Fatten Your Purse: The 10% Rule

If you want to build wealth, start with the 10% rule. Here’s the first installment of our financial planning series about maximising your savings.

When the financial planning experts at Silver & Young Private Wealth talk about fattening your purse, we mean giving yourself the freedom to live life the way you choose to.

While achieving your goal of living a financially comfortable life may not be easy, the good news is that it’s definitely achievable. All it takes is a little work and self-discipline.

How to fatten your purse

Imagine you are feeding a wild animal more food than it needs. The animal takes the food and turns it into energy. First, it takes the energy it needs to stay alive and ticking. After this, it still has energy left.

What it does next is key to fattening your purse. The animal takes what remains after its essential energy and builds more muscle and fat to optimise its strength. Having more than it needs allows it to grow stronger and healthier.

Overfeeding is the principle that fattens a purse and builds wealth. You want your purse to have more than it needs to be strong and healthy. The only way to do this is to give it more than it needs.

You may feel as though this is difficult… so let’s start small.

The 10% rule

Any good financial planning expert will tell you the 10% rule is the strongest, simplest, and most effective way to start storing money to use later.

Make it a habit to take 10% of your wages or salary every pay cycle and put it away in a separate bank account. If you earn $1,000, put away $100. The $900 you have left is for your expenses, but the other $100 goes away and mustn’t be touched.

“OK,” you might be saying now, “That is not as easy as it sounds. How can I put away 10% of the money I earn every pay cycle?”

Well, whoever said it was going to be easy? Nothing that pays you long term benefits is ever easy. Make a start, though, and you may find that you create a habit.

Human beings are very adaptable. If you know that you only have $900 rather than $1,000, you will find ways to make it work. You were surviving on $1,000; how much difference can 10% less make?

If you can put 10% away on top of the money you are adding to your superannuation, or better yet, add that money to your super, you’ll find yourself further ahead, sooner.

Financial planning advice: Make it fun

For many people, the idea of a distant reward is a far less tangible motivation than something you can have ‘right now’. That’s why you should find ways to make fattening your purse fun. This gives you the immediate reward as well as the long-term benefit.

Here is an example:

A 10-year-old boy was given a ‘Dollarmite’ account from the Commonwealth Bank in his early school years (it may have even been you). He would deposit a fraction of his pocket money each week into his new account. Then, when it was time for show-and-tell at school, he would proudly bring in his bank book and show how much he was saving every week. Even at a young age, this boy found a way to have a more immediate reward. He also got to interact with fun designs that were created for children.

Sharing your process with an encouraging friend is another way to make it fun. Enjoy the journey together. You could make a graph or a spreadsheet to follow your purses as they fatten.

Whatever works for you, find a way to reward yourself for putting the money away. You have to do this because you must put the money away no matter what. Not just on good days. Every day.

Applying the 10% rule to your business

The 10% rule is not just for personal growth. It is also a powerful tool for businesses to build a strong safety net.

In business, you take the 10% from your top line. Forget all your expenses and wages and dividends and other finances. Simply take 10% from your gross revenue every cycle and put it away in another account. It doesn’t matter how much or how little your top line is, put away that 10%. You will never regret having this money to hand.

The lesson

The 10% rule is about more than saving. It is about teaching you to live on less. It forces you to adapt and to work with 90% of your income. This way, you learn how to cut costs and live without luxuries. Once you learn to live with less, you can decide whether or not to increase the 10% to a higher amount.

Fatten your purse

Living with 10% less will give you more freedom in the future.

If you want to go on a holiday, you will have the money to spare. Should a severe illness occur, you will have the funds to cover medical bills and time away from work. You will be comfortable and happy in the knowledge that you will be covered in any situation. The trick is to start now and make it fun.

You need professional support to manage your wealth into the future. Contact the financial planning team at Silver & Young Private Wealth for more information.

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