How to escape the rat race…

There is no getting around it, the very reason some of us devote our life to a FIRE way of life is the ultimate Financial Independence part, so that we have the option to Retire Early.

The Financial Independence part is basically driven be capital income as opposed to labour income. So the goal is basically to reach a state where your capital and the associated capital income can cover your living cost.

Off course there are multiple ways to reach that state. Pile up on capital and invest it wisely to yield significant returns, or turn your living costs way down. I am hoping mainly for the first part in my FIRE journey.

As part of this capital accumulation in our family we are faced with all sort of questions revolving around this capital. One of them off course being TAX.

We went for a walk today, my wife and I, and as the talk progressed, we off course got to talk about which capital forms to put our money in, and which is better from a tax point of view. Given the various tax brackets and different taxable treatments of various capital forms, then what should you optimally do – from a tax perspective. This will differ from person to person, and country to country, but that is also not really the interesting part of this story.

The interesting part, came, as we came home and I googled something like; what’s the optimal capital structure in Denmark from a tax perspective?

And hear this – google answered. With a lot of completely useless links though, but right there in like 3rd or 4th place was a seemingly interesting one – it turns out that the Danish Economic Council had written a lengthy piece on the topic of taxable treatment of capital in Denmark. I got caught.

But boy, was that depressing reading. From a FIRE perspective that was absolutely depressing, as they had done examinations of positive capital income for the entire danish population.

The first borrow picture, was a figure showing (equalized) taxable capital income plotted against percentile distribution of disposable income. An absolute horrow show showing that the higher a families(35y/o) income become, the higher their negative capital income also is.

So in a bid to keeping up with the Jones’s, families increasingly pile on debt, resulting in increased negative capital income. (On average).

Figure 1. Equalized capital income for 35 y/o’s vs. disposable income.

Also, do note that for 35 y/o’s there is not a single percentile with positive capital income.

The next horror graph was a picture of average capital income plotted against age of the population. It is so depressing to see, that Average Joe in his Average Family will not reach positive capital income before roughly 75 years.

Figure 2. Avg. capital income vs. age.

Off course there will be some outliers in each generational cohort, but on average this picture is just depressing.

Let us just remember here, that the goal for any person pursuing FIRE is to replace labour income with capital income in some shape or form.

Last picture, that I have chosen to bring is one of capital income plotted against distribution of disposable income.

The depressing part here is that if you are not among the 1% of highest income earners, then you will most likely on average have negative capital income.

Figure 3. Capital income vs. disp. income.

Let is not get too down on viewing these graphs. They are off course averages, which means that there will be some above and some below these averages. If you are reading this blog, chances are that you are most likely not contributing to these negative averages. But it also just confirms, that the average guy in an average family is destined for a life in the corporate treadmill, with very slim chances of realizing the American dream – or danish dream.

You can find the full report here (in Danish)

What is your choice in life? How do you intend to escape the rat race?

~This post contains affiliate links, meaning, at no additional cost to you, if you click through an affiliate link and make a purchase, I may make a commission~


Please check out these excellent ressources for adopting a financially independent & minimalistic lifestyle;

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