According to an article on CNBC, most Americans plan to retire at 62 years old. However, the average life expectancy in the US is 77.3 years. This means, most people plan to spend the majority of their lives working in the accumulation phase, yet will receive just 15 years of financial freedom in exchange – talk about a bad rate of return!
Also, these statistics are based on averages. Half of the population won’t have enough money to retire at 62, just as half won’t make it until their 77.3-year-old birthday. If you happen to fall on the wrong side of either statistic, let alone both, then your time is even more precious!
Life is short and it’s human nature to want to live well while you’re on Earth. Unfortunately, many people’s version of living well gets taken to extremes. They purchase vast quantities of material goods and other status symbols which puts them in debt, forcing them to work for years paying it off!
To live the life you want and have the experiences you dream of, you need time and money. Luckily, you can have more of both, depending on how you manage your finances during the accumulation phase!
If you’re like most employees, the accumulation phase is the longest stage in the wealth-building cycle. Typically, you’re in it for 40 years, but sometimes it’s even longer!
The accumulation phase gets characterized as the years that you spend creating wealth. It generally begins once you start working and earning money. At this point, you may have discretionary income for the first time and the choices you make with it can impact your life for years to come!
As most people begin making money, they face temptation. In an effort to appear successful, they buy goods that make them look rich and wealthy. More often than not, they take on debt in the process as well.
With debt and its large monthly payments, they need their job more than ever. Without it, they’d be unable to pay their bills or keep up their charade. As a result, they become handcuffed to their job!
Many people will spend the majority of their lives working because they’re living beyond their means. Others may be able to save, but when they do, they spend it on liabilities that they think are assets. They purchase larger homes, nicer cars, and fancier clothes which give the illusion of wealth but in reality, these items keep it at bay. Consequently, they get stuck in the accumulation phase and end up wasting some of the best years of their lives!
It’s clear to see that you’ll face a multitude of obstacles during the accumulation phase. You can plan and manage some of them, but others will take you by complete surprise!
Other than avoiding credit card debt, one of the best ways to safeguard your finances is by building an emergency fund. With it, you’ll have a cash cushion to pay urgent bills or if you experience a loss in income, it can cover your monthly expenses. No matter how it gets used, having it will give you peace of mind and help you remain calm while you’re in the midst of a personal financial crisis!
The average person plans to work from roughly the time they’re 22 until they’re 62 years old. During this time, they’re trading the most mobile and healthy years of their life for an income. Once they can retire, they’re often too old or are in poor health to do the things they dreamed of when they were younger!
On top of that, many of these people don’t even enjoy the work they’re doing. But they must continue to stay afloat. They may not realize that their poor money management skills contribute to the situation they’re in either. Instead of being able to chase their dreams, spend time with their family, or experience the things that money can’t buy; they have to go back to work!
In the accumulation phase, the lifestyle you choose has a large impact on your future. By deciding to live above your means, you’ll have to work longer and spend more time paying off debt. However, if you decide to be frugal with money and have the financial discipline to invest it, you can live as you want sooner than you would otherwise!
In personal finance, it’s a common money myth that you have to work until you’re a certain age, like 62. But in reality, you don’t. Working becomes optional once you’ve accumulated enough assets to sustain your desired standard of living. Unfortunately for some people; this is a day that never comes!
Whether you realize it or not, the amount of time you spend in the accumulation phase is within your circle of control. You get to decide:
Making changes to one or many of these variables affect how long you’re in the accumulation phase. For instance, by choosing a high standard of living today, you’ll have a high burn rate and less money to put towards the future. Not only that, but you’re going to need to build a larger nest egg to support your lifestyle which will consume even more of your time!
For one reason or another, most people want the option to retire sooner, rather than later. No matter your motivation, you need to have a high savings ratio. The higher it is, the less you need to earn to live and the more you have to save.
With greater savings, you’re able to buy more assets. Over time, they’ll grow and compound into larger amounts. As these financial gains mount, your retirement date becomes earlier and earlier!
After you’ve built independent wealth, the accumulation phase ends. You no longer have to work for money or even save it for that matter because you have enough. Now, you transition to the asset decumulation phase, where your focus shifts to the preservation of wealth.
The goal of the accumulation phase is to reach the point where work becomes optional. The amount of time it takes you gets determined by your choices, lifestyle, and financial strategy; not your age!
Spending large amounts of money will prolong the time you spend in the accumulation phase. But, with a budget that’s geared towards saving and investing, you’ll spend less!
How are you planning to spend less time in the accumulation phase? Comment below.
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