The Money Problem, The Rat Race, And Golden Handcuffs

The Money Problem, The Rat Race, and Golden Handcuffs.

Throughout my early career I had people mention to me that I was smart. While that is a flattering comment, I would think to myself; “If I am so smart why am I still here” referring to my place of employment. This line of thought stems from the recognition that I was highly dependent on an employer. I later realized this isn’t the worst thing in the world but have long been intrigued by the fact that a smart guy like myself didn’t naturally solve this issue.  

What is The Money Problem and The Rat Race?

The “money problem” or “rat race” is simply a western culture idea that most people need to generate some money in order to make it through their day to day.

Why was it that I could solve all sorts of problems for other people yet was not in control of my 9-5 reality? That perhaps is a bad way to state it, I was in control, but I chose to remain in a job that also made me feel stuck. What was going on here?

Ok, so I’m not stuck, I choose to be in this job, yet part of me knows something is off. What’s off? Is it the justice of the value-added verses the compensation provided? Is that out of balance? Is it the freedom of schedule vs. the requirement to be at my desk? Was it the very nature of the work I was preforming?

Hmm…. Let’s look at each of those.

  • Money. The money was good so I couldn’t say I was under paid or unjustly paid.
  • Schedule. While requiring most of my day, my schedule also offered a good deal of flexibility, but I didn’t have the schedule I was used to in college. Who does?  
  • Work. Solving other people’s problems and dealing with a degrading workforce was frustrating at times but the nature of the work itself wasn’t out of line with what I am geared to do. Some days I really enjoyed how much I was challenged. The hardest part was the politics and culture.

Perspective, am I In the Race?

It wasn’t the pay, the time, or the nature of the work that was bothering me. In hindsight I surmised that I simply needed to mature a bit and realize that my situation wasn’t bad, and my perspective was off. This pacified me for a while, and I continued moving forward. It would take a handful of years and a great deal more thought to return to the initial question.

What was my end goal, what was my personal mission, and how is my current reality relative to those? I couldn’t answer this entirely. I knew much was lined up but not everything.

Alignment, Is My Job in Line with Who I Am?

I had alignment in my position and did well because of it. The way I am wired, my choice of education, and my fundamental entrepreneurial spirit allowed me to find success as an employee. At the time I didn’t realize it, but it was because I thought of my job as my business that I did well.

I was hired into a division that was just about to take off and the pains/needs of growth were everywhere. I got a front row seat to a brand that would eventually become the leader in its market space. I by no means was the reason this happened but I was greatly involved from its adolescence to its maturity.

I was hired before I finished college and brought on to do CAD modeling. I was considered “technical”, so it wasn’t long before I was given the task of building the website. Sure, I took a survey of computer class, but I had very little domain knowledge of the web. Fast forward a few years and a few sites later we were the number one result on Google for our direct competitors names and our customers had an online catalog at their fingertips. This may not sound like much by todays standards but at the time it was not the norm.

The point is that the company had a need, I had the ability, and with those aligned a great deal of value was brought to the table.

Opportunities Afforded by My Job

Starting off in life with a good employer is a great thing. A W2 income in likely one of the fastest paths to generating cash. Once out of college a great deal of people find themselves going this direction. I would advise many to do the same.

I would further advise someone to get in with an organization that is involved in a market that they have a passion for. The amount of experience and relationships that will build by means of working a W2 in your chosen industry is of great value. You can think of it as a risk-free way to lay the foundation for your future endeavors.

I don’t remember the book I read it in but somewhere it was mentioned that if you want to start your own business spend the first 10 years of your career working in the industry you want to get into. Once you have a decade under your belt you are then fit to entertain the idea of starting a business.    

Recognition of The Golden Handcuffs.

So, with everything good that it brought me why was I still chewing on the question: “If I am so smart, what am I doing here?”

Then it hit me.

I realized that the business of me only had one customer…. Holy Crap!?!  That’s it!!!

That customer paid well, paid on time, was very consistent, and great to work with. My family was provided for, and our quality of life was great. This customer provided a benefits package, paid me not to work a few weeks a year, and gave me money for a 401k retirement plan. All was well. In a lot of ways this was the best customer ever.  

