It was not so long ago that I wrote about the 10% rule, as contained in the book The Richest Man in Babylon
In short, I’ve had a life-changing experience.
I’m 36, and to be brutally frank, have not got a penny to my name. No savings whatsoever, and a fair amount of non-mortgage debt. I am very disappointed with myself over this state of affairs. After reading the book again, I realised that I had made many of the classic mistakes over my life: delaying saving for instant gratification and living beyond my means.
I had started the 10% rule when I wrote the post, but a series of purchases were made that should have been avoided, adding to my debt. Stupidly, I stopped saving the 10% in order to throw the money at the debt. The obvious side-effect of this is that I did not have any savings any more, or the ability to save money. By using my capital, I have seriously depleted my “production capacity” for making more money (“product”) via the power of compound interest. You can read more about Product / Production Capacity in Stephen R. Covey’s The 7 Habits of Highly Effective People
After receiving this epiphany (aka “smack upside the head”), I realised I would never have any savings unless I truly committed to the 10% rule (the book is also very big on commitment to a task). That very day, I re-instated my ISA Tracker direct debits and set up a new cash ISA. Between these two accounts, I will be saving 10% of my income. Both direct debits start on the 1st of January 2008, and by the 31st of December 2008, I will over the equivalent of one month’s salary saved. I know it doesn’t sound much, but it is a start. Bear in mind that this is only from 10% of my salary. As my debts decrease (a simple, steady payment plan is in place), the money available to save will increase.
As I said, it’s a life-changing experience. I have come to this realisation due to my age (i.e. realising I won’t have much to fall back on), and what I believe will be the coming credit crunch. Basically, I am trying to get my financial affairs in order and provide a strong financial role model to my son. I have already started explaining to him how interest works and I’m paying him interest on his pocket money at certain levels (£10, £15, etc) to give him an incentive not to spend it as soon as he gets it – like I used to.
What galls me is I have given this simple advice to people many times in the past, yet have not had the will required to do it myself – but no longer. To assist me in this, I’ll be periodically posting my progress in building my savings up and paying my debts down. I’ll be displaying my amount in savings and level of debt in relation to my monthly income. I appreciate that what I’m doing here is very personal, but it’s also for my benefit as well.
Total Savings: 0% of monthly income (this will increase)
Total Debt: 5.67 x monthly income (this will decrease)
So, in short, save 10% of your income (with the required will) – and buy and read this book:
