Escaping the Rat Race: What School Failed to Teach You About Money.

Prologue

In 2003, professional boxer and heavyweight champion Mike Tyson vowed for bankruptcy with 30 million dollars in debt. Consequently, this poses a great question about money itself. Similarly, because a great deal of our actions or our motivations in life have an underlying desire or need to acquire it. However, what’s the point in acquiring it if the great issue seems to be with our ability to manage it?

Historical Credit Card Debt

Americans now have the highest credit card debt in history. In other words, you didn’t learn anything. Notably, debt is an invisible burden being carried by the country’s most vulnerable. Of course, these statistics are reflective of the UK and the US. But consider for a moment your own attitude towards money and how money exists in your own life. For example, what is money to you? Furthermore, does it seem to enter your life and immediately leave once you have it? Or, has it ever placed you in a vulnerable position, a vulnerability that drew you closer. To a get-rich-quick scheme or a coach telling you that you can get rich if you just bought their course?

Financially sensible

While the entire article claims to tackle these topics to some degree or another. It is important to realize that our perceptions of money are sometimes more crucial than our ability to generate it. Especially when our very brains are wired in such a way that prevents us from being financially sensible. For instance, does it really matter if you’re earning more than six figures a year. If, at the same time, by the end of that year you have nothing left to show for it? Whereas, where is the disconnect? Thus, it’s time we solved that mystery and not only that, but also explore a better framework for understanding money. Learn how Japanese housewives empowered global finance “The Mrs. Watanabe Phenomenon: Empowering Japanese Housewives in Global Finance“.

What is Money?

A question: What is money, or rather, what does money represent when you make a purchase from Amazon or when you’re paid for your time working a job? What is the significance of money in these transactions? Money is commonly defined as a medium of exchange, an instrument that facilitates the sale, purchase, or trade of goods between parties. But I don’t think this says much about what money actually represents. I think a better way of looking at money is as an expression of value. You hand over a certain amount of money to purchase something because you perceive its value to be equivalent to the amount of money that you handed over. Of course, the price is often not determined by you as an individual but the market as a whole. But hone in on this one point: Money equals value.

Why Money is So Important ?

Why is that so important? Because often we give money a moral significance. A quote that I’m sure you’ve heard: “Money is the root of all evil.” We look at someone who seems to have a large amount of wealth and think they got lucky. Who did they take advantage of to get to that position? Who had to lose in order for them to gain? And never, what value was created in order to generate that money. Understanding that money is simply value is the best way to understand that money is not necessarily evil, nor does it make a person evil.

Money Simply Opens Options

Sure, there are things such as scammers who convince you that what they have to sell is worth value. But that doesn’t say much about money more so than it does their own morals. Money simply opens your options and broadens your horizons. The choices you make with that money have everything to do with your own moral dispositions. So, money is an expression of value. Now, what? How does this change the reality of a person living paycheck to paycheck or someone who is consumed by credit card debt? The simple mention of money equals value changes nothing. It may make me see money in a different light, but what part of that is actionable advice?

To answer that question, I’ll pose you another question: What is your relationship with money?

Production vs Consumption

Money will come into your life, additionally, it will leave. This is a relationship that is often expressed by your income and expenses. Furthermore, another practical way of expressing this, which I particularly like, is your production versus your consumption. For example, for the most part, money will enter your life because you have produced some form of value, and consequently, for most of us, this value will come in the form of labor, a job. Money will leave when you have consumed something, a Netflix subscription, a new car, a house.

Relationship Between Consumption and Production

In contrast, in many ways, we can look at the net worth of an individual as a metric for determining their relationship between consumption and production. Now, cast your mind back to those statistics I mentioned at the start of this article. On the other hand, what part of the consumption versus production relationship do you think is at fault here? Consider yourself for a moment. Additionally, think about all the money that has entered your life and left. How much of that do you still have in possession today or invested into some sort of asset? And which part of this relationship do you feel is unbalanced or needs improving? The likelihood is both, yet, for most of us, the biggest issue lies in our consumption.

Challenges With Consumption

To illustrate, remember the CareerBuilder study that found that 78% of American workers were living paycheck to paycheck? Well, it also found that of the workers who made $100,000 or more a year, one in ten of them were living paycheck to paycheck. You could argue that someone earning six figures a year may still like to earn more, however, when you are paid a figure that is well above the average wage and the cost of living. And yet you still somehow find a way to spend it all, I’d argue that your relationship with consuming must be fixed before you even consider your relationship with production. As any wealthy celebrity who has filed for bankruptcy can show us, production means nothing when you have a problem with consumption.

