When a person sets out to save, it is convenient for them to be clear about their savings objectives and to know through a leisurely analysis if these intentions are realistic and are in line with their expenses. In the same way, you can also choose to stick to an established method to help you reach certain amounts.
One of these methods is the ‘Greene formula‘, which takes its name from its creator, the financial analyst Kimmie Greene, who has developed a system by which it is determined what would be the money that a worker should have saved based on their age.
This method does not focus on numbers, but on proportions. Or what is the same: it does not give an exact amount, but what percentage of our gross annual salary is considered the correct one to have saved as soon as a specific period of our life is reached.
Saving is progressive, since it is understood that over the years the worker will find himself more likely to occupy a better paid position and less exposed to risks and eventualities. The ‘Greene Formula’ establishes that the best scenario to advance in your savings plan is to have 25% of the annual gross salary available at the age of 20 with the job at that time.
It is simply a starting point that, at times, can be difficult to achieve due to the inherent complications of the labor market, especially in the younger sectors. The first great challenge of this formula is the milestone that must be met by 30 years: get savings from 100% of our annual gross salary at that age.
It is the first milestone that others must follow later: the ‘Greene Formula’ contemplates that, from that moment, the worker has to save your annual gross pay every five years, at the rate of a 20% of that annual gross salary each year.
In this way, at 35 you must have twice the gross annual salary saved, at 40 it must be triple the gross annual salary, at 45 quadruple, at 50 years five times, at 55 years six times, at age 60, sevenfold and finally at age 65, when you can aspire to retirement, have an amount equal to eight times your annual gross salary saved.
Although the established deadlines are clear, one of the keys that Kimmie Greene gives is the flexibility: it is not necessary to adhere strictly to that annual saving of 20% of gross salary, nor is it essential to reach all savings milestones on time. This is because the income level of the worker throughout his working life can undergo changes and even the saver can suffer periods in which he is unemployed and his ability to save is very limited.
If the savings objective is demanding for the saver or, on the contrary, an even more difficult goal is imposed (Years ago Kimmie Greene spoke in an interview to the CNBC an example as extreme as retiring at age 40), the worker will be very difficult to avoid certain sacrifices.
Among these sacrifices, Greene mentions some such as moving the residence to a cheaper city, reducing expenses for travel and other forms of leisure or even delaying motherhood for a few years. They are drastic ways to avoid expenses that can be avoided if the savings objective is more in line with our reality.
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