It means you pay yourself first. When you honestly consider your monthly paycheck, a huge chunk of your money goes to federal fees, social security, health and medical insurance, and liens and garnishments. These expenses are directly deducted from your gross pay. You have to take care of your credit card bills, utilities, groceries, rent and other stuff from your net pay. What do you notice?
You are going through a vicious cycle that can potentially make you broke. As a general rule, you should use at least save ten percent of your income to pay yourself. This is how simple the ten percent rule is.
Regardless of how simple this rule is, it is amazing that most people do not make saving a priority. One excuse after another hinders them from taking advantage of the rule. Although you cannot build wealth using the rule overnight, developing the habit can secure your retirement.
Here’s how to take advantage of the rule.
1. When you think you don’t have enough money, begin the habit of saving just one percent. This should come handy. A monthly income of $4,000 means a savings of $40 at month end. If you do this every month, you have $480 by the end of the year.
2. When setting apart some amount is difficult for you, you can choose to make saving automatic. Use direct debit to transfer the amount from your paycheck to your savings account. If you do not notice the deductions from your gross income, I am sure one percent for your savings won’t hurt you a lot.
3. If you think you are too busy to attend to your savings, then you have to make savings a priority. You have to be decisive about this. You have to be serious about changing your behavior. The ten percent rule says you have to pay yourself first. So the moment money comes in, a portion of that should go to your savings.
Once you succeed with your saving, you would end up having plenty of time to look at possible investment opportunities. You can study wealth building strategies and find other streams of income. Once you have enough money, you can begin spending them to buy stuff you really want.