Everybody knows what a “rat race’ is. Our educational system has trained almost all of us to study very hard, get a good high paying job, save money is a pension fund or a 401(K) (in the US) for retirement. The bills that we pay, car payments, mortgages, college tuition,  medical emergencies, etc. plus whatever we are able to save for retirement equal the pay from the job month after month. Saving enough for the retirement is a pipe-dream for many because of the job security uncertainty, emergencies and other unforeseen circumstances in one’s life. This leads to the perpetual “rat race” with no way out of it. Even those with high paying jobs, are only couple of checks away from poor should they lose their jobs. So they hold on to their dear jobs,  because  the other option is unthinkable. It is not uncommon in the US, to see people working beyond 70 years of age, some of them flipping burgers!

To understand what one can do to get out of this perpetual rat race, one has to understand the cash flow model, using the income statement and the balance sheet. This is the cash flow model that, the “Rich Dad”, Mr. Robert Kiyosaki talks about and writes about in his articles and books when explaining financial situations of people.

Poor people’s cash flow model (see Figure below):

These people live pay check to pay check some of them working two or three jobs. They are treading water just to keep their heads above water. Their income statement shows their income  at best equals their expenses. Their balance sheet is practically near empty. It is nearly impossible for them to get out of the “rat race” unless they wake-up and do the right thing. These people still have to pay taxes on the active income from the jobs unless the total income is below the threshold set by the government.

Middle class people’s cash flow model (see Figure below):

These people live the “working-class dream.” They have high paying jobs, but they also have highly paid liabilities, nice homes, expensive cars, golf-club memberships, vacations and discretionary shopping. They also have 401(k) retirement savings. The only difference between the middle class and the poor is the middle class has the liabilities that do not put money in their pocket so that their monthly income goes to pay the liabilities, the monthly expenses and the retirement. The rat race is perpetuated until their retirement account is big enough which in most cases never happens soon enough. The middle class have to pay high taxes because the active income is taxed higher than a passive income. These people can get of the rat race if they wake-up and do the right thing.

Rich people’s cash flow model (see Figure below):

These people have the mindset of building assets or in many cases have inherited assets from their families. They do not depend on their paychecks even though they may be working for somebody. The assets which are defined by the “Rich Dad” Robert Kiyosaki as the entity that puts money in one’s pocket, produces income called the passive income or portfolio income as opposed to an active income from a job, working for somebody else. This income more than pays for the month expenses and the liabilities, with the net result of increasing the asset over time, spiraling upwards. The added advantage is that the passive income is taxed lower than an active income from a job, even not taxed at all in some extreme cases. Looks like the rich people have figured out how to avoid the rat race!

For the poor and the middle class, waking-up and doing the right thing is to think like the rich do.

Thinking like the rich

If one wants to be successful in the information age, the faster one develops their financial and emotional intelligence, the faster he or she will feel more financially secure and find financial freedom. In a world with less and less job security, this cash flow pattern makes much more sense.  To achieve this pattern, one needs to see the world from the perspective of a business owner and investor, not as an employee or a self-employed person.

Action cures fear. Financial education, working hard at it, cures the fear of quitting the job and gets one out of the rat race. It is easier said than done but not impossible.

Also, it is the cash flow that is more important than capital appreciation. If one is using “Stocks” as the asset class that ought to produce the “cash flow”, which is the vehicle that does exactly that?

You got it. The “Options.”

If you arm yourself with the financial education, getting out of the “rat race’ is not only a reality leading into financial freedom but also an inspiration for others.

Recommended Reading:

1. Stock Market Cash Flow by Andy Tanner (Rich Dad Advisors)
2. 401(k)aos by Andy Tanner (Rich Dad Advisors)

These books are available in my bookstore under publications / recommended reading.