Does it feel like you’re working just to maintain the status quo accompanied by stress and a lack of joy? Many individuals are seeking to escape the rat race and improve their quality of life.
Achieving this goal may seem challenging as it can require several lifestyle changes. It can also be difficult to know where to start.
We reveal several steps you can take to shift your financial habits and start living a better life. I’ll also share some personal experiences as I’m taking steps to achieve financial independence and have more lifestyle flexibility.
What is the Rat Race?
A similar idiom is “keeping up with the Joneses” where you try to maintain a lifestyle resembling your neighbors, family, or friends. Other closely related phrases are the fear of missing out (FOMO) and the American Dream.
You can only sacrifice so much time and money before you burn out or encounter financial and relationship problems.
For example, I decided a few years ago to leave my job with a good salary and benefits but a demanding work schedule.
My mind started to think of alternatives when my older supervisors said I would be doing the same thing my entire career but get pay raises.
We found out we didn’t need the extra money to live comfortably. It took several years to get into a financial and personal position to quit. While we’re not financially independent, I’m pleased with the progress as we have more freedom with work and leisure.
How to Escape the Rat Race
You can adopt these steps to create your escape plan and start living a more fulfilling life. It may take years to ultimately leave and starting now helps you start sooner.
1. Write Down Your Goals
The first step is determining what your dream life looks like if you are not bound to a specific job or location. You may love your current career, but high monthly debt payments are holding you back from using your income for more noble pursuits.
Examples of Near-Term Goals
Near-term goals can be tasks you want to accomplish within the next few years. Some examples include:
- Build an emergency fund
- Get a job with more flexibility
- Learn a new skill
- Pay off debt early
- Start a family
- Stop living paycheck to paycheck
The immediate milestones can have the greatest impact on challenging the status quo as they help you develop a new routine. Focusing on what you want life to look at a few decades from now is also pivotal to a successful plan.
Examples of Long-Term Goals
Your longer-term goals may include:
- Being financial independent
- Having investment properties
- Owning a vacation home
- Paying for your children’s education
- Retirement planning
Drafting your mid-range and long-range goals can refine your short-term goals so that your financial progress can help you achieve these dreams simultaneously.
2. Track Your Spending
Another early planning step is knowing how much you spend on common monthly expenses and optional purchases.
Identifying your spending habits lets you calculate how much you need to earn to pay the bills and your remaining income for saving, investing, and giving. Perhaps, more importantly, this step makes it easier to create a household budget that helps improve your finances.
One expense tracking option is to jot down each purchase and bill payment on a piece of paper. This practice takes more time, but using pen and paper doesn’t require a device, and it can be psychologically easier to remember what you’re spending money on.
If you have frequent transactions or pull money from several banking accounts, a digital budgeting app like YNAB or Mint automatically downloads your transactions. You can track your spending by category and make an in-depth spending plan.
3. Reduce Expenses
Knowing your monthly expenses lets you identify where to reduce spending so you have more income to save, invest, or pay off debt early.
There are several ways to spend less money to trim your monthly budget.
Some easy options to pinch pennies include:
- Avoiding new loans or card balances
- Canceling unused subscriptions
- Comparing insurance rates
- Ignore instant gratification
- Switching to free or cheaper alternatives for food and entertainment
Most households have some debt, including mortgages, credit cards, and loans. Making extra debt payments or refinancing to a lower rate can trim your total borrowing costs.
While debt is not bad in every instance, this monthly payment reduces the available income for your various financial goals. Focusing on high-interest debt first can help improve your cash flow sooner.
4. Increase Your Income
Higher-paying jobs typically have a grueling schedule that prevents you from pursuing other interests, such as family time, hobbies, and networking. This was my situation, at least.
However, concentrating on boosting your income under the right circumstances can be your ticket to early retirement or exiting the corporate world sooner.
One option is to pursue a recession-proof job that’s likely to earn reliable income in any economic climate. However, you may need to go back to school or change career fields to start earning a higher salary.
If switching careers or employers isn’t feasible, you can always consider a side hustle to make money in your free time as your schedule allows. Multiple income streams can also provide peace of mind as you have more ways to make money weekly.
5. Save More Money
Cutting expenses and increasing your income are two ways to have more money at the end of the month to set aside for a rainy day. However, as money accumulates in your bank account, you must decide what to do.
Typically, people in the rat race use that money to purchase consumer goods instead of saving for the future. Thankfully, there are ways to earn more interest on your cash balance so your money is productive until you need it.
A high-yield savings account is one of the best ways to grow your short-term cash reserves. You get to earn a competitive interest rate that’s significantly higher than a brick-and-mortar bank. This banking product is federally insured up to $250,000 and won’t likely charge fees.
If you haven’t already, start an emergency fund with three to six months of living expenses to cover unplanned expenses. You can also create savings goals for planned purchases to avoid going into debt.
As medical expenses are inevitable for most of us, you can see if your health insurance policy qualifies for a health savings account (HSA). Your contributions are tax-deductible and most healthcare-related withdrawals are tax-free.
6. Invest More
After securing your short-term cash needs, you can focus on passive income through long-term investing.
Even during the early planning stages, see if your employer has a workplace retirement plan with matching contributions. If so, consider investing enough each paycheck to max out the match, as the “free money” reduces the total amount you need to invest.
A general rule of thumb is to invest at least 10% of your income for retirement to have a sufficient balance to achieve your retirement goal. Consider investing through taxable brokerage accounts and tax-advantaged retirement accounts.
Investing can be intimidating to do by yourself if you don’t have the skills, interest, or time. Multiple investing apps offer managed portfolios with an affordable advisory fee cheaper than hiring a full-fledged financial advisor.
As your portfolio balance grows, you can diversify into income-producing assets that earn dividends. The investment performance of these assets is typically not correlated to the stock market, which can help you manage risk.
What Happens After Escaping the Rat Race?
First, congrats on achieving a life milestone many dream of but don’t reach. Next, continue practicing your habits of responsible spending, saving and investing to keep strengthening your personal finances.
However, consider slowing or stopping some of the actions you took to reach this point. For instance, pausing a side hustle can avoid burnout.
You should also take time to celebrate your progress and pursue opportunities that weren’t available before. Additionally, be open to helping others find ways to exit the rat race.
Escaping the rat race may seem impossible or not worth the sacrifice if you think you can tough it out until the standard retirement age. However, starting earlier provides more flexibility to achieve your goals.
After all, there’s nothing to lose as you can improve your quality of life.