The X-Curve Concept
Correlating age, wealth, and responsibility.
We all have responsibilities as we age, but have you ever considered how it relates to your age and wealth-building opportunities?
In this edition of the Rat Race Running newsletter, we’ll talk about an important personal finance principle called the X-Curve Concept, which I learned from a financial literacy company called IMG in 2016.
What is the X-Curve Concept?
The X-Curve Concept is a graphical representation showing the relationship between how our responsibilities change through the years in inverse proportion to building our wealth.
Simply put, it shows how our responsibilities decrease and our wealth increases over time.
The drawing of two intersecting curves represents this simple concept. The X-Curve is mainly divided into the responsibility curve (red) and the wealth curve (blue).
The Responsibility Curve
The red curve represents the Responsibility Curve. It shows that our responsibility is higher while we're younger and gradually decreases as we grow older.
It is noticeable that many young adults enter the workforce with the weight of family responsibilities, like supporting their parents and siblings.
Then within a few years, they will start a family of their own, adding to their existing duties -- creating a sandwich generation.
However, it eventually starts to lessen since familial obligations will soon be shared or diminished, and children grow up.
Though it is simple in theory, many variables affect a person's responsibilities, especially with the Filipino culture's closer family ties.
The Wealth Curve
The blue curve represents the Wealth Curve. It shows that our financial capability is lower when we're younger and gradually increases as we grow older, provided that we make the right financial decisions.
For instance, fresh graduates enter the workforce with a lower salary while learning the ropes of the industry and slowly inch their way up to their career ladder to increase their incomes, savings, and investments.
Eventually, their portfolio will increase with proper money management, a high savings rate, and effective investment strategies.
The Wealth-Responsibility Crossover
At the center of the picture is the intersection where the wealth and responsibility curve crosses over. At that point, your responsibilities start to decrease while your ability to create wealth increases.
Unfortunately, some people will never see their crossover point if they don’t grab the opportunities presented to them.
That’s why doing the right things today is crucial to building the habits that will place that crossover point closer to your present self.
Final Thought
The X-Curve Concept may appear simple in theory but is complicated in practice. There are many variables to consider, which can even be beyond our control.
The good thing about our generation is we now have the power of information through the Internet and can apply more concepts such as this to escape the rat race.
Key Takeaways:
The X-Curve is a principle shown through a graph relating how responsibility and wealth changes over time.
The responsibility curve shows that you have more responsibility when you are younger and decreases over time.
While the wealth curve shows that your wealth is lower when you are younger but increases eventually as you grow older.
What’s next?
On a blank sheet of paper, write one SMART goal you want to reach before the end of the year with one practical step that will put you closer to it.
For example, I want to save P12,000 by December 31.
Practical step: I will lessen eating out and use that money to save at least P2,000 monthly.
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