In these difficult times, what is perhaps needed is magic to deal with obstacles to life’s enjoyment or otherwise to sail smoothly towards a worry-free retirement time. Come to think of it, the principles of wealth accumulation can really turn magical if done with flair and, the most essential of all, discipline.
A recent survey of contemporary America showed that about half of Americans do not believe they could retire with enough money in their pockets. In fact, only one in seven of those surveyed indicated readiness to retire as planned, with the rest of them expecting to continue working beyond the retirement threshold.
These findings were confirmed by actual figures of retired workers showing that as many as 90% of them continued to work past retirement not because they wanted to but because they needed to. This typified lifestyle of the retired worker is confounded by the ever increasing costs of medical care, which ironically becomes more pronounced as one approaches the more senior years.
While these figures stare at the face demanding perhaps a confrontation with great courage, this piece shall not attempt to engage but instead opt for the prevention or avoidance of such a situation. A deep analysis of people who have come to grips with this reality would show that enough opportunities are always available in the early years to prevent it from happening.
In fact, sufficient studies have shown that the most common cause of the failure to accumulate is lack of initiative and discipline. If a knowhow was absent then as point-object for this initiative and discipline, let it not be said that there is none now. Here is a suggested formula for accumulation that can turn magical if done as recommended.
The GAINS Formula
GAINS is acronym for “generating active income surplus.” At the height of one’s earning capacity, most often, the ebullience of youth drowns the earnings with the joy of spending, a typical present enjoyment syndrome of most people. When this happens, the “surplus” or the difference between the earnings and expenses gets narrower and narrower as spending becomes a joy by itself, and none is left for the crossing. This is brought about by the combined effects of procrastination, oversight, indifference and sometimes ignorance of the need.
What is therefore needed is an organized system of accumulation that should begin with the GAINS formula. The GAINS formula is more than just the equation W = I – E, where W is the net wealth, I is the income and E is the expense. The formula comes with a procedure:
- Examine income: amount, sources, potential sources
- Examine expenses: amount, description, nature
- Determine net wealth: W = I – E
- Make sure that this operation results in a net wealth of at least 10%.
- If not: a.) Maximize income potential. Examine how to increase income from present and potential or alternative income sources. Aim for an increase of at least 10%. b.) Minimize present expenses. Examine current expenses with the aim to give up or reduce on the unnecessary and focus only on the necessary. Aim to reduce current spending by at least 10%.
- Whatever the result of No. 5, create a savings deposit account with the label “GAINS account.” This should serve temporarily as the emergency fund, if there is none yet.
- The result of No. 5 must be subject to a forced savings of 10% of monthly income.
- That is, if the GAINS achieved is more than 10%, well and good. If not, implement a disciplined use of the 100-10-90 earn-save-spend ratio.
- When you have accumulated enough for at least three months of emergency fund, you are ready to take a look at the grander picture. Engage a professional financial advisor so that you get the benefit of professional guidance and advice. Prefer an advisor who has a life insurance background. Life-oriented advisors are more conservative and will help you work more securely and safely with your money.
——-(Orlando G. Javier LUTCF is a retired financial marketing executive. He is a leading advocate of financial wellness, a desired life state achievable through his much-acclaimed Trigon Accumulation Model. Follow him at <a href=”http://www.ogjwealthtrigonomics.blogspot.com”>wealthtrigonomics.com</a>).
——-You may also want to check out:
There is No Money in Your Comfort ZonesThe True Meaning of TimeFive Retirement Mistakes to AvoidFive Steps to Wealth Accumulation
Published in: Personal Finance