The problem was that this customer was the only one I had. All my eggs were in one basket and while it was a cushy basket the fundamental risk associated with this arrangement was less than prudent. I was wearing golden handcuffs. 

Why didn’t I see this sooner? How could I let this happen? What was I thinking?

In part because my head was down, and I was building my career and in part because that is what the environment around me expected so I expected it. In the early days I didn’t realize the risk of having one customer being responsible for all of my income.

Many organizations establish limits to this. I have heard anywhere between 2% and 20% as the threshold. The point at which one becomes concerned that the tail can start wagging the dog.  

I hold multiple degrees so the amount of control this position had over me may sound a bit exaggerated. If fired, I would not have a problem finding another job. The problem was even in a new position I would be left with the same dilemma of having an income from only one source.  

Ok, now I understand the problem.

Anatomy of The Money Problem and the Rat Race

So, the money problem and the idea of the rat race was back at the front of my mind.

The rat race is a term often used to describe the idea that we spend our live spinning our wheels to ultimately not go anywhere. Day in day out we work and are stuck in a never-ending cycle that sucks our lives from us. A dependance on the wheel to make the money.  

My job didn’t suck my life from me so in that regard I was already outside the “rat race”. Once I established that my job was not the problem it was the larger picture what’s next?

Let’s break up what we have.

  1. We need cash (what it provides us) every day until we die.
  2. I would like cash (what it provides them) for my family after I’m gone.
  3. A job creates cash.
  4. If a job is the only source of cash, I am dependent on my job.

This is where many stop. They say ok I know all the above and as such will need to keep cranking the wheel. For many this is completely fine. They are content with this model and will keep showing up to play their role.

A Plan to Break Free From the Race and Solve the Problem of Money.

Applying fundamentals from the theory of constraints we can walk through a systematic way to address the above. 

The rat race and the money problem are predicated on a fixed model and as such provide us with a fixed number of solutions. Finding one’s way out of the race is accomplished through the following options.

  1. Save your way out
    1. Save 10%
    1. Save 20%
    1. Save 50%
  2. Invest your way out
    1. Early investor in equities
    1. Later investor in equities
  3. Real-estate
    1. 1 home
    1. 2 homes
    1. 3 homes
  4. Entrepreneurship
    1. Cash machine

Save Your Way Out Of The Race

For many this is the chosen path to exist the cycle. There is absolutely nothing wrong with this path. It is a slow path, but it can work. A person with a good income that lives well below their means can save their way out over the course of a career. Here is a quick over simplified example.   

Meet Berry. Berry has an average annual income (I) and started work when he was 20 years old. He lives off of 90% of that income and saves 10%. He worked 40 years and so we have;

40I X 0.9 = 36I Spent.

40I X 0.1= 4I saved.

…wait, that means after 40 years he has only 4 years of income to live off of. That won’t work, lets try that again.

Meet Gerry. Gerry has average annual income (I) and started work when he was 20 years old. He lives off of 80% of that income and saves 20%. He worked 40 years and so we have;

40I X 0.8 = 32I Spent.

40I X 0.1= 8I saved.

…well this is better. Terry will be 68 when he runs out of money but that won’t cut it. One more time.

Meet Kerry. Kerry has average annual income (I) and started work when he was 20 years old. He lives off of 50% of that income and saves 50%. He worked 40 years and so we have;

40I X 0.5 = 20I Spent.

40I X 0.5= 20I saved.

Kerry at age 60 will have 20 years’ worth of income to live off of. This puts him at 80 years old when he goes broke. 

Invest Your Way Out Of The Race

Savings alone is a very straight forward path but perhaps not the most effective. To invest one’s way out we will put that savings to work through investments to see if we can improve the end result.

Meet Merry. Merry decided early on to invest his savings in order to build up a buffer for her future life.

Like the others she started work at 20 and worked for 40 years. She put 10% (0.1I) of her income aside for the 40 years and realized an average 7% a year return. With a fixed income over the 40 years adding .1I to her investment earnings every rear result in final value of 19.96I. Total invested was 4I.

This means at age 60 Merry has roughly 20 years of capital. Or, in the same place as Kerry from above. I’ll bet Merry had a better quality of life along the way. 

