The 10% Rule

When I started my very first summer job – lifeguarding – my father simply laid down the law. He told me that I had to save 10% of every paycheck, and we opened both a checking and savings account at the local bank. I never even thought to question this practice. My dad was the resident expert: a former CPA and manager of the family’s finances. I just assumed this was how everyone handled their paychecks. By the end of that summer, through socking aside 10% of my little paychecks, I had saved up enough money to last me through the a good part of the school year. I was completely surprised when my friends were either living broke or had to keep their jobs going into the school year. What happened to their 10%? I was even more shocked to hear that none of them had saved any of their summer money – or even thought to do so. That one lesson has been invaluable to me over the years, and I’m here to spread the word!

Start small – but start! Even 10% of a summer of 1991 lifeguard’s paycheck adds up. If all you can manage now is $10 a week – do it! As an advisor, I like to recommend to my clients to start with a number just beyond their reach because it is easy to pull back, but really difficult to increase. If you think you can do $10 a week, try $15.

Make it habit. If you don’t trust yourself to sock money into savings at regular intervals, set up an auto-deposit from your checking account to your savings account.

Save even if you have debt. Debt should be a priority – but it should not stop you from saving a few dollars every week.

Online banking is your friend. There are so many benefits to online banking. You get a higher interest rate than is offered at most “offline” banks; transferring money back and forth between your checking account couldn’t be easier; establishing a separate savings account apart from your checking will keep the funds even more separate in your mind – which cuts down on the potential to use the money; and you typically won’t receive an ATM card with an online account. This last benefit eliminates the 2AM cash run you know you’ll regret later.

Open your savings account now – and strive to save that 10%.