10% Rule

In order to have money to invest in dividend growth stocks, the first thing we need to be able to do is save money to invest. Everybody seems to have a different idea on how to save money. I've found that the two most common are saving first and budgeting.

Those who choose to budget allotting themselves specific amounts of money for food, clothing, housing, entertainment, etc. Typically, they keep a running tally to see how they are stacking up compared to their original budget. I started on my path to financial freedom by doing this very thing. Every month I would sit down in front of my Excel spreadsheet, map out what I was going to spend money on that month, make sure I had a little bit saved at the end of the month, and then diligently put in my expenses every night. I did this for six months straight. All I got at the end of it was a six-month long headache and no savings. 


My conclusion was I just wasn't disciplined to stop spending when my actual expenses matched my budgeted expenses. Actually it had less to do with discipline and more to do with the fact that I hit the number half way through the month. I decided I needed to go another way.

After doing further research, I found one recurring concept: The 10% Rule. Simply enough, this rule encourages savers to take 10% of their monthly income and put it directly into savings. The rest was free to be spent however the saver saw fit. They had already done their hard work for the month by saving 10% of their check. Additionally, the money had to be put into an account that was specifically designated for savings. The highlights of this plan had many benefits for me as well:

• Once I put away 10%, I didn't have to daily manage my accounts to make sure I was still on pace to meet my goal. 
• I liked that I could enjoy the fruits of my labor and treat myself when I felt compelled to without having to tap into the savings.
• I could see progress towards my savings goals as every month the account went up. (Withdrawing money from the account is only allowed for investment and extreme hardship cases)

I have really found the 10% rule to be easy to follow and extremely helpful getting me towards my goals. While I felt like my time budgeting was helpful, since it helped me see where I was overspending, the 10% rule has propelled me towards meeting my goals. I hope you find it as useful as I did.