Beyond the influence that the monetary income and lifestyle of each person may have, the “Greene Formula” -created by the economist Kimmie Greene- establishes the kick to maintain consistency and establish healthy habits regarding personal finances.
What is the “Greene” formula about?
To apply this action, Kimmie considers that this should be done from an early age so that, when a certain amount of money is needed, it does not cost so much to obtain it and its benefits can be enjoyed.
This habit works by challenging the worker to meet a series of goals throughout his life. That is, when you reach a certain point, you should have saved certain levels of annual salary.
On the one hand, the objective is to help you know if you are saving enough and, on the other hand, it also forces you to think more intelligently about the expenses and the use to which the money is put.
However, this method is not rigid, but rather flexible: at some stage of life there will be less income than expected and in the same way in other stages of our career (they are usually in more adult ages) there will be more options to have higher salaries.
How to apply “Greene” to save in the long term
It should be clarified that this model provides proportions of the annual gross salary that, instead of being applied to consumption, leisure, rent or bills, must be used for savings.
The necessary base to implement this formula is to start from a young age and have a fifth of the annual salary saved at the age of 20 (20% of the total) and, with that, reach the age of 30 with 100% of the gross annual salary saved.
From there, Greene’s method consists of saving an annual salary every five years, increasing the savings capacity so that at 35 years of age we have double our annual salary, at 40 years triple, at 45 years quadruple, and so on, until reaching 65 years of age, retirement age.
In this way, according to this theorem, a worker can reach retirement age with available savings equivalent to eight times the gross annual salary.
- At age 20, the worker should have saved 20% of their current annual salary.
- At age 30, the worker should have saved 100% of their current annual salary.
- At age 35, the worker should have double their current annual salary in savings.
- At age 40, the worker should have three times their current annual salary saved.
- At age 45, the worker should have saved four times his current annual salary.
- At age 50, the worker should have saved five times his current annual salary.
- At age 55, the worker should have saved six times his current annual salary.
- At age 60, the worker should have saved seven times his current annual salary.
- At age 65, when the retirement age arrives, the worker should have saved an amount equal to eight times his current salary.
Source: Ambito
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