rat race http://www.wisebread.com/taxonomy/term/9330/all en-US Can You Buy Your Way Out of the Rat Race? http://www.wisebread.com/can-you-buy-your-way-out-of-the-rat-race <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/can-you-buy-your-way-out-of-the-rat-race" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy-bank-saved-for-a-rainy-day.jpg" alt="Piggy bank saved for a rainy day" title="Piggy Bank Saved for a Rainy Day" class="imagecache imagecache-250w" width="250" height="285" /></a> </div> </div> </div> <p>If you're <a href="http://www.wisebread.com/track-your-spending-or-not">tracking your spending</a>, you know how much money it takes to live on. If you're tracking your investments, you know about how much return you're getting from your capital. With those two numbers, you can get a pretty good estimate of how much money it takes to buy your way out of the rat race.</p> <p>In its simplest form, the cost to buy your way out is just your annual spending divided by the return on your investments. I used to do that calculation a lot. When I got my first job interest rates were in double digits, so I could imagine getting $30,000 or even $40,000 a year &mdash; plenty of money to live on &mdash; from an investment as small as $300,000.</p> <h2>A simple theory</h2> <p>Of course, that model is over-simplified. For one thing, you have to account for the possibility that in some years spending will be higher. (What if you need a new car or a new roof or to send the kids to college?) I knew how to handle that one, though: The same way I was already dealing with it when my income came from a regular job &mdash; covering major expenses by cutting other spending.</p> <p>More fundamentally though, the simple model doesn't account for inflation. And, at the time when interest rates were in double digits, inflation was similarly high. It wasn't a problem you could just handwave away.</p> <p>I spent way more time than it was worth trying to construct a <a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">mathematical model for living off capital</a> &mdash; a model that accounted for taxes, provided for reinvesting enough after-tax income to keep me even with inflation, and still paid out enough money for me to live on. All this, mind you, while my net worth (after a student loan) was probably negative.</p> <p>Anyway, that was my first guess at my number: a capital sum of $300,000, properly invested, would yield enough that I wouldn't have to work. That's what it would have cost me to buy my way out of the rat race. Other people have done the same sort of thinking and written whole books about it, and come up with better-researched models for accounting for taxes and inflation. I've written reviews of a couple of good ones: Bob Clyat's <a href="http://www.wisebread.com/book-review-work-less-live-more"><em>Work Less, Live More</em></a> and Joe Dominguez and Vicki Robin's <a href="http://www.wisebread.com/book-review-your-money-or-your-life">Your Money or Your Life</a>.</p> <h2>The less simple reality</h2> <p>In practice, though, for most people, buying your way out doesn't work out.</p> <p>First of all, it's really expensive. Unless you're extraordinarily frugal, it's still going to cost you tens of thousands of dollars a year to support your household. And (as you can't really count on double-digit returns on your investments), it turns out that you need around a quarter million dollars to stand behind each $10,000 of annual income.</p> <p>More fundamentally though, no amount of capital provides complete security. Your money can be lost any number of ways. The economy could turn down. Even if the economy goes up, your investments could go down. You could lose your money to theft, natural disaster, lawsuits, or government seizure (not to mention simple overspending). You can try to protect against any of those things through a combination of due care and proper insurance, but there's no such thing as perfect protection.</p> <p>Your real protection against those things is your own productive ability &mdash; which is something that can't be stolen, taken in a lawsuit, or seized by the government.</p> <p>Buying your way out of the rat race is a suboptimal strategy. It can work &mdash; people do it all the time, although not very many of them &mdash; but it's hard. It also doesn't leave you so very much better off than you were &mdash; you may be able to quit worrying about losing your job, but you have to start worrying about low interest rates.</p> <p>Now, accumulating some capital is a great idea. In fact, I think everyone should have a medium term goal of accumulating enough capital that the income from their investments could cover their <a href="http://www.wisebread.com/emergency-belt-tightening">bare minimum expenses</a>. Once you get beyond that, though, adding more capital starts yielding diminishing returns.</p> <h2>The real way to escape the rat race: Refuse to race with rats.</h2> <p>So, what do you do instead? Basically, invest in your own skills.</p> <p>Improving your skill at the job you already have can help you earn more (important if you don't yet have that basic level of capital), but <a href="http://www.wisebread.com/best-investment-yourself">developing skills</a> at entirely new things gives you a whole new layer of protection against economic downturns and <a href="http://www.wisebread.com/i-hate-my-job" title="&quot;I Hate My Job&quot; Guide">incompetent managers</a>.</p> <p>Broaden the <a href="http://www.wisebread.com/find-work-worth-doing">kinds of work</a> you look for. Don't focus only on finding the highest pay &mdash; look for work that's interesting and that's useful. It's more fun. It's also more secure &mdash; there's only one job that pays the most.</p> <p>Beyond that, learn how to <strong>do</strong>, <strong>make</strong>, <strong>grow</strong>, and <strong>find</strong> things for yourself. To the extent that you can <a href="http://www.wisebread.com/opting-out-of-the-money-economy">directly provide</a> the things your family needs, you're not dependent on either your capital or your job.</p> <p>Each of these things improves your security. Taken together, they can give you as much security and freedom as a human being can achieve.