyStepper on Escaping the Rat Race

[Editor’s Note: The following is a guest post from Graham Clark at MoneyStepper. It’s rare that I accept a guest post from outside North America as what works there, might not work here. However, I found his story inspiring and that’s relevant everywhere.]

The rat race. We all want to escape it. But, why? What is the rat race? Well, according to Wikipedia:

“The Rat Race is a 1960 American drama film directed by Robert Mulligan and starring Tony Curtis and Debbie Reynolds as struggling young entertainment professionals in New York City.”

However, I’m not sure that this is the rat race that most of us are trying to escape from. Let’s keep looking:

“A rat race is an endless, self-defeating, or pointless pursuit.”

That’s more like it.

After 7 years in a Big4 Accountancy Firm, I started to realise that I was in the rat race. I had no specific goal in mind. My pursuit was simply to earn a pay-check. But, what for?

Nothing. I wanted out.

What does it mean to escape the rat race?

Escaping the rat race can have different meanings to different people. My first step was to define exactly what “escaping the rat race” meant to me. In order of preference, I determined that my definitions were:

1. Retirement, i.e. no longer needing to work.
2. Becoming financially independent from an employer.
3. Working from home.
4. Moving to another different job that doesn’t involve working 9 to 5 and/or a long commute.
5. Moving to a less intense role either at a different company.

In mid-2012, I made this my mission, and I was going to get intense about achieving it. Over the course of the past 2 years, I have been able to get into a position whereby I was comfortable enough to leave my employer and put myself in position 2 above.

How did I do this? Breaking it down methodically, I followed these steps:

Step 1 – Perform a personal gap analysis

My first, and biggest, change was to perform a personal gap analysis. If you have not heard of the phrase “gap analysis”, it is a term used in business whereby you define exactly where you are right now, where you need to be and what “the gap” is between these two scenarios. Once you understand the gap, you can devise a strategy to fill it.

Once I had decided that I wanted to escape the rat race (and the sooner the better), I started tracking (penny for penny) my budget and my net worth. From a financial perspective, this told me exactly where I was.

To determine where I wanted to be, I needed to work out what my financial needs were at each of the 5 definitions of “escape the rat race” above.

1. Have truly passive income that exceeds my future needs
2. Have income coming from sources that is not my employer and which exceeds my future needs
3. Find an employer where my income exceeds my future needs, but allows me to work from home
4. Find an employer where my income exceeds my future needs, but where I work less hours
5. Find an employer where my income exceeds my future needs, but which is less stressful

This allowed me to define my “gap” for each scenario.

I then decided, due to the respective size of the gaps, that my goal over the following two years would be to stay in the rat race, all whilst doing everything I could to earn additional income elsewhere, in order to get myself all the way to step 2.

Whilst I considered steps 3-5 as suitable alternatives, none of these hugely appealed to me in the long term and I decided I would rather sacrifice in the short term (2-3 years) in order to step up the ladder a little quicker.

Step 2 – Work really hard and find additional income

Therefore, I got to work. I worked really hard at my full time job, which ensured that I received good ratings and good annual bonuses. This would then help me narrow that gap.

I started my site, MoneyStepper, in order to generate additional income. This would then help me narrow that gap.

I created a sports quiz app, in order to generate another stream of income. This would then help me narrow that gap.

I sold a lot of my material possessions that I didn’t need or use regularly. Golf clubs – sold. Second TV – sold. DVDs – sold. Clothes I didn’t wear very often – sold. Surfboard – sold. Xbox – sold. You get the idea. This would then help me narrow that gap.

I monitored my spending very carefully through a monthly budget, which pushed my regular average savings rate over the past 2 years to over 66% of my net income. This would then help me narrow that gap.

I invested my money that I had saved into a diversified portfolio of equities and real estate. This then generates passive income through capital growth, dividends and rental income. This would then help me narrow that gap.

Step 3 – Make the leap

Now, two years down the line, that gap has been narrowed. Therefore, in the past few months, I prepared myself to make the jump out of the rat race.

My net worth and corresponding passive income is not currently sufficient to not work at all. Instead, I continue to focus on my aforementioned projects, putting me at step 2.

Personally, this takes me out of the rat race and where I want to be. At 29, I don’t think I’m quite ready for step 1 and total retirement yet! Instead, I am focusing my efforts on things that I enjoy doing and from which I get a great sense of achievement and pride when people provide me feedback on what I do.

However, I wasn’t fully confident relying only on these sources of income this early in my life. Therefore, before making the leap, I identified a number of potential consulting contracts that I could perform with clients that I have previously worked with. This puts me entirely in control of my work schedule, but allows me to earn some semi-fixed income if required. This is my safety net.

I’ve now been out of the rat race for 3 weeks. I’m about to start a consulting contract next week with a larger company, but limited to a week as determined by myself. I’m working hard on my other projects. But, all of this work comes without the stress that I had in the rat race. It comes without the demands of the rat race. And, most importantly for me, it comes with the freedom which I did not enjoy when I was caught up in the rat race.

Oh, and finally, wish me luck!