Lazy Man and Money

MoneyStepper on Escaping the Rat Race

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[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.

    6. 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!

Sacrificing the Little Things for Early Retirement?

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This is a guest post by Andy over at Retire at 40. His plan is to get out of the rat race by the time he turns 40, which is now less than seven years away. He does use the British spellings and terminology. I thought it added to the character of the post and left them as is. So grab some crisps (potato chips to us US folk) and have a read. Check out his great blog and subscribe to his RSS feed.

I heard a phrase the other day on Twitter (my new plaything) and just thought I would share it with you since I think it is relevant in the Personal Finance world.

“Entrepreneurship is living a few years of your life like most people won’t, so you can spend the rest of your life like most people can’t.”

It’s an interesting quote and one which bit me almost immediately. I could see straight away how it was relevant not just to entrepreneurship but to my new frugal and simple life. I had already figured out that I have to give certain things up (for example, selling my car) in the short term but in the long term I knew that I would eventually come out on top.

But wait, let me just backtrack a little.

seafoam green is in.

You remember when you were young and time didn’t ever last for something as long as 10 minutes. If you wanted something, you wanted it NOW! There was no such thing as waiting and there was certainly no such moment in time such as your Mother would describe as “You can have it later“. Everything had to be now and nothing could wait. But you know what, that was a long time ago and things have changed.

Looking Around You

Well, okay, things haven’t changed for everyone. Some people still want everything and they still want it now.

That SUV that lives down the road, guzzles lots of gas and most probably bought on hire purchase [Editor’s note: Those in the US, can substitute the phrase “on credit”]. The owner of that car wanted it all and they wanted it now.

That person just coming out of the supermarket groping through their plastic bags for sweets and ready to pop in that microwave meal as soon as they get home. They couldn’t wait just 15 more minutes to prepare some nice, healthy and cheap food and instead had to pay more for convenience (both in monetary and dietary value).

Or how about those who say they don’t have time to review their monthly outgoings, prepare a budget or try to save money. They want to live life as fast as possible, yet ultimately they’ll be the ones who end up with the least time to enjoy life because they’ll have to work years longer due to the fact that they’re not careful with their money.

The Sacrifices – or are they?

One thing I realised when I first started being more careful with my money was that the things I was giving up, weren’t really sacrifices at all. In fact it was quite the opposite, I was inching closer to freedom from a lot of the things I used to think were important. During work hours I would be buying a coffee or two everyday, going out for lunchtime and snacking on afternoon chocolate. Thinking that I was treating myself because “I worked hard, so why shouldn’t I have this” was one of my ongoing thoughts.

Since then however, I have realised that all I was doing was spending the exact same money I was there to actually earn! How silly. And it wasn’t long after that that I also realised that if I gave all those things up, I could actually go down to a four
day work week and I wouldn’t actually be any worse off money-wise. Granted, I didn’t just give up those things but quite a few other things too, like evening take-away meals, an over-the-top internet plan, some DVDs/CDs and movies and a few other small items too.

But what did I get in return?

I got a whole extra day of the week all to myself! And this is where one definition of ‘sacrifice‘ comes in:

“Forfeiture of something highly valued for the sake of one considered to have a greater value or claim.”

Yes, I gave up all those little things but when you add them all up, they still didn’t come anywhere close to actually having three days of every seven all to myself. No matter how much I add those things up, just knowing that I will only ever work two days on the run (and then have either Wednesday or the weekend off) is just a feeling that puts you on a high the whole week.

No coffee, no chocolate, no pizza, no speedy internet connection, no movie, no car and no fizzy drink can put me on such a high for so long as having an extra day off work. And that’s the secret for me and should be for you too. Each time you think that giving something up, not doing something or forfeiting something is hard, just think of this.

Even though you might be “living a few years of your life like most people won’t” so that you can “spend the rest of you life like most people can’t”, you should still get the feeling that “your current life is still better than most other people’s anyway“.

Photo Credit: floodbeast

Net Worth Update – April 2008

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It’s the middle of the month, so it’s a time to reflect on my net worth. I’ve been very happy to break even lately as I focus on making my businesses grow – while trying to slow down from the rat race.

April came as a very pleasant surprise – the stock market rebound had boosted my net worth $10,000 – to $218,825. This is despite the value of my Boston property reaching an all-time low. If that returns to the norm, it would add another $20,000 to my net worth.

Last month, I had mentioned taking a part time job – around 20 hours a week. I haven’t been very good about my time sheets, so I’m leaving a little money on the table due to laziness. I am also doing contract work with another company which has been a little slow to cut checks. If I could get my act together and collect some of this money, I might see another $4,000 in net worth.

Thoughts on Middle Class

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I came across what’s wrong with being middle class by Mrs. Micah the other day. It’s a simply and beautiful question. Some of my closest friends who are doctors, lawyers, and financial Wall Street somethings or others. (I can never really figure out what the Wall Street guy does, but I think it involves TPS reports and a high degree of education and I expect pay). While they are still a little young side to be in the upper class, I suspect they are in the upper-middle class – and probably will be in the upper class in 5 to 10 years.

I’m not sure we are headed in the same direction simply because I made the choice to skip the big paycheck for two reasons. I wanted a better quality of life. I was not happy with being a software engineer. I think it’s a fine occupation, but it’s very competitive and I’m at the point where there’s more to life than coding a computer. It’s nearly two full-time jobs – one producing code and one learning the latest tools and technologies. It’s extremely difficult to do both and have an outside life for any length of time. I was simply juggling too much at one time.

The second reason is that I wanted to build something sustainable for the long-run. You can call it a rat-race or a treadmill, but unless you love what you do exchanging time for money is a losing proposition. Earlier this week, I was recently reminded that time is our most precious commodity.

There was a time when I had to have every new electronic gadget when it came out. I was one of the earlier adopters of Smartphones, DVRs, home automation equipment (everything that X-10 had to offer), and MP3 players (my first had space for 7-8 songs). Even though I had all this stuff, none of it made me happy. Not only that, but each purchase meant that I had sacrificed precious time for what amounted to very little. It was not until the last few years that I realized that experiences made me happy. I now evaluate purchases by their possibility of providing those experiences. It’s one of the reasons that I recently purchased a Wii. Thought we’ve had it a short time, my wife and I have enjoyed a few hours being active and playing tennis.

So to sum up all these thoughts on what’s wrong with being middle class… there’s nothing wrong with it. I will be happy to trade extravagant meals of caviar for hours of simpler pleasures with the people I love.