Implementing the 10% rule.


Since I built up my first emergency fund for the first time in 2010 (and realized it’s usefulness when I had to use it the same day I completed it) I’ve learned that it’s really hard to get started with savings when you’re not used to it, and you might end up having to use your first and probably second emergency fund for something but...eventually you start to get ahead.

I’ve learned how great it feels to save and how great it feels to have money in the bank to take care of things when I need to. I also realized last month, when I received some less than happy work news, that an emergency fund takes some of the pressure off. I don’t have to lie awake at night with anxiety while playing a million “what-ifs” through my mind like I did for a large part of 2009.

Since posting that update on my work-life about a month ago I’ve completed my emergency fund of $6,000 which is now sitting in a separate online account until I need it. Having a full emergency fund, which for me is $6,000 for now, is a fantastic place to be… but now it’s time to look past the short-term and plan for the long-term.

I’ve done ZERO retirement planning in my life so far. Sure, I’ve thought about it and what I want from life but I’ve taken very little action to plan towards this. I currently have a $6,000 emergency fund, $2,000 in an RSP, $1,000 in a brokerage account, a few thousand in a rather volatile investment, and of course my largest asset, my house (mortgage and all, darn it) Obviously none of these will feed me much more than a few months (unless I want to eat my house?) so, starting with yesterday’s paycheque I implemented the 10% rule.

What is this 10% rule?
The 10% rule is about saving 10% of your gross income (check out this explanation as well)  Since I’ve been funnelling anywhere from $500 – $1000 per month into my emergency fund for the past half year, I’m really not going to miss this 10%! I haven’t opened a separate account for this 10% and won’t be investing it in the immediate future. My primary goal for the next few months is to get used to automatically saving 10%.

Since my wages vary from time to time I don’t have an automatic transfer set up for this and I kind of like it that way. Every time I get paid I will have to make the conscious decision to transfer 10% from my chequeing to my general savings account. (I’ve set up a separate account in my budgeting program to keep track of which amount belongs to my 10% and the rest of the money in the account which is my buffer/shorttermsavings/useforfunstuffmoney.

I decided to not just save 10% though, I stepped it up a notch! I’ve decided to put aside 10% of ALL my income, not just my wages. My GST refund quarterly, any tax refunds, contributions from my temporary room-mate. Everything will be subjected to the 10% rule.

My hope is that by the end of the year this habit will have become standard. I don’t expect to miss the money this week, or next week but I know there will be a time in the next month orso that I will question WHY I’m doing this. Hopefully I will be able to move past that so I can begin building a serious nest-egg for my future. Come Christmas I hope to then make a decision on what exactly I want to start doing with my 10%. (keep it cash, bury it in my backyard grandpa-style, buy bonds etc)

Update: I wrote this post about two weeks ago, I’m really enjoying putting the money aside with every bit of money that trickles in and I now have roughly $168 set aside without much trouble. I know I can’t touch it and I haven’t felt any urge to spend it yet! (Having the e-fund listed right above it helps)

You’ll notice I also renamed my emergency fund to something that more accurately (perhaps not appropriately) describes the freedom such a fund gives you 😉

How do you save for retirement? Do you use a percentage or just stuff some money in a mattress occasionally, or do you have your own mathematical approach to this retirement-thing…


23 thoughts on “Implementing the 10% rule.

  1. Renée you don't give yourself enough credit. Your house is nearly paid off which is an awesome accomplishment. That alone should go a long ways towards your retirement goals. If you've been saving up that aggressively for your emergency fund, I'm sure you will kick some ass with the retirement savings too. I'm not a percenter myself. I just have a set amount that automatically goes to RRSPs but I should make a point of increasing that as my income climbs back up.

    1. You are kind, thank you 🙂 The last month has been a total wreck! Bought a laptop, clothes, booked some travel just a few days ago, ahh and built a deck! So I have a bit to catch up on. Definitely keep an eye on those rrsp contributions… it's easier to set it up as your income climbs.. because you won't miss it as much as when you wait till you're used to having all that cash.

  2. When I started my first goal savings with my fiancee, It was tough to get used to having the money taken out (I think it was like 75/mo at first, then I bumped to 150/mo) but now I dont even realize it's gone. We used it all for our house down payment (because that's what we wanted to use it for), but I never turned off the transfer. With both of us contributing to it now, there's almost 1k in there, and we closed on our house 2 months ago! A very nice surprise if you ask me – and I havent even noticed the money is gone.

  3. Not yet but eventually! And like Jeremy said, your house is almost paid off so that is going to be a ton off of your mind. I haven't set up anything for retirement yet and I won't for a few more weeks. I know I should start a Roth at least but right now I'm trying to finish getting things set up with student loan things before I start that. (Which I know I should pay myself first but I've got other things going on too)

    1. You have to do what works for YOU. Paying off my studentloan felt right to me, I didn't invest at all until almost the end of the repayment period. Some people think you should invest first… finance for me is just as much emotional as it is math… so do what makes the most send to you!

  4. I'm working out the numbers for a 20% plan: 10% to my Roth, 5% to savings, and 5% to a regular brokerage. Any time you try to change the way you handle your money, it's going to be challenging for a little while. Eventually it will become second nature for you to make the transfer when your payday comes.

    1. 20%, wow! That's awesome, I hope to get to that number in a year or two as well. I'm thinking a graduaal increase slowly over time until I'm up to 30%

  5. FU Money – love it! I'm going to have to ramp it up to over 20% since I have to play catch up after debt freedom. I have an employer-paid pension so I have a little more breathing room than most, but I'm not counting on it.

    1. I knowhuh, I don't remember where I read the term FU-money first but I loved it, you are fortunate to have an employer paid pension… if anything it's just a little extra in the future. How old are you? I think that regardless of getting started now, rather than saving for retirement from the first day of having a real job every bit counts and being debt-free + beginning to save for retirement is a fantastic place to be, good going!

  6. You may need to up that emergency fund a bit more. I prefer at least 6 months of expenses in it. 10% is fine also whatever you make online, can go in to your RSP, no?

    1. Yes it can go into the RSP but I don't really like my current RSP, it's an ING streetwise mutual fund and in my first 6 months… meh. I'm considering other options… something like DRIP's? Not sure yet, until I make a decision I'd rather not stuff in into the RSP because I'm uncertain about how it works at taxtime (I should look into this) I can survive for about 5ish months on that emergency fund, I'm still auto-contributing about a $50 a month and will continue to do that. I would like to have it at $10k but it's not my immediate priority

  7. I am a ten percenter as far as retirement funding goes. It comes right out of my paycheck, so I never miss it. I bumped up from 5% to 10% when I started my last job. Since I never received a previous check from my new employer, I never new what I was missing.

  8. Congrats on your new 10% rule, I hope you do great. 🙂

    We never could have started out with 10%. I've always done better starting from little bits and working my way up to avoid issues.

    Right now, we have 8% (pre-tax) going to our 401k right away, and on average, we save about 9% of take-home pay.


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