Rat race is common in this capitalist world. People work day in and day out. The financial situation does not seem to change much. There are 5 golden rules you need to know before you can escape from the rat race.
First – understand what most people do for their finances that are not right. According to a new Credit Suisse report, 45.8 percent of global household wealth is in the hands of just 1.1 percent of the world’s population. Those 56 million individuals control a mind-boggling $191.6 trillion, as can be seen on the following pyramid.
Only minority of the population know the right way to gain wealth. If you want to retire faster, you cannot just rely on working hard, spending less and saving more.
In the current world, the governments are supplying money at a fast rate, printing money and causing the inflation rate to be higher. You will notice that your cost of living keeps increasing and the increase rate is faster than your earning increment rate. If you only do the normal thing, you might properly retire at the age of 60 or 65 with reduced lifestyle to cope with the increased living expenses, like other normal persons.
Second – You need to decide when do you want to escape from the rat race. Many don’t realise that if there is no decision made to stop work, nothing will happen. Decision will steer action. If there is no decision, there will be no action. Ask yourself whether you really want to escape from the rat race or you simply hope that you can escape from the rat race. Recognize that wishing is not enough to push you beyond comfort zone to do the hard things to achieve what you want.
Third – Increase your income stream. If you rely on normal salary increment, the chances to escape from rat race earlier will be slim. In most of the circumstances, the increment will still be slightly lower than the inflation. Do something to increase your skill or knowledge on what you do. Get higher promotion, challenge yourself to reach a better position. Also, consider to get more income by exploring the business opportunities.
Fourth – Properly invest. Most of the riches put their money at work. We have only 24 hours a day and it is not possible for us to work for money. Our income will increase up to a certain stage due to our time limit. We need to think of a way to create a system or leverage on other businesses to get more income. Stop thinking that investing is gambling. The major investing rule is to bet with higher chance of winning. If you are gambling, your chance of winning is only 50% or less. However, if you invest in good companies which have high demand or good property which can fetch rental, the chances of winning will be high. This is what we call taking calculated risk.
Warren Buffett advised that investing in the productive assets is a good way. Look for stocks that can generate income years after years. Many people argued that investing in gold or crypto currency is a much faster way. I cannot comment on this but what I’m sure about is these assets are not productive assets. The intrinsic value for gold and crypto remains the same throughout the period. What you see is the price changes based on the supply and demand. Remember that these assets do not give you income. The intrinsic value for stocks can change based on its ability to get revenues. So, the potential of the capital gain is much more reliable. In addition, you will receive dividends too if the company decides to distribute the profits to the shareholders. For example, Coca-Cola had been producing an annual net profit of more than 20% for the past decade and because of this, it allows the company to pay dividend every year.
Fifth: Risk management – many people are skeptical about the investment risk. Yes, it is true that there is always risk in investing. If you want to avoid risk at all cost, the truth is your freedom will be kept in prison. You have the highest security with no freedom. In view of the risk, risk management becomes a key if you want to escape from rat race. No one can be sure you won’t lose money in the investment. Hence, never invest more than what you can afford to lose. Never borrow money to invest, never sell you house to invest and never go all into 1 single investment. Diversification is the key when you have accumulated certain wealth. Regardless how good does the investment seem, there is no guaranteed win. It is a fact that all successful investors have bet wrong and they never bother about the loss as this is part of the game. Your investment can stay concentrated when your capital is small because you can get bigger win by staying concentrated in investment. However, when your portfolio is big, your investment shall stay diversified.
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