In my last posts, I introduced the concept of the Rockefeller Formula, which allows you to live a wealthy life by automatically transferring a percentage of your income into a wealth account.
Here I’ll explore the first of these accounts, along with the percentages that should be allocated to it. I have to let you know first, however, that eliminating high-interest debt should be your first priority. Only once that has been taken care of should you move on to setting up these accounts with automatic transfers:
Account #1: Wealth Capture Account With 5 Day Weekend Lifestyle
A Wealth Capture account is a way to automatically grow wealthier every month. It works like this: Create a “sweep account” with your main checking or savings account—wherever your income is deposited each month. Then, set up an automatic transfer to sweep a percentage of your income, on the day it is deposited, into a savings account. This is your Wealth Capture Account.
Ideally, we recommend that you save 15% of your income into your Wealth Capture Account. If that sounds like a lot, don’t worry. You can start smaller and work your way up to 15%. The important thing is that you’re growing wealthier every month.
For example, if you know that $3,000 will be deposited on the 1st and 15th of every month, you can set up an automatic 15% ($450) transfer into your Wealth Capture Account on the 2nd and 16th of each month. With this example, you’d have $900 transferred into your Wealth Capture Account after the first month, $2,700 after the third month and $10,800 after one year—all automatically.
Your Wealth Capture Account serves as both your emergency fund and your opportunity fund for accumulating capital with which to invest. You’ll maximize the opportunity through Garrett Gunderson’s Rockefeller Formula, which we will explain below, to fuel property and other investments.
Why Save 15%?
The 15% isn’t an arbitrary number. It’s a percentage based on several factors that must be taken into consideration to build sustainable wealth. Specifically:
- 3% for Taxes: Have you ever been surprised by a tax bill that you couldn’t cover? Your Wealth Capture Account takes care of that.
- 3% for Inflation: Inflation, which erodes the value of your money, generally averages about 3% (conservatively).
- 3% for Technological Change: As technology improves, prices generally fall, but we tend to buy it more frequently.
- 3% for Propensity to Consume: What start as luxuries quickly become necessities. For example, it wasn’t that long ago that no one had a cell phone. Now everyone does— even homeless people. Once people get used to a certain lifestyle, they rarely are willing to give it up.
- 3% for Planned Obsolescence: Household goods and appliances break down and need to be replaced.
By planning and saving for these predictable and unavoidable things, we’re able to build wealth even despite such unpredictable events.
Next, I’ll look at another important account – the living wealthy account.
I’d love to hear from you – how do you go about saving your money? Is it automatic? Do you have another system? Thank you for sharing.
Secure your copy of the “5 Day Weekend” book. 5 Day Weekend: Freedom to Make Your Life and Work Rich with Purpose [Nik Halik & Garrett Gunderson]