Many Americans are trapped in the Rat Race
Forty percent of working Americans are on the job more than 50 hours per week. On average, US workers take less vacation days than employees in any other country. Many lower and middle class workers are urged to “buy their way up” and gain more purchasing power by using credit cards with low minimum monthly payments and taking advantage of “0% APR for 12 month” type deals.
Yet before you know it, that $500 flat-screen television set has escalated to $2,000 with late fees and interest charges. Whether it was a car, a house, consumer goods or college loans, you may find yourself working tirelessly simply to pay off old debt, leaving you unable to save for your future. It’s a dangerous position to be in, particularly given the capricious labor market. There are ways to escape the rat race and get back on track toward a financially secure future.
Video: The Rat Race Maze
How You Got Here
You may be staring at that exorbitant bill, wondering how you found yourself in such a deplorable position. There’s no single universal answer. Americans wind up in debt for a number of reasons. If you’re spending more than 30% of your monthly income on rent or your mortgage, then you’re probably in the rat race. Many people lacked health insurance and incurred major medical bills. Interest on car loans, student loans or credit card debts that accrue from missed payments or lack of payment is perhaps the easiest way to drown in debt. Perhaps it’s those little everyday purchases you lost track of that added up into a pile of unpaid bills. People often live month to month and find themselves in hot water if they get laid off. Whether it was poor spending habits, one stupid mistake or a lack of income streaming in, the worst thing you can do is ignore the problem and hope it goes away.
Video: Escape the Rat Race
Downsize Your Life to Limit Liability.
In order to prepare yourself for retirement, you need to ensure that your assets (income streams) are higher than your liabilities (expenses). This is where you’ll need to make some tough choices. You may need to find a higher paying job or relocate where the money’s better for your industry. Many Americans choose to work over-time and holidays to make ends meet (which, of course, is the very essence of “the rat race!”) You may need to cut your expenses. As they age, many baby boomers are down-sizing into smaller cars or trading the family estate for more modest bungalows.
Take Control of That Debt
Once you’re in debt, there are many proactive steps you can take to get out. Certainly bringing in the money is #1, whether that means working more hours, getting a second job, seeking government assistance programs or getting a new job that pays more. Without enough money to manage, you’ll never get ahead.
The second step is to use Spartan-like budgeting. You need to keep in mind that you may not be able to do everything your friends and cohorts are doing or buy every luxury good you’ve been eyeing up until you reach your goals. The important part is to keep telling yourself that you’ll be out of debt in a few years and in a better position in life to get what you want.
The third step in financial recovery is to keep track of your expenses to see where all your money’s going and look for places where you can reduce waste. Sometimes it’s a real eye-opener to see that you’ve spent $100 on fast food this month or $2,000 on clothes this year. Other times it pays to shop around for deals at the grocery store or a better rate on your cell phone service.
Lastly, pay off what you owe. You can start by writing down your total monthly income, then subtracting all the fixed expenses (rent/mortgage, utility bills, prescriptions, groceries, gas). The remaining balance should be divided to cover all your minimum monthly payments. Whatever is left over can then be applied toward the bill with the highest interest. Before you know, those mountains will be ant hills.
If your bills are miles high, consider debt consolidation services or declaring bankruptcy. Debt consolidation is ideal for people with $10,000 - $50,000 in debt, who get caught in a never-ending struggle of “Which bill can be paid this month?” The company will negotiate on your behalf to reduce your overall debt and ask that you make one, low monthly payment, which they’ll spread out to your creditors. For people with even higher debt levels, bankruptcy is the only solution. A Chapter 7 bankruptcy will liquidate many of your assets to pay your outstanding debt, but you’ll walk away with no further obligations. Chapter 13 bankruptcy lets you keep all possessions, but you’ll need to still pay off a portion of your debts. Though the stain will be on your credit report for ten years, bankruptcy offers a clean slate and a breath of fresh air to many people in the rat race.
Avoid the Traps
Once you’ve escaped the rat race, you’ll need to make wise choices from here on out. If you have trouble paying your bills on time, set up automatic debits through your bank or set cell phone alerts to remind you when things are due. Set money aside into a savings account for emergencies and be sure your retirement funds are automatically drawn out of your pay check (to avoid the temptation to spend!)
Secondly, you’ll need to devise a long-term savings plan. Investment planners often recommend dividing your retirement money into three pots: one for this year’s cash expenses, one for this year’s fixed expenses and one for stocks. You can invest in corporate bonds, real estate investment trusts, convertible bonds, dividend-paying stocks, treasury inflation-protected securities, municipal bonds or agency bonds. Also, don’t forget that 401k or IRA!
Find Freedom with Passive Income
The belief that “free money” is out there gets a lot of people in trouble. Undoubtedly there are many scams out there, but the wealthiest Americans know that there are sound investments that generate continuous income, long after the initial money has been invested. These opportunities usually require hard work, start-up capital and crucial decisions at first, but once the money starts rolling in, no other work is required. There’s no guarantee that you’ll “get rich” off passive income streams, although some individuals have in the past. For most people, passive income opportunities are a great way to obtain financial freedom through proven methods.
Potential Passive Income Opportunities:
• Invest in individual stocks and bonds or index funds with good returns.
• Write a book, pitch it to a publisher and await your royalty checks.
• Get into the vending machine business.
• Sell your original photography as stock photos.
• Develop several websites and let the ad revenue roll in.
• Buy a franchise or sell your business as a franchise.
• Buy and rent out a second property.