July 27, 2011, 5:00 am

In One Year From Now, Will You Still Be A Rat?

by: The Financial Blogger    Category: Rat Race
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escaping the rat raceI have a shocking confession to make today: I’m a rat. But don’t start laughing too fast… chances are that you are a rat too! Which Rat am I talking about? The one stuck in the rat race of course! Today’s article is a prelude to my eBook that will be launched at the end of August, beginning of September:

 

The Rat Race: In One Year From Now, Will You Still Be A Rat?

This will be the first of a series of 4 eBooks on how to reach financial independence. If I was going to sell my house and downsize my lifestyle, I could technically exit the rat race at the age of 29. Since I want to enjoy the good life, I have made the decision to keep “racing” for a few more years. However, just the fact that I wake up and go to work by choice and not by obligation already makes my day! In this series, I want to share all my tricks and steps I have accomplished to get out of the rat race in so little time. So before I make the big launch, I wanted to start a series on this blog (which will not be copied / pasted into the eBook!) about the rat race and how it sucks to be stuck in it!

So who’s a rat and why?

We pretty much are all rats 😉 the thing is that if you have to wake up and go to work to pay your bills each morning, no matter how much you are making; you are a rat. You’re a rat since if anything happens to you this morning; your rat wheel will stop turning abruptly. This is why maybe up to 95% of the population is stuck in the rat race and don’t even realize in what kind of trouble they are in.

 

It’s like the Matrix

Why is it that bad to be a rat? Well this is the whole point: most people don’t realize they are stuck in a never ending race. It’s like being in the Matrix; you get used to living this life, everybody around you is living it and you don’t really see any other choice. When you take your 2 weeks vacation and go camping, you think it’s the good life and feel happy about it. If you make more money, you simply go down south for 2 weeks or to Europe and you live in a bigger house. But in the end, you are still stuck working every single day of the week. This is called the Rat Race Deluxe… but you are still in a stupid maze!

 

What else can I do? Everybody has to work! I just have to work harder, pay off my loans in the hopes a debt free life and enjoy a decent retirement. Well you know what? If you are thinking that way, you really are  deep in the Matrix!

 

The Shocking Truth: Throw Your Retirement Projects In the Bin

So tell me, how old are you? If you are reading this blog, there is a 70% that you are aged between 25 and 40. I’m lucky to have some “older” readers too but I know it’s not the majority of my readership. Chances are that you are working and living a decent life: a home, a car, maybe a family. Your plan is probably to work until you are 65 and retire… but are you making any serious plans to build your retirement nest egg?

 

Do you realize that if you want to retire at 65 and spend 47K per year (in today’s dollars of course), you need about $2,6M in retirement savings to say “bye bye boss” at 65? If you don’t have a pension plan, this means that you need to save $1,000 per month, starting from the age of 30, at an investment yield of 5.5%, considering an inflation rate of 2.25%. On top of this, I’m being generous regarding the 47K you could spend, I include a government pension (which is about 17k per year in today’s dollar). So technically, saving $1,000 per month during 35 years will only grant you a 30K income (always considering inflation)…

 

Why do you need such huge numbers?

There are 3 things that people underestimate when they think about their retirement:

a)      Inflation (see how 2.25% over 35 years can hurt your plan?)

b)      Life expectancy (if you are in the 30-40 range, chances are that you will live over 85)

c)       The capacity to save (are you really able to save $1,000 per month at the age of 30? Chances are that you can’t since you are just building your family, buy your first house/condo, etc.)

So the sad truth is pretty obvious: unless you work for the government with a defined benefit pension plan (which means that your employer guarantees your pension no matter what happens on the market), you are stuck in the rat race for real!

 

So what are you going to do about it?

Well, if you really like your Matrix and want to continue that way, you will have to choose among the following options:

a)      Work harder (extra hours & no lunch time, in the hope of making more money and get some promotions)

b)      Work longer (past the age of 65 since you won’t be able to stop working at that age)

c)       Cut your expenses (e.g. cut out what is great in life such as going on vacation, renovating your house, driving a nice car, doing sports, going to the theatre, paying for private college for your children, etc.)

d)      Die younger (well… I don’t advise it.  But technically, if you don’t take care of yourself over the years, chances are that you won’t reach the 70 year old mark… but I don’t think you will get fat on purpose 😉 ).

