The Rat Race

I did not realize that financial independence could be good or “holy” until I have come to read about working as a Rat Race. 

Most of us have been raised to think that the more we work hard, the more we earn.  The more we earn, the more material things we gain.  We increase our assets and this is how we become rich.

But Robert Kiyosaki (author of Rich Dad and Poor Dad) claimed that this is a wrong notion to become rich.When we earn, we have to buy things that could benefit us more financially.  If we buy things that only lead to more expenses, then they become liabilities, not assets.  Take for example a car.  When we purchase this, most of us think that it is an asset, an additional property.  But with the increasing price of gasoline and diesel, I cannot help but think that this is also a liability.  Add the fact that there are incidental expenses for maintenance and repair.  But in order for us to "gain" from this property, we could rent this out, for example, or instead use this to deliver goods for our business. 

I now have come to see financial independence as a way to break free from slaving from work.  How many family occasions have we missed because of an “important” business meeting?  How many family vacations you could have taken if you have saved enough and are not bound by the number of days of 

permitted leave of absence?

We owe it to ourselves and to our families to start planning and realizing long-term financial goals.  When retirement comes, I hope we are not “old” enough.  I hope we can still enjoy taking long treks in the mountains with our loved ones.  I hope we could still enjoy the finest cuisines that money can buy.  I hope we can still travel anywhere, and anytime with our loved ones.

The Equation to Financial Freedom

The Financial Equation to Financial Freedom is:

            Income – Savings = Expenditures

But most of us have gotten used to this equation:

             Income – Expenditures = Savings

The two equations are not the same.  The first one aims to save an X amount before spending anything while the latter tells you that whatever is left of your expenditures becomes expenses. 

The former commands you to have a goal.  “How much do you want to save this year?”, for example.  But you also have to work on realistic financial goals.  It may be realistic to save PhP15,000 when your income is PhP20,000.  But you also have to note of your living expenses:  food, transportation, bills, etc.  Knowing all these in mind, will PhP15,000 be realistic?

To aid in determining your budget, it may help to write down the expenses that you necessarily spend monthy.  The following is an example:

Bills:                       Electricity

                                Water

                                Phone (PLDT, Cellular phone bill)

Food:                    Grocery

                                Drinking Water

Transportation: Gasoline/ Fare

Miscellaneous/ Irregular Expenses

Then write down an average of your spending in order to come up with your TOTAL MONTHLY EXPENDITURES. 

Now, calculate your realistic savings by:  NET INCOME – TOTAL MONTHLY EXPENDITURES

Now, you have an idea of how much you are supposed to save monthly.   Then assess, will this be enough?  Do you need to earn/ save more?

If the answer to questions  imply that you may need to save more, you may need to adjust whatever is flexible in your budget.   This means, you cannot do anything about your cellular phone bill for example as there is a minimum payment required every month.  But maybe you can adjust your food budget by preparing your “baon” everyday.

If after the adjustments you have assessed that your savings are not enough, then maybe it is time to look for another source of income.