Habits That Keep Us In The Rat Race

The “rat race” refers to the exhausting, repetitive lifestyle that many people find themselves trapped in, working hard but seemingly never getting ahead financially. It’s a cycle of working to earn money, spending that money on necessities and luxuries, and then working even harder to maintain or upgrade that lifestyle. Breaking free from the rat race requires an understanding of the habits that keep us stuck and the steps we can take to improve our financial position.

Living paycheck to paycheck is a common habit that traps people in the rat race. When you spend all or most of your income as soon as you earn it, you’re constantly dependent on the next paycheck to cover your living expenses. This cycle leaves no room for saving or investing, making it impossible to build wealth or achieve financial independence.

A survey by the Independent found that nearly 40% of UK adults were living paycheck to paycheck in 2022, with no savings to fall back on in case of an emergency. This creates a constant need to keep working just to stay afloat.

In our consumer-driven society, it’s easy to fall into the trap of mindless spending. This includes buying things you don’t need, upgrading to the latest gadgets, or making impulse purchases. Mindless consumerism is fuelled by the desire to keep up with societal standards, often leading to debt and financial stress.

The rise of “buy now, pay later” schemes has made it easier for consumers to make impulse purchases, often leading to mounting debt. The Financial Conduct Authority (FCA) has warned that many young people in the UK are falling into debt traps due to these schemes.

Credit can be a useful financial tool, but an over-reliance on it can keep you stuck in the rat race. When you constantly use credit to fund your lifestyle – whether it’s credit cards, loans, or financing plans – you end up paying high-interest rates and fees. This eats into your income and makes it harder to save or invest.

According to the Bank of England, the average UK household owed £2,213 in credit card debt in 2023. With an average interest rate of around 20%, this means paying hundreds of pounds in interest annually, money that could otherwise be used to build wealth.

Many people are so focused on their immediate needs and desires that they neglect long-term financial planning. Without clear financial goals or a plan for retirement, it’s easy to remain stuck in the rat race, constantly working with no end in sight.

A study by Scottish Widows revealed that over a third of Britons are not saving enough for retirement, with many not even sure how much they should be saving. This lack of planning ensures they’ll need to keep working well into their later years.

As income increases, many people fall into the trap of lifestyle inflation, where their spending increases in tandem with their earnings. Instead of saving or investing the extra income, they upgrade their lifestyle – bigger homes, nicer cars, more expensive holidays – which leads to more financial pressure and keeps them in the rat race.

Someone earning £40,000 a year who gets a promotion to £50,000 might immediately upgrade their car or move to a more expensive neighbourhood. While their lifestyle improves, they’re no closer to financial freedom because they’re spending every extra pound they earn.

Relying solely on active income – money earned through work – means you’re trading your time for money. This keeps you in the rat race because you need to keep working to earn. Ignoring the importance of passive income, which can grow and generate money without constant effort, limits your ability to achieve financial independence.

Many people focus solely on their day job for income and neglect opportunities to invest in assets like rental properties, dividend-paying stocks, or even side businesses that could generate passive income. Without these additional streams of income, they remain tied to their 9-to-5 jobs.

Breaking free from the rat race requires intentional actions and shifts in mindset. Here are some steps you can take to improve your financial position:

Creating a budget is the first step towards gaining control over your finances. A budget helps you track your income and expenses, ensuring that you’re not overspending and that you have money left over for saving and investing.

Use budgeting tools like YNAB (You Need a Budget) or Money Dashboard to track your spending and set limits on discretionary expenses. By consistently following your budget, you’ll be able to allocate more towards your financial goals.

An emergency fund is a crucial safety net that prevents you from falling back on credit or going into debt when unexpected expenses arise. Aim to save at least three to six months’ worth of living expenses in a readily accessible account.

If your monthly expenses are £2,000, your emergency fund should be between £6,000 and £12,000. This fund ensures that you’re not derailed by financial setbacks, allowing you to stay on track with your financial goals.

Prioritise paying off high-interest debt as quickly as possible. Use strategies like the avalanche method (focusing on the highest interest rate first) or the snowball method (starting with the smallest debt) to systematically reduce your debt load.

If you have a £3,000 credit card debt at 20% APR, focus on paying it off before other lower-interest debts. Once it’s paid off, redirect the payments towards your next debt until you’re debt-free.

Start building passive income streams that can generate money without requiring constant effort. This could include investing in stocks, bonds, real estate, or starting a side business that runs with minimal oversight.

Investing in dividend-paying stocks through a Stocks and Shares ISA allows your investment to grow tax-free. Over time, the dividends can provide a steady income stream, reducing your reliance on your primary job.

Resist the temptation to increase your spending as your income grows. Instead, keep your lifestyle relatively consistent and invest the extra income. This helps you build wealth faster and reduces the financial pressure to keep earning more.

If you receive a £5,000 raise, instead of upgrading your car, consider putting the extra money into a high-interest savings account or increasing your pension contributions. This ensures your wealth grows rather than your expenses.

Financial education is key to making informed decisions and improving your financial position. Regularly read financial books, attend workshops, or follow reputable financial blogs to stay informed and learn new strategies.

Books like “The Millionaire Next Door” by Thomas J. Stanley or “Your Money or Your Life” by Vicki Robin can provide valuable insights into managing money wisely and breaking free from the rat race.

Having clear, achievable financial goals gives you something to work towards and keeps you focused. Whether it’s saving for a home deposit, paying off debt, or retiring early, having specific goals can motivate you to make smarter financial choices.

If your goal is to save £20,000 for a home deposit in three years, break it down into monthly savings targets of around £555. This makes the goal more manageable and allows you to track your progress.

If managing your finances feels overwhelming, consider seeking professional advice. A financial advisor can help you create a personalised financial plan, optimise your investments, and ensure you’re on track to meet your goals.

An independent financial advisor can help you assess your current financial situation, create a long-term plan, and advise on the best investment strategies to grow your wealth and achieve financial independence.

Breaking free from the rat race requires a deliberate effort to change the habits that keep us trapped. By identifying and overcoming the tendencies that lead to financial stagnation – such as living paycheck to paycheck, mindless consumerism, and lifestyle inflation – you can begin to build a more secure and prosperous financial future. Coupled with strategic steps like budgeting, investing, and continuous education, you can escape the cycle of the rat race and work towards true financial freedom.