The 10% Rule
You’ve heard it a million times: Put 10% of what you earn into the bank. People who consistently save 10% of their income and stick it in an interest-bearing savings account usually manage to build up a nice nest egg, even if they aren’t huge earners throughout the years. You may have heard stories about life-long waiters or seamstresses who retire quite comfortably despite having earned a salary that was considered very low. How did they manage to get so much money in the bank even though they had low incomes? It’s because they saved money and allowed compound interest to do its magic.
If you don’t actively save your money for a rainy day then it’s likely that there are two reasons for this:
1. You don’t think you can afford to put 10% of your income into a savings account. Most people, however, actually can afford to put more than 10% into a savings account without much belt-tightening at all if they actually take a look at how they spend their money.
2. You don’t think that 10% can amount to much, so why bother? Although it depends largely on when you start putting 10% away - whether it’s in your early twenties or late fifties, for example - a small percentage of your income can make a big impact later down the road. Put this thought into your mind: It’s far better to save a small percentage than nothing at all.
Even if you can’t save a full 10% of your income right now, start saving something. Save regularly and make it a habit. It’s great if you can set up an automatic withdrawal from your paycheck or checking account so that you don’t even have to put much thought into it. In fact, for many people, it’s better when they don’t even notice the money moving from one place to another. It just happens automatically and before they know it they have a respectable savings account built up.
Should you put away 10% of your income before or after taxes? If you’re in the financial position to comfortably afford putting 10% of your pre-tax income into savings then by all means do…but if you can only afford a 10% savings after taxes then don’t let that stop you from doing so.
Just save something.
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