Words Into Works #012 | The Ten Percent Solution

One rainy Saturday in May, three friends walked into a barber’s to learn the golden rule of personal finance. [1]

“Invest ten percent of all you make for long-term growth,” said Roy, the barber Dave, Cathy, and Tom had come to seek advice from. “If you follow that one guideline, someday you’ll be very rich.”

Roy went on to explain that, thirty-five years earlier, he had begun saving thirty dollars a month, which was approximately ten percent of his earnings. 

What’s more, Roy had put that ten percent in an equity-orientated index fund which, on average, had achieved around a fifteen percent annual return.

As his income rose, so, too, did his ten percent savings. Thirty dollars a month became sixty dollars, then a hundred, and eventually, hundreds of dollars a month.  

By intelligently saving and investing, Roy had not only turned himself into a successful businessperson. He had also turned himself into a self-made millionaire. 

*

We all want to earn more, save more, better provide for ourselves and our families. But we know, deep down, that it’s all too tempting to rationalize a want as a need. 

A better approach, according to David Chilton, author of The Wealthy Barber, is to pay yourself first by having the money deducted from your paycheck or bank account before you have a chance to spend it. With that ten percent, you can then invest in a low-fee global equity index fund and get exposure to all of the world’s common stock markets. [2]

You won’t achieve financial independence overnight, but you will over time, slowly and steadily. 

Footnotes

[1] The Wealthy Barber: Everyone’s Commonsense Guide to Becoming Financially Independent by David Chilton.

[2] Always do your own research before making any investment decisions.