Just about everybody on this planet knows what its like to live in the Rat Race and very few people will ever know the feeling of getting out of the rat race. For those of you unfamiliar with The Rat Race, it is a term often used to describe the life of the average “working man” (or woman).

The way I see it, if your in the Rat Race, you wake up early and work 9-5, go to bed and wake up and do it all over again the next day. You receive a paycheck weekly/monthly etc. and live your life according to that paycheck. Your bills start to stack up and things look like there’s no end in sight. Then one day you get a promotion…you are now making an additional $20,000/year and make a $5,000 bonus and what is the first thing you do? You of course look into buying that new home you always wanted, you buy a second car so that your wife can drive the kids to their piano class/soccer practice etc. and you use that bonus to take your family to Hawaii for the week. But then when all is said and done, you start to get bills for that new house and that new car, and at the end of the month you owe just as much money, if not more then you did before that promotion. Now you are wondering to yourself “Life was supposed to get better! I was supposed to get ahead now that I was promoted” but in reality you are in the same debt if not more.

This is the rat race, and although it seems impossible to get out, it actually isn’t. In-fact, the concept of escaping the Rat Race is easy to understand and fairly easy to do. All you need to do is change the way you use money.

Step 1 - STOP SPENDING!

Don’t spend another dime on any thing that isn’t a need! Until you are out of the Rat Race, you need to lower your spending. As I pointed out before, when we get an increase in our paycheck, we increase our spending and therefore our payments. Before buying ANYTHING or spending ANY money, decide if its a “Need” or a “Want”. Do you NEEDthat new 50″ Plasma TV, or is your 25″ flat-screen good enough for now?

Step 2 - Study your Debts

Write it all down on a sheet of paper, everything from credit card debt, to outstanding loans on your house/car etc., to medical bills. Now that you have a list of all your debts and how much you owe you might feel overwhelmed and realize you owe people alot of money, but worry not, because the next step is to make all this go away.

Step 3 - Pay your DEBTS!

Use that extra money you saved by not buying that new TV, and use any extra money you have after your expenses, and pay off those debts! Start with your credit card debt. Pay it all off or as much as possible. Once that monthly payment is eliminated you will be able to keep a little bit of more of your paycheck each month, resulting in more money for you. Use this extra money to pay off your car payments, or your mortgage or home loans. Keep doing this, always put money away each month to eliminate your debts, and you will start to see that you have more money in the back each month! This is almost like getting a pay raise (but make sure not to be like before and go and buy all of those new things, because that would just put you back inside the Rat Race).

Step 4 - Build your Assets

This is probably the most difficult step for the average person, but is the final step and is necessary to fully escape the Rat Race. For those of you who aren’t sure what an asset is, an asset is something that puts money into your pocket. Assets include, but are not limited to:

• Stocks
• Bonds
• Notes (IOUs)
• Real Estate (your house doesn’t count!)
• Royalties from Intellectual Properties
• Mutual Funds
• anything else that has value and produces income or appreciates and has a ready market.

The way I like to think of an asset, is a way to generate passive income, or, income that is generated without me having to work for it. The main goal here is to build up your assets, to provide you with monthly passive income, that will ultimately lead to enough income to support your fixed expenses.
In the book Rich Dad, Poor Dad, the author explains that if it your assets, are as much as your expenses, you have you have become Financially Independent and have left the rat race. An example of this would be if it costs you $100 a month to live, and your assets generate $100 a month in profit*. Basically when you reach this point, any money you are earning through your job, is going directly to you, and can be spent on whatever you want! Just make sure not to raise expenses, and if you do, make sure to raise your assets right along with it.

*Tip: Once you reach this point, why stop there? Now you can continue to build your assets, and generate more and more passive income, and by doing this, you are putting more money into your pocket that you don’t even need to work for! Now you can sleep in, spend time with your family and friends, go fishing, etc. But remember to keep building the assets!