The 10% Savings Rule

Did you know you should be saving 10% of your earnings every year? Well, it turns out if you did this from the time you started earning a living, you'd actually have a nice little nest egg to enjoy retirement with.

There are some cool calculators you can use to work out what you'll save but essentially the rule of thumb using the 10% savings rule means in 50 years with an average 5% return on investment you will have enough to become financially free.

That is the money you saved will be enough to sustain a moderate lifestyle throughout retirement.

However, if you're only just starting your retirement plan then this percentage is much higher and sometimes difficult to manage especially if you aren't living within your means already.

The problem is not enough young adults know about the 10% savings rule and retirement is the last thing on their minds right now. And after becoming a little more financially responsible later in life they find themselves taking financial risks to boost their retirement nest egg.

The reality is most people don't have enough money to retire at a sensible age and are forced to work as long as they can to ensure they can live out the rest of their shortening years comfortably.

It's also why buying a house makes so much sense to most people. It's a way to ensure you're saving money throughout your life but what they don't tell you is you'll also pay the bank around 80% of the loan value in interest.

Wow!

And if you default on a loan, you have to start all over again.

Now I'm not saying paying a mortgage is a bad idea, because we all need a roof over our heads, and over the 30 years it takes to repay the loan, it's likely the value of your property will increase over that time.

On average the value of property doubles over a 10 years period (if you've made a smart purchase in the right area) so over the life of a loan, you could feasibly expect your property value to triple.

That's a 300% return on your investment.

I know these seem like incredible numbers but this is what history tells us.

_{Source: Wikipedia}

And most people are happy with these numbers, but what if I tell you there is a better strategy to earn more money over your life time.

It's called the 10% Savings Rule.

The 10% Savings Rule

The rule itself suggests you save 10 percent of your earnings as your earning it. The other 90% is used to pay bills and live within your means.

So let's work through an example.

Right now the Average Median wage is around $59K but not everyone has an average job so let's work off the median income which is closer to $30K

10% of $30K = $3K saving per year.

Now you should really be able to earn at least 5% interest per annum on those savings via, bank interest, shares or property investment over the next 50 years.

And if we pump these numbers into a compounding interest calculator we get the following result.

Yes, that's nearly $700,000 in savings and this is just at today's median income price. I haven't factored in the real average wage and potential median income price increases.

And that's just saving 10% of your income over your lifetime. And if you could manage a 15% saving habit that number balloons to over $1M in savings. Wow!

And then there are people like Mr Money Moustache who suggests you could even manage to save 50% of your take-home wage and be comfortably retired by 37.

But there are a lot of disclaimers and it's a really aggressive saving strategy so perhaps just start with the 10% savings rule and increase your savings percentage overtime when you can manage it.

Of course, then there is also crypto investing. A smart investment in Bitcoin 3 years ago would have seen your investment grow by 1000%.

Another approach to regular savings is to write on Steemit, build a following and use the 50/50 rewards split. That's 50% for you to spend now and 50% going into your nest egg towards retirement.

Saving 10% is really manageable and if you make it a habit from an early age, you'll avoid all those finally stresses later in life.

And the best way to avoid the temptation to spend it is to have the 10% transferred into a separate bank account, so you don't see it as part of your available income.

If you have a different savings strategy that you use then please share it in the comments below.

_{Main Image: Pixabay}