Invest Money to Buy Your Freedom – Escape the Rat Race!

I know many people working in jobs they hate. They find the work that they do soul-crushing but they have to do it in order to put food on the table and pay their bills. For them, quitting their job is an almost impossible task as by leaving their work, it could take a month to find a new job and the chances are extremely low that they will find a job that they like. So many stay at their same job till retirement.

If you are in this position, retirement may seem a lifetime away. So if you are in a soul-crushing job that you absolutely dislike, it should be your number one priority to get out of that situation as soon as possible.

“The goal isn’t necessarily to retire, but rather being able to retire. Having enough money to retire in our 40s gives us the freedom to choose what we do. It could be to work in a venture for personal and professional achievement. Or it could be freeing up time for hobbies outside work.” Harry Sit

The main reason you and countless others like you stay in a job you hate and can’t afford to quit is money. If money was no object, you would hand in your resignation letter first thing tomorrow morning.

So if the goal is to get more money so that you can buy your freedom and quit, the question naturally is – Why don’t you just buy more money?

The general population has a love-hate relationship with money. They resent those who have it but spend their entire lives attempting to get it for themselves.

The reason a vast majority of people never accumulate a substantial hoard of money and can’t figure out how to ‘buy more money is that they don’t understand the nature of money or how it works.

Cash, like a person, is a living thing. When you wake up in the morning and go to work, you are selling a product – yourself (or more specifically, your labour). When you realise that every morning your assets wake up and have the same potential to work as you do, you unlock a powerful key in your life.

Each dollar you invest is like an employee. Over the course of time, the goal is to make your employees work hard, and eventually, they will make enough money to hire more workers (cash). When you have become truly successful, you no longer have to sell your own labour, but can live off of the labour of your assets.

You can see the importance of investing and income-generating assets in buying your freedom. Investing in money generating assets gives you the ability to buy more money.

Say you invest £100,000 in a house and rent it out for £1,000 a month. At the end of the first year, you will have £12,000 whilst still having the £100,000 house. You have essentially just bought yourself money. And it is not a house, it could be investing in dividend-paying stocks, a low-cost index fund or simply lending out your money. You see, income-generating assets are the key to building wealth and buying more future income.

What’s even better is that you can invest in money-generating assets and take a truly passive approach i.e. you keep getting a stream of income for not doing any work. Take the example of the house I gave above, most people would never want to own a house as an investment because of all the work associated with it.

It can be a hassle to find good tenants, constantly run around to fix things and have your tenants consistently pay you on time. But this is where property managers come in. You can have them manage the property for you for a fee and in essence, once you make the original purchase of the house, you can sit back and let the money roll in without having to do any work.

Again, this passive approach is not exclusive to property investing. You can get passive income via a number of sources. I for one like the dividend investing approach and that is why I have chosen this route to financial freedom.

If you want to be free, passive income really is the key. You need to build an income stream that is unrelated to your time or effort. By investing money and letting your passive income cover your expenses, you can reach a point where you do not have to work anymore if you chose not to whilst still earning income for doing nothing.

Here is an example of using a passive low-cost index fund to cover your expenses and buy your freedom.

Let’s say you earn an average of £30,000 a year and have expenses of about £14,000 a year. This means that you need to have a passive income of at least £14,000 a year to be free.

If you hate your job and want to get out of the rat race as quickly as possible, the best thing to do is to invest at least 50% of your income – £15,000 a year.

That sounds like a lot but if I can do it, so can you. It will be hard and you will need to delay gratification – delay spending now for bigger rewards in the future. You might say that delaying gratification is a big sacrifice. But what’s the bigger sacrifice – living below your means or working your entire life? For without delayed gratification and investing, you might just have to work in a job you hate till retirement.

Let’s leave the other £1000 out at this point as you can use this to reward yourself for meeting your investing goals.

So your income of £30,000 can be broken down as follows:

  • £14,000 to pay your expenses.
  • £15,000 put towards saving and investing.
  • £1,000 for you to reward yourself for investing £15,000 a year or to use as “fun money”.

By saving and investing £15,000 a year in a low-cost index fund earning an average of 8% a year, you could essentially retire in 12 years. This is because your portfolio value will be £296,847 after 12 years. If you then moved your portfolio into dividend-paying stocks yielding 5%, you can have £14,842 a year of income.

This will meet your expenses as you are already living on less than £14,000 a year.

The great thing about dividend-paying stocks is that you do not need to sell the stock to realise value. You simply keep the stock and let it pay you a growing stream of cash every year. Solid dividend stocks tend to increase their payouts year on year and this means that your money not only keeps up with inflation but outpaces it.

Now I know saving £15,000 is high but it is the price you need to pay in order to get to retire early. If you make the above mentioned investments via a pension, you only need to put in £12,500 to reach your goal as a basic rate taxpayer as the government tops up £2500 on your behalf and if you are a higher ratepayer, you only need to contribute £10,800 as your contributions and tax deductions would be equivalent to £4320.

Furthermore, if your employer offers a pensions match scheme where they match your contribution to a certain limit, you should grab this opportunity as it will reduce the amount you personally need to invest. Depending on your workplace scheme, it could mean that you only have to personally put in £10,000 and the government top-up and workplace match could contribute the other £5,000. When you look at it this way and consider all the options available to you, investing £15,000 doesn’t seem as daunting as before.

Just know that with each Pound (£) you invest, you are buying yourself freedom.

When you think about money in this way, you see how spending £10 here and £20 there can make a huge difference in the long run.

Since money has the ability to work in your place, the more of it you employ, the faster and larger it will grow.

Along with more money comes more freedom – the freedom to stay home with your kids, the freedom to retire and travel around the world, or the freedom to quit your job.

If you have any source of income, it is possible for you to start building wealth today. It may only be £50 or £100 at a time, but each of those investments is a stone in the foundation of financial independence.

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