As you know, I recently read my first personal finance book ever – The Wealthy Barber, wrtitten by David Chilton. I decided to offer one copy of it as a prize in a 6 month anniversary giveaway. One of the very important lessons that made the difference for me was the chapter called “The Ten Percent Solution.”
To be brutally honest, I was not saving as I should have been for the last year or so. But when I read this book, I knew that I had to implement this simple rule. It was so easy to do, and this realisation made me very annoyed that I was not investing for the last few years.
What is the Ten Percent Solution?
The ten percent solution is basically taking ten percent of your salary and “hiding” it away in an account that you basically forget about. Roy, the wealthy barber, suggests investing the ten percent in things like index funds which are designed to grow your money a bit faster than the average savings account.
One benefit of doing this is the fact that you will be saving at least 10% of your salary. I’ve decided to save my 10% in an “investment” account that I opened a few years ago. The book suggests creating a direct debit from your salary to this account; which is a great idea especially if you’re not disciplined.
I explained this to a colleague at work and she asked me when she saves her ten percent, when can she touch it. I had not thought about that. The Wealthy Barber presents the idea of using the money to pay for a much desired item (e.g. a vacation home) at a later date. I wanted to tell her that she should not touch it until she’s ready to retire; but instead I told her that that she should touch it when she really needs it.
My plan for the ten percent is to just forget about it. It is now a permanent line item in my budget and I guess whenever I’m ready for it, I’ll touch it. I’m really hoping that I can keep contributing to it for at least ten years.