September 12, 2011, 2:30 am

Introducing the Rat Race Calculator- How Rich Are You?

by: The Financial Blogger    Category: Rat Race
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Are you tired of waking up each day to do a job that you don’t like?

Are you tired of waiting until you are 65 to retire?

Are you afraid that even at that age, you might not even be able to enjoy life as it should be?

 

Yeah, I know, we all heard those catchy lines before. Today I’m not going to sell you some miracle recipe to be rich. I’m not going to tell you how easy and simple your life could be if you would be a millionaire. You already know that. But today, I’m offering you an amazing tool to check up your financial status.

 

The Rat Race Calculator has been designed to determine how far are you from financial independence?

 

Some people think that I love money. Some others think I’m a careerist. I’m neither of them. Actually, I’m looking toward to reach financial independence. This is the most important gift you can give yourself: the ability of being independent financially.

It doesn’t mean that you don’t work;

It means that you work because you like it.

 

It doesn’t mean that you are debt free;

It means that you have good debts to grow your income.

 

It doesn’t mean that you are rich;

It means that you have income generating assets.

 

It doesn’t mean that you have bad spending habits;

It means that you can enjoy life the way you want it.

 

So how far are you from financial independence?

Or should I say: I far are you from escaping the rat race?

 

You can find it by using the Rat Race Calculator:

 

Current savings: $
Monthly savings: $
Investments expected to return: %
How much you need to live per month: $
Additional monthly passive income (side business blogging, etc): $
Annual Growth rate of your business side income: %




Please fill all form fields with valid numbers before clicking on Calculate.

 

Here how it works:

This calculator has 2 main objectives:

#1 Show where your current financial situation will lead you in the future (some sort of retirement projection)

 

#2 Show you the importance of having additional sources of income

By playing with the numbers, you will notice that your best chance of escaping the rat race is by building assets generating additional income. Here’s a quick guide explaining what number to input.

 

Current Savings:

This amount should include all your savings. They can be in a pension/registered account or investment in a cash account. This is basically all the money you are saving for your retirement. Do not count money that will be used in a near future. This money should be only used to make you live at retirement.

Monthly Savings:

This is the amount per month that you are currently saving for your retirement. It is basically linked to your current savings.

Investments Expected Return:

This is the percentage of yield you expect to make from your investment. Depending if you are aggressive or conservative with your investment, this number should vary between 3% and 7%. Mind you, 7% annual yield over time is quite optimistic. If I were you, I would put 5% or 6%. Do not count inflation in your return, we did it for you. In fact the calculator uses a 2.25% inflation rate for all calculation.

How much do you need to live per month:

Put how much you spend per month to live. This should include your mortgage payment along with all your other debts payment. You must also add your utility bills, grocery, dining out and all the other expenses. Therefore, you should use a monthly budget to know how much you spend per month and put this number here.

Additional monthly passive income:

This is money should come from any extra income generating activities you have beside your “day job”. It can be from blogging (as I do) or from any other type of company. You will see that this number will make a huge difference in reaching financial independence.

Annual growth rate of your business side income:

Growth is the key in all kind of investments. The good news is that the growth of your own business side income will be much higher than the growth of your investments on the stock market. You can easily a double digit growth from other sources of income. Don’t be shy to put 10% annual growth, it’s very feasible.

Current Score and projections

Once you have entered all your numbers right, the calculator will give you your current score along with projections over 5, 10, 15, 20, 25 and 30 years. The score is a percentage of your financial independence objective. The goal is obviously to reach 100%. This doesn’t mean that you are rich or that your quest is over, it just means that your investments return along with your passive income are big enough to cover your monthly expenses. Therefore, you are financially independent!

Note: the calculator doesn’t count any withdrawal from your investments besides its return. The point of financial independence is to be able to live from an income forever. Therefore, we protect the asset and only live from its income. If you index 1M$ of current savings with no monthly savings and an investment expected return of 7.05% (4.8% + 2.25% of inflation) you will be able to keep up a $4,000 monthly spending lifestyle forever (because the $4,000 increases at a 2.25% inflation rate). If you use those numbers in the calculator (without side income) you will be a 100%. But let’s guess that most of us don’t have a million bucks generating a 7% yield ;-).

The projection tells you in how many years you will be able to reach financial independence with your current plan (investing savings combine with the growth of your side income). So if you don’t save money aside and you don’t have other sources of income, you are stuck in the rat race forever!

