In 2003, professional boxer and heavyweight champion Mike Tyson filed for bankruptcy with $30 million in debt despite accumulating over $300 million during the course of his career. This poses a great question about money itself because a lot of our actions or our motivations in life have an underlying desire or need to acquire it, or what’s the point in acquiring it if the great issue seems to be with our ability to manage it. School has failed to teach the value of money and how to escape the rat race
Americans now have the highest credit card debt and history. With the middle-class in US slowly dissapearing due to debt eroding their wealth. It begs to wonder our own attitude towards money and how money exists in your own life. What is money to you?
The problem our society faces
Does it seem to enter your life and immediately leave once you have it? Has it ever placed you in a vulnerable position of vulnerability that drew you closer to a get-rich-quick scheme? Where a so-called expert guru tells you how you can get rich if you just bought their course ?
I realized 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?
Does it really matter if you’re earning more than six figures a year if by the end of that year you have nothing left to show for it? Where is the disconnect? It’s time we solve that mystery and explore a better framework for understanding money. A framework commonly taught in personal finance but oftentimes missed in formal education.
Question What is money?
What does money represent? When you make a purchase from Amazon when you’re paid for your time working at 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. However, I don’t think this says much about what money actually represents.
I think a better way of looking at money is 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.
Why is it Important
Money equals value. Why is that so important? Because often we give money a moral significance 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 and 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. Sure, there are things such as scammers who convince you that what they have to sell was worth value. However, 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, 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 post another question. What is your relationship with money?
Production Vs Consumption
Money will come into your life and it will leave this a relationship that is often expressed by your income and expenses. Another practical way of expressing this which I particularly like is your production versus your consumption. For the most part, money will enter your life because you have produced some form of value. And for most of us, this value will come in the form of labor the job money will leave when you have consumed something, and a Netflix subscription to a new car house in many ways we can look at net worth as an individual as a metric for determining the relationship between consumption and production.
Now cast your mind back to those statistics I mentioned at the start of the article. What part of the consumption versus production relationship do you think is at fault? Consider yourself for a moment and think about all the money that has entered your life and how much of that 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 to improve the likelihood is that for most of us, the biggest issue lies in our consumption.
Why you need to manage consumption
Remember the CareerBuilder study that found that 78% of American workers were living paycheck to paycheck. While it also found that of the workers who made $100,000 or more a year, one in 10 of them is found to still be living paycheck to paycheck. Now you could argue that someone earning six figures a year may still like to earn more. 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 is consuming and 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.
Chasing the Dollar
Rat race, is an endless self-defeating or pointless pursuit. Sometimes the rat race is conflated with working a nine-to-five job. It’s a comparison often used by certain individuals to guilt you into buying programs and books for them. But 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.
A real rat race is one that is living on a financial edge. Being one paycheck away from broke constantly feels as though the moment money enters your life, it immediately disappears. And the more responsibilities you have, the more dangerous this relationship becomes. 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 to keep funding your lifestyle or keep paying off debt. To quote Tyler Durden from Fight Club, the things you own end up owning.
What’s the silver lining? It doesn’t have to continue like that.
How to Escape the Rat race
The first stepping stone in personal finance will have you drawing awareness of your relationship with money. 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.
In Behavioral Finance, this feeling can often be labeled as the ostrich effect. Which is our tendency to want to avoid negative financial information. It’s that feeling you get when you refuse to look at your bank account. After a night out fearing what it might show and yet once you pass the stage. It’s time for you to take control over your behavior as a consumer.
Budgeting
This often involves the idea of budgeting, deciding each month, how much you aim to spend on each of these categories and sticking to it. It’s about systematically looking at what you consume and finding ways in which you can minimize these things to ultimately live below your means. In other words, having a lifestyle that still leaves you with enough money to save and invest in some form or another.
Creating An Emergency Fund
It’s also important to note that before you ever decide to invest. One of the most common practices in personal finance is to keep an emergency fund a specific amount of savings that you hold on to in case of an emergency. This fund would typically hold three to six months’ worth of expenses. The idea, however, of living below your means is an important one. Because why would we choose to do otherwise? Why would we choose to live a lifestyle that we cannot afford? Or one that places us on this financial edge?
Avoid Short term Rewards
The ostrich effect is just one of which can affect your financial position. Then there’s Hyperbolic discounting a tendency to favor short-term rewards as opposed to greater rewards in the future like how you choose to purchase a new pair of shoes instead of saving that money towards a future investment. Our tendency to think and act as others around us think and act when the people around us are buying one thing we buy too or when the people around us established money as a means of evil.
You’re likely to assume the same thing to the phrase Keeping Up with the Joneses summarizes this great problem of consumption. It’s a phrase defined by Google as trying to emulate or not be outdone by one’s neighbors.
You get it, it’s a never ending cycle of simply spending to outbeat others. Only in today’s world, the Joneses are not literal neighbors. They’re far more present than that we are all vulnerable to social approval. We really care what other people think of us.
Learning how to manage money
To be clear, I’m not saying that purchasing an expensive piece of clothing, jewelry or sports car is a bad thing. Nor do I think consuming is a bad thing. It’s about drawing an awareness of who you are as a consumer. Do you care more about appearing as though you have money?
