Saving 10% of your income might sound straightforward, but implementing this rule can sometimes be challenging, especially if you have many financial obligations. It is a strategic approach that makes the individuals consistent in saving and future investments. Here’s how you can successfully put this rule into practice and why it’s so beneficial for your long-term financial health. In The Richest Man in Babylon, one of the most valuable lessons shared is the principle of making more of your savings income.

1. Set Up an Automated Savings System

The first step is to make saving automatic. Set up a standing order or automatic transfer from your checking account to a dedicated savings or investment account each time you get paid. This ensures that you “pay yourself” before spending on anything else. Automating the process eliminates the temptation to skip saving when money feels tight.

2. Adjust Your Budget to Accommodate Saving 10%

If you're not saving, adjust your budget to free up 10% of your income. Start by reviewing your expenses and identifying areas where you can cut back. It could be reducing takeout orders, minimizing subscription services, or cutting down on unnecessary shopping. Align your budget around the remaining 90% of your income and stick to it.

3. Start with Smaller Increments if 10% Feels Too High

If jumping straight to 10% seems overwhelming, start with a smaller percentage, like 5%, and gradually increase it by 1-2% every few months. This gradual approach allows you to adjust without feeling deprived or overwhelmed by the change.

4. Create a Dedicated Savings Account

Open a separate savings account specifically for your 10% savings. This prevents mingling with your regular spending money and reduces the temptation to dip into it. Consider choosing an account with limited access or no debit card attached, making it harder to withdraw impulsively.

5. Plan for Large Expenses in Advance

Major expenses like vacations or holiday spending can disrupt your savings plan. Plan and save for these in a separate fund instead of pulling from your 10%. Being proactive about these costs helps you stick to your savings goal consistently.

6. Monitor and Review Your Progress

Track your savings progress regularly to ensure you’re meeting your 10% target. Every few months, review your expenses and see if there’s room to increase your savings rate. If your income rises, immediately adjust your savings to reflect 10% of the new amount.

7. Invest for Greater Returns

Don't let your savings sit idle. Once you've accumulated a good amount, consider investments like mutual funds, stocks, or even a retirement plan. The goal is for your money to start working for you, providing higher returns than a standard savings account.

 

This article is part of our Business Coaching blog series. At Dataczar we talk to a lot of small businesses. We’ve found a few books that we keep recommending time and again. To better help our customers, we’ve added a Reading List for Small Businesses to our website. We encourage every small business owner to read and keep these timeless business books on their office shelf.

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