Across the globe a newspaper cannot be read or a TV watched without hearing about record amounts of foreclosures, bankruptcies, and layoffs. Scrambling to regain their financial footing, Americans are hindered by one major illusory obstacle almost impossible to overcome: the rat race. Getting caught in this rat race is a slippery slope that far too many people unknowingly become trapped in, with little possibility of escaping.
The scenario starts shortly after college:
A once financially broke student (lets call him Steve) starts his first real full time job and after two weeks receives a decent paycheck. This newfound wealth goes to Steve’s head and a new wardrobe is purchased. Credit card offers start rolling in promising low rates and high limits. Steve promises to only use the cards to build credit. Six months after graduation the student loan bills start coming in and Steve is now paying a week’s wage each month on loan bills and another week’s on rent. No problem though, there is still every other paycheck to finance his lifestyle. Next comes the lease for a shiny new car and the credit card is used to purchase a new set of golf clubs. Steve meets a beautiful mate, gets married, and the two of them buy their first place. The baby comes next as well as a second car, they refinance the house to pay off the credit cards only to start using them again … and so on and so on for the rest of his life.
In four short years after his college graduation, Steve has become trapped in the rat race. The security of a bi-weekly paycheck is now vital to keeping his way of life and the prospect of becoming an entrepreneur shrinks every day.
How could you take this scenario and use it to your advantage?
First, lets dissect what happened here on a psychological level. Steve has never truly had money in his life until this first job. These initial buying scenarios are what happens to every graduate and is, on a small scale, similar to lottery winners. They have little training or experience with a larger than usual sum of money and it goes to their head; they initially feel invincible.
Most people in the rat race may be only a few paychecks away from financial ruin without knowing it. They believe that their 401k is a great investment and that a savings account is a great place to keep their excess cash. However, due to the latest economic downturn, many Americans are learning the harsh fact that their 401k’s and savings account are not as safe as they thought. Retirement funds can sway violently and savings accounts do not beat inflation.
What should be done instead?
I would be a liar if I said that I didn’t use my first year after college to make stupid buying decisions but what I did do is realize it before the spending became a problem. The things I learned after college about spending money can be summed up in one sentence: if the purchase will not make you money, don’t buy it.
Owning a legitimate business is key to enjoying life in lieu of becoming trapped in the rat race. Your new car? Business expense. Those golf clubs? Sales incentive. Anything from Starbucks and sushi dinners to a new computer and world traveling can now all become pre tax expenses when purchased correctly.
Keep the fear of the rat race in your mind every time you pull out that credit card or when wishing you had a fancy car. While new clothing and the latest electronics may cause a temporary surge of enjoyment, in the long run they only become a road block on your path to early retirement. Financial freedom starts with your mindset and only you have control over your destiny.