Actually having money in the rat race isn’t about working a nine-to-five job. It’s about living life on such an edge that it means that you are chasing the next thing whether a paycheck or a material possession such that your greater life goals and ambitions are placed in the background in order to continue this race a budget and keeping account of your expenses have proven time and time again to work and draw you out of this race.
Learn to make money to escape the rat race
It’s fun to talk about making money or imagining having as much wealth as possible. Or else what’s the point when your relationship with money as a consumer means losing it or having to work nonstop in order to fund that. Lifestyle. That is the real rat race. But with all of that being said, let’s talk about making money.
Personal finance channels like Graham Steffen or Dave Ramsey are great for learning how to work on your consumption side of the equation. But if there was one thing they wish they spoke more about. It would be their ability to make money. And I understand why they don’t do this. It’s easier to reduce your expenses in the amount that you consume than it is to increase your income. When speaking to a mass audience. Giving the advice that will work for most people is typically the best choice we see that there are entire communities built up around focusing on frugality.
Cutting expenses doesn’t help much
The FIRE community is one example of this movement that adopts the strategy of living extremely frugally, saving and investing as early as possible with the intention of retiring as early as possible. Minimalists also shared a similar view to the FIRE community. Although their methods are more deep-rooted in philosophical positions about the world and materialism. People like Graham Stefan, or Dave Ramsey promote strategies that fall in the spectrum of living frugally, saving a lot of money and investing in the long run.
And there’s nothing inherently wrong with this strategy. It works for a wider range of people with varying degrees of income. But let’s be honest, Graham Stefan doesn’t rely on cutting coupons or living an incredibly frugal lifestyle to be making 100 to $200,000 a month from YouTube. Nor does Dave Ramsey rely on these strategies to have an estimated net worth of $55 million. These people are utilizing a means of production at a mass scale.
Creating value
The most impactful way of increasing your value is finding a problem in the market, creating a solution for that problem and selling that solution to the market at scale. This is the entrepreneurial route. A successful business at scale is able to produce a large amount of value to society such that your production side of the equation grows exponentially in comparison to a standard job.
But this isn’t a route that everyone can take, nor should they try to. It’s about reflecting on your own capabilities and whether entrepreneurship is best suited to your direction. With that being said, increasing your production doesn’t have to just come from the strict definition of a business.
How to Create Value
The value that you can provide typically is based on what the demand is. For example, doctors are generally more well played because of what value they are able to bring to the healthcare industry as compared to nurses or an office worker. So the trick to earning more income is finding how to bring a larger value to more audience.
If you can produce value at a large scale, then it means you can potentially earn money. For example, HustleVentureSG has created value for our readers to find out more about personal finances and side enterprises for them to nurture in them learning to build a business. With information that they can read on social media or from the web. This valuable information becomes widely read and shared among people which lead to the business growth.
The internet has thankfully provided a great deal of opportunity for us to be able to produce something and put it out to the market. Whether the market actually wants what you have produced can only be determined once you’ve released whatever it is that you’ve produced.
Easiest way to create Value
If you earn a $1,000 and spend $1,000, there is no value creation for yourself. In order for you to create value to the world. The easiest way you can do that is using money earn to invest. The trick to investing is finding out what assets would grow over time. That is the choice individual have to make, people make choices based on what each asset has value to them. Some may choose to invest in real estate, others may be in stocks. So if you need help deciding what you would like to invest in, here are some example to invest your money in.
Stocks
Investing in stocks has never been easier. With the rise of investment apps like Tiger Broker, MooMoo or Webull. You can simply connect your bank account and start investing. But before you invest your money in stocks, be sure to check out the beginner’s guide to investing.
Investing in stocks is the ideal way to invest for beginner to grow their wealth. Simply because investing doesn’t require a high capital to start. You can dollar-cost average into the stock of your choice and simply let it grow over time.
Real Estate
If you like the idea of being a landlord or managing a home. Being a landlord is a great way to build equity. As real estate prices grow in value, investor can also make a rental income from renting to tenant to stay.
The reason why investor love real estate is its ability to leverage debt. If the home value is bought with a value of $1 million and the downpayment is $100,000. When the home value raises to $1.5million. The investor is able to profit $500,000 with a mere $100,000 investment. Not bad I would say.
Side Hustle
With the internet growing, there are a lot of different side hustle you can take to make money. Some of which allows you to make money online. That’s where we come in, HustleVentureSG promotes side hustle for individual to take up in order for them to build additional wealth. You can learn more about side hustle by click on the link and find out the different side hustle to choose from.
We promote side hustle that you can start right away and earn a 4 figure income from. You can also check out our services to see how we promote and sell our services to our clients.
How to know if you are free from the rat race
Here’s the hard truth, it takes years to save and build a net worth in order to escape the rat race. In order to escape the rat race, individual need to be able to live off their investment indefinitely. That means your investments are outpacing your expenses. The math behind find out how much you need in order to live of investment is based on the 4% rule. Which simply allows investor to withdraw 4% while compound interest growing on average 10% allows investor to not worry about depreciating asset.
Escaping the rat race is a choice
So to summarize, it’s first important to bring awareness to yourself as a consumer. Understand what you purchase and why you purchase by journaling your consumption and then giving yourself the budget to manage and control that consumption. Producing then becomes a matter of maximizing the amount of value you can bring into society through a job or business or some other means of production. This is a framework that has helped me greatly as I’m sure it’s helped countless others who have a vested interest in making money.
