How to escape the rat race and reach financial freedom

We spend money we don't have on things we don't need to impress people who don't care about us. This maxim, despite having been repeated ad nauseam, exemplifies quite well what the rat race is all about.

Robert Kiyosaki, entrepreneur and motivational speaker, first mentioned this term in one of his best-known works, Rich Dad, Poor Dad, published in 1997. A concept that had already been explored a year earlier by Chuck Palahniuk in his novel Fight Club. A work taken to the big screen by David Fincher, in which the character played by Brad Pitt asserts that "we have jobs we hate to buy things we don't need."

The philosophy behind the rat race is as simple as it is crude. Imagine a rat running on an endlessly spinning wheel. It constantly moves forward but fails to get anywhere or cross any meaningful finish line. And, no matter how fast it runs, it cannot escape. The only way to escape this endless race would be to stop and step aside, abandoning that wheel.

In this metaphor, the rat represents the workers. And the wheel functions as the economic system that drives them to spend money constantly. People receive a salary in exchange for their work, but they squander it on all kinds of objects or services and are forced to continue producing to pay off these debts. Thus giving rise to an endless cycle of income and expenses.

However, do they need these goods? In most cases, the answer is negative. These are needs created by advertising and large corporations who benefit from the rat race, making consumers believe that they need to acquire them to achieve a higher degree of well-being and, ultimately, to be happier.

A race with 8 billion runners

All citizens have a race bib in the rat race insofar as they participate in the economic system. Absolutely everyone is participating, even if a large percentage of them are unaware of it.

It is enough to look at the ideal path in life. After years of study, the time comes to look for a job. And here, many people make the first mistake: the illusion leads them to spend all their money on restaurants, travel, clothes, technology… Obviously, it is essential to enjoy these things, but it is also necessary to dedicate part of the salary to savings and investment.

As the salary increases, the person who stays in the rat race sees that their purchasing power grows. And, unconsciously, their expenses also increase. As the years go by, he decides to take out a loan to buy a car and take out a mortgage. Later, you have children, and it is time to renovate your house and change your vehicle. In the meantime, you continue to buy the latest fashionable shoes, the newest model of cell phone, and a television with more resolution and inches than the previous one.

Many citizens are constantly buying products, living beyond their means, and not even considering investing a small percentage of what they earn each month. The possibility of future profits is not as attractive as the momentary enjoyment and sense of novelty that comes with each purchase.

In many cases, salary increases are not enough to offset the endless expenses. In the rat race, you have to earn more to spend more. And this creates a very dangerous vicious circle.

Finally, the retirement period arrives. And what happens if the only income throughout the entire life has come from work? Now, the person trapped in the rat race will depend entirely on what the pension will bring monthly.

Tips for getting out of the rat race

Realizing that you are participating in the rat race is undoubtedly the first step in escaping it. However, simply realizing it is not enough. It would help if you had financial education to design a tailor-made plan based on cutting expenses and expanding your sources of income to achieve the much-dreamed-of financial independence.

As we have just mentioned, the second step is to eliminate unnecessary expenses. Many citizens spend a large part of their salary to acquire possessions they do not need, which, little by little, undermines their purchasing power. These false needs, as we mentioned before, are created by advertising. That is why, before buying a product, we should think twice about why we want it and what actual use we will give it.

As the saying goes, it is not he who has the most who is happiest or wealthiest, but he who needs the least.

Then comes the time to start looking for new income channels beyond the salary received from the job. A task that can sometimes seem complex. But it is essential if you want to leave the rat race and achieve financial independence.

Some people get a new job or perform small tasks in exchange for money. Others invest in a property to rent it out and enjoy the monthly income from the tenants. Others are inclined to acquire companies listed on the stock exchange and offer high dividends, periodically nourishing themselves with this passive income type.

In short, there are dozens, if not hundreds, of alternatives to increase wealth.

Once expenses have been reduced and other sources of income are available, a detailed budget should be drawn up, showing where every penny comes from and where it goes. Recording all this information can be tedious, but it is crucial for optimizing personal and household finances.

Finally, planning short-, medium- and long-term financial goals and designing strategies and tactics to achieve them is advisable. It doesn't matter if it's about taking a trip, buying a property, or investing a certain amount of money. It is always necessary to keep in mind the repercussions that the expenses will have to find the best way to face them without affecting our purchasing power.

An exercise in self-knowledge

But how do I know if I am in the rat race? There are a series of questions that can help find out if we are still in the rat race or if we have already started on the road to financial freedom.

1. Do you record all your income and expenses regularly?
2. Do you review this information periodically and make decisions accordingly?
3. Do you know how to discern between necessary and expendable expenses?
4. Can you identify ten expendable expenses in the last month?
5. Are your expenses increasing as your income increases?
6. Do you find it challenging to make ends meet?
7. What percentage of your salary is spent on savings and investments?
8. Have you ever bought impulsively or as a form of therapy?
9. Are your bank accounts maxed out, or do you have a financial cushion?
10. Do you tend to buy trendy products?
11. Do you let yourself be seduced by sales and bargains?
12. Is your job your only source of income?

Answering these twelve questions honestly is essential for the first phase of escaping the rat race: self-knowledge.

If the last answer was yes, it may be time to consider changing your financial strategy. Just as in investment, it is advisable to diversify among different products; it is also advisable to diversify the sources of income with complementary channels that contribute to increasing wealth and attenuate dependence on the salary.

But what options exist to multiply income, achieve financial independence, and escape the rat race?

Crowdfactoring as an alternative source of income

The arrival of the Internet and new technologies, coupled with the growing disenchantment of ordinary citizens with conventional banking institutions, triggered the emergence of financing and investment mechanisms that fall under the umbrella of alternative financing. Factoring is one of them.

Through this system, companies assign the collection rights of outstanding invoices to a third party, which advances the corresponding amount in the form of a loan in exchange for a specific interest rate.

This advance gives the business valuable liquidity to meet its debts at times that could be critical to its stability. Once the customer pays the invoice, the company returns the original amount to the investor, including the abovementioned interest.

Today, many banks already include factoring in their range of services. At the same time, however, alternative financing platforms have been developed that allow individual savers to take on the role of investor, pooling the contributions of all individuals to finance companies and distributing the profits in the future in proportion to the contribution. This is known as crowdfactoring.

Platforms such as Inversa Invoice Market, where people can inject their savings to financially support local businesses and companies in the real economy. And where in addition, the average return on operations far exceeds that of many of the most popular investment instruments on the market.

In the first five months of 2023, this rose to 7.9 %. And some of the bills already provide interest of 10 %.

This allows people who allocate a small percentage of their salary to investment to multiply their wealth quickly, as many transactions are closed within one, two, or three months. But the jewel in the crown is still missing.

What differentiates Inversa from other alternatives? On this platform, the investor receives the profits when the trade closes instead of waiting for the transaction to conclude. When the expiration date arrives, he gets the original sum back but can enjoy the interest from day one.

All this makes Inversa Invoice Market a very attractive option for diversifying income sources and escaping the rat race.