What’s up with the rats?

 

As you can see, each time you play with the rat race calculator, you get a score along with the name and the picture of a different rat. This is to illustrate that we are all rats in the maze of personal finance. But it doesn’t mean that you can’t evolve over time! You are one of the 4 rats:

 


The Rat in the Rat Race

This is the situation where most people are stuck: they can’t even dream about financial independence before their retirement date. And to be honest, only the luckiest rats of all will reach this objective. If you don’t have a defined contribution pension plan issued by a government, you are better off forgetting about enjoying the nice life at retirement!

The rat in the rat race is mostly dependable of its day job and can’t afford to quit it. The worst part is that it can’t afford to have any bad luck either. The problem is that we can’t control company lay-offs, sickness, car accidents or a leaking roof. If anything happen to your fragile situation, you will be forced to borrow money (known as bad debts) to cover for your extra expenses. You are hoping that things will get better over years on but if you don’t have a solid plan, this is only wishful thinking.

At that stage, if you just try to pay off your debts and save a few bucks for retirement, chances are that you will struggle all your life only to get a bitter sweet retirement. It is urgent that you start thinking about getting out of the rat race and start building some assets such as a side company or an online business.

Don’t know where to start? 1 Year from now, will you still be a rat eBook is your starting point! It will actually goes a $10 REBATE only for my newsletter subscribers starting today and ending Wednesday, September 14th at 11:59 pm Eastern Time. On tomorrow, we will launch the book on this blog at full price ($27) while newsletter subscribers will have until Wednesday to buy it at $17.

 


The Rat in the Rat Race Deluxe

The Rat Race Deluxe is no different that the regular rat race besides that you are making more money. Most people stuck in the Rat Race Deluxe don’t see it because they think they live the life. They usually do a job they like, make an above than average income (usually a 6 figure position) and they can afford pretty much what they like in life: a big house, a nice car, vacation across the world, nice restaurant or any other expensive activities.

The problem is that they don’t save much and they depend on their high income position. They become rats in a gold cage. They usually work crazy hours to reach those high earning jobs and end-up working 50 hours + to keep them. Their life is passing by and they don’t realize it. At retirement, a good chunk of them are able to relax and enjoy the life if they have save money for the past 30-35 years. However, they turn themselves into slaves for all this time.

 

 

 


The Smart Rat

The Smart Rat is the first rat which understood how to get out of the Rat Race. He knows that working hard only worth it if it means working on the 20%. Don’t know what is the 20%? That’s probably because you are not a Smart Rat yet ;-). This means that you are working on the 20% of things that will generate 80% of the result (refer to the Pareto Principle or the 80-20 rule). The Smart Rat has other sources of income than its main job. He is able to make as much or even more than the rat in the rat race deluxe but he is working less hours and have more time for himself and his family.

He is also less stressed since he knows that he can earn money by doing something else than working at his 9 to 5 job. He doesn’t fear lay-offs while he is putting together his first stones toward financial independence. Technically, if he would drop his lifestyle, he could live off from his other sources of income. This is why this is the Smart Rat is only the beginning of the real journey to escaping the rat race.

With more time, more energy and more money, the Smart Rat is all geared up to become the next Rat King. It is usually only a matter of time before he reaches financial independence.


The Rat King

This is the ultimate rat. A Rat King might still work but only because he truly enjoys it. Usually, those people still work because they like to keep themselves busy. Fuelled with passion, they enjoy the life they always wanted; they are living The Dream.

Most if not all his income is generated without him doing much or simply managing his own empire. He has people working for him while he can concentrate enjoying life. The Rat King is financially independent and lives off the income generated by his assets. He doesn’t have to be that rich, he only has to possess assets that are big enough to support his lifestyle.

I must warn you, becoming a Rat King is quite a challenge. In 2011, I have reached the stage of a very smart rat but I’m not a Rat King yet. I expect to become one in 5 to 10 years. But before I can enjoy what life has truly to offer, I will need to hustle hard for a few more years. This is why I am writing a series of 4 eBooks on each of those stages.

 

Questions?

If you have questions regarding the Rat Race Calculator or the eBooks, please leave a comment or send me an email at thefinancialblogger at gmail dot com.

 

Cheers,

 

Mike

P.S: We are aware that comments do not work on this post, please leave all posts on our ebook post for now. Thanks
 

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