What was the first thing you thought about the last time you got a raise? Was it to increase your savings, or to increase investment or to satisfy an immediate want or need? If we’re being honest, we’ll see that a lot of people think about satisfying their immediate needs and wants first when they receive a higher income as opposed to saving or investing more. A lot of people get stuck in the financial ‘rat race’ which is a continuous competitive struggle to gain financial independence but to successfully escape the rat race, it is important to understand the concepts of Inflation, Savings, and Investments. What is Financial Independence? Financial Independence is the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others. Income earned without having to work a job is commonly referred to as passive income. As mentioned earlier, it is important to understand that money saved in the bank accrues little interest rates and is subject to inflation. Therefore, the purchasing power of the money saved over time reduces. Don’t get me wrong, saving is good. Savings are meant to help you take care of unforeseen circumstances and provide you with liquid cash backup. It is just important to make sure that part of your savings goes into investments that generate more passive income for you. Common ways to build up one’s passive income portfolio include investing in treasury bills and bonds, investing in the stock market, investing in real estate and so on. It is important to note that you should only invest in what you have knowledge of and not just following the bandwagon. If you believe you have poor judgment when it comes to making investments, you can rely on investment firms to give you the best possible options to invest in. Asides making investments to generate passive income, escaping the financial rat race also has a lot to do with living a prudent lifestyle. A lot of people may think that the more you earn, the higher your savings which is not always the case. In reality, the more you earn, the higher your taste. You can now afford things you couldn’t initially, therefore savings don’t necessarily increase. Living below your budget may seem difficult at that moment but it pays off eventually as it enables you to save more, therefore, allowing you to invest more as well. To truly gain financial independence and escape the ‘rat race’, it is important to have the financial knowledge and be aware of available investment options. Basically, you need to know about money and what it can do for you; once you do, let it work for you, so you don’t have to work again.