Meet Terry. Terry is a lot like Merry in that he is an investor. He differs in that he is a late investor. Rather than starting the investment strategy at age 20 Terry waited ten years and started at age 30. He put 10% (0.1I) of his income aside for the 30 years and realized an average 7% a year return. With a fixed income over the 30 years adding 0.1I to his investment earnings every rear result in final value of 9.45I.

Ouch. While Terry followed Merry’s strategy his delay of ¼ of his working life cost him half of what he could have otherwise had.

So far Merry is our winner and the only one that looks to be able to afford a decent meal.

Real-Estate Your Way Out Of The Race

Meet Serry. Serry likes real-estate and always knew she was going to invest in rental properties. Like everyone else she started working at age 20 and saved up to buy a rental house. A home requires a down payment of 0.5I.

She saves 0.1I a year and at age 25 buys her first rental. This rental has a value of 2.5I and will generate an annual cash flow of 0.1I after debt service. To keep this simple we will say that rent increases 3% a year and the asset value of the home will increase 3.5% a year.  

After 35 years the home will be worth 8.05I and the rent collected would equate to 6.05I. This would mean at age 60 with only a 0.5I investment when she was 25 Serry has assets totaling 14.1I.

This assumes she only bought one home. Let’s see what happens if she buys another at age 30.   

Doing the same thing 5 years after her first purchase the second home would only have 30 years to appreciate. This would yield rents collected of 4.76I and a home value of 6.78I. So home 2 added 11.54I to Serry resulting in a total of 25.64I.

To recap Serry has invested a total of 1I over 10 years (0.5I for each home) into real-estate and with two rental properties has done better than anyone we have met up to this point.

If we add one more home to her list again 5 years later, it will only have 25 years to appreciate. This would yield rents collected of 3.65I and a home value of 5.71I. Total for Serry for all three homes and rent collected would be 35I. Her total investment 1.5I    

All of this is of course overly simplified but you can see how the return on investment could be quite large. Finding the right house at a good price that is cashflow positive is not always the easiest thing to do. I can speak from experience and tell you that it is quite possible.

Build Your Way Out with Entrepreneurship.

Up to this point we have leaned on some degree of passive growth to be the lever that gets us to where we want to go but what if we were to take a more active role? What if we could build a business that generated 1I every year?

How many businesses with 1I of earnings would you need to retire?

Well 1 of course. If every year the business generates an equivalent amount of what you need to live off of than that business is your ticket out of the race.

This would take a great deal of effort, seed capital, and a whole lot of problem solving but it could be done.  

Meet Jack. Jack is a “I’m going to run my own business someday” type of guy. Like the others he started working at age 20 but didn’t make as much as the rest. His annual income was a bit lower than the rest; we will say 0.9I. He was a hard worker though and he pushed for 10 years saving and learning everything he could about his industry. After these 10 years he was able to save a bit under 1I. He used this as his seed capital to start a company that filled in some gaps he knew the market had. 

Year one wasn’t that great. He didn’t starve but he was not high on the horse. Total income was 0.4I. Year two was better and the systems he put into place and the relationships he built got him to 0.8I. He was still not where he would like to be, but the growth kept him going. When year three came he broke through the 1I income mark and was now making more than he consumed each year. He was out of the race. 


When we think about the money problem and the rat race, I don’t know that we always frame it appropriately. I know I didn’t. It wasn’t until I had income from each of the above routes that I began to feel the dynamics that are in play. I would do my taxes and see where money was coming from, where it was going out, and how much time I spent for each source. My life began to transition. I realized I didn’t have to keep all my eggs in one basket but I also didn’t need to throw my W2 basket away.

These realities are not something that the educational system teaches. Money matters are not something that the education institutions focus on. Its likely that a great deal of you life will be spent generating revenue via going to work. I don’t believe this is bad, in many ways it is quite good. I do believe it is foolish to not question your current reality and at a minimum think about the options you have. I hope this was helpful and would love to her from you guys about your experience and path.

Onward & Upward!

Wherever you are on your income journey be sure to check out The Four Stages Of Wealth Creation; From Clueless To Capitalist. We put this together as a guide for those looking to grow their financial acumen and take their next step towards financial independence.

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