Ten Percent Rule? Is that all? Yet according to a CNN report in 2021, 76% of Americans are living paycheck to paycheck. In the book, The Richest Man in Babylon, George S. Clauson, wrote “A part of all you earn is mine to keep.” It makes sense. Why work 40-60 hours per week only to give it away to the government, bills, debts, and basic survival needs? Why not pay yourself first?
Pay Yourself First
Look at your paycheck. A lot of people get paid before you. Federal, state, medicare, social security, disability, and not to mention if you have any garnishments and liens. A lot of hands-on your money. Most people don’t pay attention to their gross income and only focus on the net. With that net, your credit cards, loans, family, and staff want your money. A vicious cycle that keeps people broke.
10% is the minimum you should pay yourself before you pay anyone else. Some financial advisors recommend saving 15% to 20% of your income. Build wealth now so you will not retire broke and have to go be a greeter at Walmart.
It amazes me how simple the Ten PerCent Rule is and people are unwilling to use it. Saving is not a priority. Excuses abound on why they can’t do it. “I don’t make enough money.”, “It’s too hard now.”, “I have bills.” Everyone has the same problem. Those who choose to build wealth will be financially secure in the future.
It took me years to adopt the 10% rule even though I read all the books on building wealth. I would save for a while and lose focus. I looked for the magic pill and shortcuts. There are no shortcuts to wealth. Even athletes and entertainers practice for years before they cash in. Lotto winners have to wait weeks before they spend their money.
Think saving is too hard? Now is the only time you have. Savings is a habit and if you don’t master this habit you will end up broke. You will have to stop working someday. Let your money start working for you.
How to use the Ten Percent Rule
Problem: Not enough money.
Solution: Start Saving 1% of your income.
More money will not solve your problem. People get raises every year and they are still broke. If you have been in the workforce for 10 years or more you have probably doubled or tripled your income since you first started working. So more money is not the answer. Most people get a raise every year and remain broke. Saving is the key to a better financial future.
Start saving 1% of your income. This is easy for everyone. If you make $3000 per month then put $30 into a separate savings account. A savings account where it will take a couple of days to withdraw the funds. This will deter you from spending it. This is an additional savings to your pension or 401(k) plan.
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Every month save an additional 1%. So in month two, you will save 2%, in month three you will save 3%, and so on until you get to 10%. This is a low-shock approach and will give you time to adjust your finances accordingly. If your finances are that bad that 1% will hurt you. Then stop reading and get professional help.
Problem: It’s too hard.
Solution: Make it Automatic.
I got this technique from The Automatic Millionaire, by David Bach. Make your savings automatic. Have it debited from your bank account on payday or have it taken directly from your paycheck? You don’t notice your taxes eating your paycheck and you will not notice your savings. There is no thinking involved. Just set it and forget it.
You will not feel the money leaving your hand. This is an easy way to self-discipline your savings plan plus you will learn how to live on less than you earn.
Problem: I am too busy.
Solution: Make Savings a Priority.
The Ten Percent Rule says you always pay yourself first. No matter what comes up. Being too busy to save just sounds foolish. When money comes in take care of yourself. Darn the bills, debts, utilities, and stuff. Do you really need more stuff? Build your reserves. Saving and investing require behavioral changes. You can’t keep spending and expect your money to grow.
When I turned 35 I started paying myself first no matter what. I had to cut expenses and create a cash flow plan, and I got professional help. I was able to pay off all my consumer debts and invest in several businesses. When I took care of myself I still had money to take care of the rest. Decide that you are going to pay yourself first from now on.
Saving money also gives you time to investigate investment and business opportunities. While your stash grows you can take the time to study wealth-building strategies. The right investments will produce enough cash flow for you to buy all the stuff you want.
Make the ten percent rule a part of your life. Stop living paycheck to paycheck and pay yourself first. You will thank me later for it.
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