The Money Trap

A rat race: an endless, self-defeating, or pointless pursuit. Sometimes, consequently, the rat race is conflated with working a nine-to-five job. It’s a comparison also used by certain individuals to guilt you into buying programs and books from them. Nevertheless, this seems extremely unfair, mostly because it aims to villainize a job and excludes the fact that there are those who either love or are perfectly fine with their jobs or have other aspirations aside from their nine-to-five. To illustrate, a real rat race is one that is living on a financial edge, being one paycheck away from broke constantly, a feeling albeit as though the moment money enters your life, it immediately disappears. And the more responsibilities you have, the more dangerous this relationship becomes.

Job Loss Scenario

The loss of a job, an unexpected health accident, or any unexpected circumstance for that matter can throw your entire financial position into turmoil. And consider the mental consequences of living on this financial edge. Your job no longer becomes an option; it becomes a necessity in order that to keep funding your lifestyle or to keep paying off debt. In addition, to quote Tyler Durden from Fight Club: “The things you own end up owning you.” What’s the silver lining? It doesn’t have to continue like that. The first stepping stone in personal finance will have you drawing awareness to your relationship with money. Specifically, this is often done by journaling your monthly expenses categorized as housing, transportation, food, utilities, entertainment, and so on. It’s about understanding yourself as a consumer, but this part is tough.

Science of Finance

In behavioral finance, this feeling can often be labeled as the ostrich effect, similarly, which is our tendency to want to avoid negative financial information. It’s that feeling you get when you don’t want to check your bank account because you already know the number is going to be low. Ignorance is bliss, after all. However, the key to all this is awareness. You cannot change what you don’t understand, so a closer look is needed. There’s a great saying: “What gets measured gets managed.” Moreover, it’s a psychological point that you’re probably already familiar with. If you start recording your expenses in a notepad or an app and review it at the end of every month, you’ll start to feel bad about the fact that you’ve spent money. Furthermore, you will find yourself spending less, at least if you’ve taken this information on board.

Solving Financial Issues

I found that it’s actually quite difficult for someone to solve their personal financial issues if they cannot create this feeling in themselves. But here is what I want you to avoid: The thought that simultaneously as soon as you start recording your expenses, you are a hundred percent going to start living within your means. If you have a real problem with overspending, this won’t work. That’s like trying to treat an addiction by taking the substance in smaller amounts, it won’t work. The purpose of recording your expenses isn’t to save money, but it’s to change your perspective on money. On the whole, you begin to see the value in money; it becomes something that takes time to earn and something you’d rather hold on to.

How to Solve the Money Problem

All of this is great advice, but you’ve probably heard it all before. Budgeting is personal finance 101, right? However, if you haven’t found success in your ability to manage your finances, then there is a key element that you are probably missing: creating value.

Let’s talk about production versus consumption. You can budget all you want, cut costs, and live frugally, but there will always be a floor to your expenses, and that floor is your consumption. Moreover, while living frugally and within your means is a noble financial endeavor, it can only take you so far. If, however, you want to get out of the paycheck-to-paycheck cycle or start building real wealth, you need to address the production side of the equation.

Let’s Discuss With An Example

Consider this: If you make $40,000 a year and live on $30,000, you have $10,000 left over. Nonetheless, there’s a limit to how much you can cut your expenses. On the contrary, if you find a way to increase your income to $50,000 or $60,000, you suddenly have more surplus money to save, invest, or improve your lifestyle.

In other words, while budgeting helps control your financial situation, increasing your income can transform it. So, how can you increase your income? There are various ways to do it:

1. Improve Your Job: This can be done through acquiring new skills, taking on more responsibilities, or negotiating a raise.
2. Side Hustles: Consider starting a side business, freelancing, or taking on part-time work.
3. Investing: Put your money to work for you through investments in stocks, real estate, or other assets.
4. Education: Invest in your own skills and knowledge to make yourself more valuable in the job market.
5. Entrepreneurship: Start your own business or venture.

Certainly, increasing your income can provide you with the means to not only cover your expenses but to save, invest, and achieve your financial goals. It’s a crucial step, not only in escaping the paycheck-to-paycheck cycle but also in building real wealth.

Conclusion

So, in conclusion, understanding the nature of money and its role as an expression of value is fundamental. Money is not inherently evil or good; it’s a tool that reflects the value you create. By recognizing this, consequently, you can shift your perspective and focus on your relationship with money.

To escape the paycheck-to-paycheck cycle and achieve financial stability and wealth, you need to balance your production and consumption. Budgeting and managing expenses are essential, similarly, increasing your income can be a game-changer. In addition, by finding ways to increase your earnings, you’ll have more financial flexibility and the opportunity to save, invest, and secure your financial future.

Remember, escaping the money trap is a journey, and it takes time, discipline, and effort. Nevertheless, with the right mindset and financial strategies, you can change your financial trajectory and build a more secure and prosperous future.