How Do You Escape The Rat Race?
Before you begin to invest, I suggest you first save enough money and put it in an ISA that will pay your bills for at least 3 months. That way, if the worst comes and you lose your job, or you have a huge unexpected bill come through, you have a financial cushion. Assuming you have this cushion you are now ready for the most exciting step of escaping the rat race and becoming financially free (remember, being financially free is when your passive income exceeds your monthly expenses). It’s all about assets! Assets are things that put money into your pocket automatically. Whether it is dividends from shares you own, rent from a house you let, interest you get from savings, it is something that puts money into your pocket every month and you don’t have to work for it. Most people stay poor (well, don’t become financially free) because they never buy assets, they only buy liabilities. Liabilities are things that take money from your pocket, e.g. cars, boats, holidays, etc. I’m not saying
Simply put, live below your means. If you find yourself spending more every month than the amount going into your bank account then you are living above your means, and ultimately this cannot continue. Take a look at the banks in 2008 – they lent to people who could not afford to repay loans. They were living above their means and it all came crashing down, leaving the world in recession. If you are unsure of where your money goes, keep a financial diary for a month or two. Write down everything you spend your money on, whether it’s a £200 bill or a 60p can of coke. At the end of the month add it all up. Is the amount greater or less than the amount you earned? If it’s less, good – you are already living within your means. If it’s more, don’t worry too much, you just need to take the reigns of your finances and get back control! Budgeting is key to controlling your finances. List everything you MUST spend a month to get by. These are bills that you have to pay, like: – Mortgage / rent
Being in debt is commonplace. In fact, in some cases is a necessity. Most people buy their cars with a car loan. Student often find themselves up to £20,000 in debt once they have finished university. However, leaving this unchecked can sink you. Do not fear though. Clearing your debts may be easier than you think. Firstly, you need to make sure you are living below your means. See my step 1 post. Once you are living below your means list your non-mortgage debts with the interest rate you are paying alongside each, e.g.: Car loan, 5% Credit card, 19,9% Store card, 28.9% Overdraft, 9,9% Now you are living below your means, use everything you have left at the end of the month to attack the debt with the largest interest rate (APR)! In this case, it’s the store card. Keep attacking it with your leftover money until you have paid it off. This may take several months, maybe even a year or more. But this step is ESSENTIAL in gaining financial freedom. You’ll never get ahead with huge debts w
