April '07, Questions from the Field
Most importantly when your income spikes again you will be ready and the system will be in place to allow you to maintain your current standard of living and really accelerate your wealth accumulation.
Dear Coaches:
I’m a little slow after the beginning of the year. Regarding the Seven Accounts System, if income has dropped temporarily, can I decrease the amount of money that goes to the debt and wealth accounts, but still put money in them weekly to keep up the accounts and the habit?—Dr. A.
Dear Doctor A:
Great question!
The short answer is YES; when circumstances dictate, modifications in savings strategies needs to take place. However, the way the Seven Accounts System works is really based on percentages of collections once fixed expenses have been met.
For example: if you collect $6,000 a week, pay your overhead of $2000 that week, you have a “profit” of $4000 for that week. This is your taxable income; depending on your tax rate, at say 35%. You would deposit $1400 into your tax account. This would leave $2600 to fund the rest of the accounts. If you need $1600 a week to meet household expenses on average then this amount goes to the House Acct. Leaving $1000 to fund the remaining four accounts. 50% to debt reduction, 25% to wealth accumulation and the remaining 25% split between the fun account and the giving account.
While the old adage “pay yourself first” sounds great and makes sense, it is not always a realistic way to handle your finances. I like to say “Pay yourself at the same time”. Forget to pay your rent, taxes or other expenses for very long and you probably won’t be in business.
So, back to your question: when your collections drop temporarily you would still apply the same % to the lower tier of accounts. If your collections are off $500 a week you would simply apply the same %’s but with a lesser amount to begin with. You would then deposit $250 into the Wealth Acct. instead of $500 as in the first example and follow the same formula for the remaining accounts.
I really like the way you are thinking here doctor. This is really the key to staying on track with your plan. By computing these % every week you accomplish many other benefits: your tax savings is already accounted for and set aside. You maintain the “Savings Habit” by not missing a week you tend not to slip from the habit. Most importantly when your income spikes again you will be ready and the system will be in place to allow you to maintain your current standard of living and really accelerate your wealth accumulation.
Stay this course and I will guarantee you will be a million!