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/can-you-buy-your-way-out-of-the-rat-race">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/seven-tips-for-the-newly-unemployed">Seven Tips for the Newly Unemployed</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/self-sufficiency-self-reliance-and-freedom">Self-sufficiency, self-reliance, and freedom</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/laid-off-what-to-do-before-plunging-into-the-job-search">Laid Off? What To Do Before Plunging Into The Job Search</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/getting-by-without-a-job-part-1-losing-a-job">Getting by without a job, part 1--losing a job</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/lose-your-job-without-losing-your-identity">Lose Your Job Without Losing Your Identity</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Career and Income freedom How-To Guide rat race security Tue, 03 Nov 2009 14:00:01 +0000 Philip Brewer 3785 at http://www.wisebread.com Book review: Happier http://www.wisebread.com/book-review-happier <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/book-review-happier" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/happier-cover.jpg" alt="Cover of Happier" title="Cover of Happier" class="imagecache imagecache-250w" width="108" height="160" /></a> </div> </div> </div> <p><a href="http://www.amazon.com/gp/product/0071492399?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0071492399"><cite>Happier: Learn the Secrets to Daily Joy and Lasting Fulfillment</cite></a> by Tal Ben-Shahar.</p> <p>Here are two ideas you already know: You won't achieve maximum happiness by always doing the most pleasurable thing you can think of at each moment, but neither will you find it by always deferring present happiness in favor of greater future happiness. The key is balancing these two things. And the genius in this book is that it gives you tools for finding that balance.</p> <p>Ben-Shahar begins with these two (poor) strategies for finding happiness.</p> <p>He calls one the &quot;rat-race&quot; strategy, where you're always deferring present happiness in favor of greater future happiness. Of course, that's the right thing to do in many circumstances. (Tedious studies can lead to mastery of a difficult topic; hard work can lead to promotion and greater opportunity; saving can lead to wealth.) But if you're always deferring to the future, when do you get to be happy?</p> <p>He calls the other the &quot;hedonist&quot; strategy, where you're always doing whatever seems most pleasurable at the moment. This obviously has those pleasures, but you lose out on the advantages of deferral. (The skills that can be developed by practicing the bits that aren't so interesting yet; the social and business advantages that can come from being known as someone who can get the job done; the resources that can come from saving and and investing.)</p> <p>(As an aside, let me mention that this use of the word &quot;hedonist&quot; is the one big complaint I have about this book. He uses &quot;hedonist&quot; to mean &quot;short-sighted, stupid hedonist,&quot; which is not the way I use the word.)</p> <p>The other great thing about this book is that it's based on scientific research. The book is extensively referenced, and when Ben-Shahar makes a claim, he has data to back it up. For example, a big part of the way to find the balance between present and future pleasure is to have goals: Goals are what sometimes make it worth deferring present happiness in favor of future happiness. That's not going to be big news to most readers. But he doesn't stop there. He references a study by Kennon Sheldon, who (based on research) writes:</p> <blockquote><p>People seeking greater well-being would be well advised to focus on the pursuit of (a) goals involving growth, connection, and contribution rather than goals involving money, beauty, and popularity and (b) goals that are interesting and personally important to them rather than goals they feel forced or pressured to pursue.</p> </blockquote> <p>Ben-Shahar goes on from there to talk about &quot;self-concordant goals,&quot; saying:</p> <blockquote><p>Research in this area indicates that there is a qualitative difference between the meaning that we derive from extrinsic goods, such as social status and the state of our bank account, and the meaning that we derive from intrinsic goods, such as personal growth and a sense of connection to others.</p> </blockquote> <p>Ben-Shahar provides a bunch of exercises for raising your level of happiness. Some are tools for finding the balance between present and future happiness. Others are ways to raise your level of happiness directly--with research that proves that they work. (As an example, one of these is writing what he calls gratitude letters--a &quot;thoughtful examination of the meaning and pleasure that you derive&quot; from a relationship.)</p> <p>One of the most important aspects of being happy is finding satisfaction in your work. I've talked about this quite a bit here on Wise Bread, emphasizing the importance of choosing work that you find worth doing. Ben-Shahar offers practical tactics for this, as well as for changing the job you've got to be more satisfying, and (perhaps most useful) choosing to perceive the work you're doing as valuable.</p> <p>Let me finish this review with one bit that I marked when I read it, because I thought it captured the essential difference between the short-sighted, stupid hedonism that Ben-Shahar is talking about, and what I mean when I talk about hedonism:</p> <blockquote><p>Ideally, we want our entire day to be filled with happy experiences. . . . One of the common mistakes people make is that in their free time they choose passive hedonism over an active pursuit of happiness.</p> </blockquote> <p>Despite that one flaw--using the word hedonism to mean &quot;passive hedonism&quot; and not to mean &quot;an active pursuit of happiness&quot;--this is a wonderful book. If you'd like to live a happier life, <a href="http://www.amazon.com/gp/product/0071492399?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0071492399"><cite>Happier: Learn the Secrets to Daily Joy and Lasting Fulfillment</cite></a> is the best tool I've found so far to put yourself on the right path.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/book-review-happier">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-work-less-live-more">Book review: Work Less, Live More</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-reinventing-collapse">Book review: Reinventing Collapse</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-life-inc">Book review: Life Inc.</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-4-hour-workweek">Book Review: The 4-Hour Workweek</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-ragnars-guide-to-the-underground-economy">Book Review: Ragnar&#039;s Guide to the Underground Economy</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Career and Income General Tips Art and Leisure book review books cultivate happiness happiness happy hedonism key to happiness rat race review Sun, 22 Jun 2008 22:05:12 +0000 Philip Brewer 2178 at http://www.wisebread.com