 

Personally, I chose to get out of the rat race and find other means to reach financial independence… This what I will be discussing in this series and even further in my books.

 

So… tell me, which option do you choose?

Do you have any plans for retirement? Are you doomed to work until you are 70? Or are you going to work 50-60 hours per week to cope?

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Comments

Interesting!!! Question, if you love your job, having great challenges everyday and getting promotions, would you call yourself a rat?? If oneday you are out of the rat race, who will you be?? A rich and happy man?

looking forward the ebooks!! I personally would do a mix of a) work harder and c) cut my expenses. I will still enjoying life, going to the restaurant and the movies sometimes, but I don’t need to latest convertible car, the big house and lots of materialistic things…. Plans for retirement? of course, trying my best to save and invest in RRSP and TFSA.

To get out of the rat race need lots of sacrifice. I am not sure I will be able to do it!!

I unfortunately have about two decades left of being a rat! If you start putting in “CASHFLOW* references every time you mention the rat race we’ll all know you’re on the “Rich Dad, Poor Dad” payroll!

by: The Financial Blogger | July 27th, 2011 (9:56 am)

@John,
you are a rat until you don’t have to work when you get up in the morning. It doesn’t prevent you from being a happy rat and liking what you do in life ;-).

@Sophie,
it requires a lot to get out of the rat race and many people are not willing to do it. that’s okay, at least you have a plan for retirement!

@Teach Man,
I’ve read Rich Dad, Poor Dad but I didn’t play cashflow. I agree with a part of the book, but there is one point I disagree; it’s very hard to quit your job and start a business. In my book, I’ll offer a way where you can keep your day job while slowly getting out of the rat race!

“are you really able to save $1000 per month at the age of 30?” Do you really mean “can” or should it read “can’t”?

Sorry Mike, just couldn’t help make the comparison since Kiyosaki uses the rat race allegory all the time too.

I hope to do the very thing your proposing in upping my pay at my day job, while slowly building my exit strategy.

According to your definition, I am still a rat, but I am a super happy rat. I am a full time blogger and online freelancer, so yes, I have to wake up and work to make money, but I do it on my own terms, so I am a super happy rat. 🙂

I guess I’m one of the truly lucky ones, I’ll be ‘retiring’ from the military in ~4 years will a full pension. I’ll be walking away with enough money to pay the bills each month, but I’m still throwing a fair amount of money at my investments so I will have play money for the fun stuff 🙂 I will have to find another source of income once I’m ‘retired’ because my daughter is still young and I have a mortgage to pay.

Oh, and I keep putting retired in quotation marks because I won’t even be 45 when it happens! The best thing about the military pension is it starts the minute you hang up the uniform, we don’t have to wait until we’re 65 to start receiving it 🙂

I have some ideas of what field I would like to move in to (finance – I’m a geek, I love numbers lol), but maybe your ebooks will point me in another direction. I’m really curious to see what you have to say!

Loved you first book, by the way, though I’m curious why you didn’t cover OCPs… It’s great for the beginner who only has minimum amounts of money to invest in DRIPs each month/quarter.

by: The Financial Blogger | July 28th, 2011 (6:12 am)

@Drip,
well I would be impressed if you can save $1000 per month starting at the age of 30. There are not many people who can do it.

@Teacherman,
I liked the analogy of the rat race as it is a great description of where we are stuck. In fact, I would have taken “the matrix” but I’m afraid that Keanu Reeves kick my butt for it!

@Crystal,
It’s great you like your job. You are probably in the Rat Race Deluxe (which means that you are comfortable and you like what you are doing). However, it also means that you better like what you are doing for the next 30 years. Unless you can save a huge amount of money aside? Quick question for you; have you thought of insurance now that you are a freelance? how does it work?

I agree – I couldn’t save $1000 a month at age 30, which is why I was wondering if I was reading correctly – point ‘c’ under your heading “Why Do You Need Such Large Numbers?”

by: The Financial Blogger | July 28th, 2011 (6:34 pm)

oooopsy! thx Drip! it’s edited now!

@SophieW
that’s awesome to have a pension at 45! however, you must have made several sacrifices while being a military, congrats for your courage!

I’m glad you liked the first book! and I hope to get your comments on the second one!

cheers,

Mike

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i love the Rat Race concept! 🙂

I left the rat race in 2010 but I guess you can call me a gerbil now because I have re-entered the work force on more of a seasonal basis.

Looking forward to the e-books!

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