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This will be, quite possibly, the most important personal finance article you will ever read.

For those who love blaming your mom/dad/son/daughter/sister/cat/dog/hamster and anyone but yourself, then this article is probably not for you.

After reading this article you will no longer have the excuse of saying that you don’t know how to save money or plan for the future. In fact, you might even become responsible and set yourself aside as a proactive and potentially rich person – congratulations.

This article is about what is commonly referred to as the TEN PERCENT RULE.

But first:

Introducing: THE WORLD WE LIVE IN

If you are one of those financially burdened people – there is no need to be ashamed; believe it or not, I was one of them some time ago too. Living on a bare minimum and struggling from paycheck to paycheck – welcome to the club!

Knowing that 80% of humanity is living on less than ten dollars a day (according to the World Bank) it makes it that much more obvious why taking care of your personal finances should stand as one of your top priorities.

I guess you can’t really blame yourself all too much, since they never really taught us how to count all those dollars at school or how to manage this overwhelmingly complex thing that has a tendency to disappear and vaporize into thin air – commonly referred to as money.

Instead, they taught us how to calculate the velocity of the wind, made us memorize pages of Shakespeare by heart and the most fun we had was trying to burn down the lab with a mix of calcium bromide.

Now let’s be honest: wouldn’t you want to have some more money in your pockets now, as well as in the future?

Unfortunately there exists a horrible mentality in today’s world where people believe that the only way to have a lot of money or not to lose it all is by hoarding it all, commonly referred to as:

The evils of FRUGALITY

We all know someone who counts their every penny, budgets every paycheck and spends hours clipping coupons. They try to find every free community centre and government agency they can make use of and file for every single paper that makes them look as though they live on the street in a cardboard box so that they can take every single penny they can get their hands on from the government. On top of that, they end up counting every speck of sugar they put in their coffee every morning and every grain of rice they eat during the evening too. Delightful.

What matters is – does this whole “I’ll budget-the-last-crumb-on-the-table” attitude towards financial planning really work?

Well of course! …If you are single, quite lonely and you have nothing better to do than go about proving to the unemployment office that you have no money and no job!

Frankly, budgeting may be one of the worst methods of financial planning known to man. Counting out every kernel of corn in the can can’t pass my brain without getting some suicidal thoughts lurking around.

The problem with frugality is that it teaches you how to survive in a world of scarcity, whereas our mentality at BigFatMoneybags.com is to thrive in a world of abundance (hence the site name!). Many sites will show you how to live large on a small budget – we will show you how to live even larger by turning that small budget into one on par with Bill Gates’.

The Ten Percent Rule will help you with that.

The Golden Secret

It’s quite cheap to call this secret golden, because in reality it is should be called the Platinum-Encrusted-With-Four-Hundred-Carat–Diamonds Rule.

There is actually no way to measure the simplicity and profoundness of this life-altering principle that has brought about unthinkable good to the people who took full advantage of it.

The Golden Secret is: Invest ten percent of all you make for long-term growth to become filthy stinking rich.

Let’s say you graduated from college, got a job paying you an annual salary of $40,000 for starters and for once in your life you feel like you have accomplished something, brilliant!

$40,000 a year (assuming taxes and all other deductions are already taken care of) is roughly $3,335 a month. Ten percent of that will be $333.50. You ought to put this aside no matter what.

Now you’re probably sitting there thinking, “How am I ever going to afford to save all that money every month when I have all these bills to pay!?”

Hence our next rule to supplement the Ten Percent Rule:

The rule is: Pay Yourself First. Always.

This is the core of the ten percent rule, and this should be the mentality you go by when dealing with any money you make. No matter how many bills there are to pay off or how many loan sharks are waiting outside your door with baseball bats handy, pay yourself first – learn to live with the rest.

When you get your paycheck, put ten percent of it aside immediately. You worked hard for the money and you should be getting the first cut of the money – not the banks, not the cable service providers and not even the insurance companies – YOU.

The reason this rule works so beautifully is for the very simple fact that people tend to spend what they make. If we abide by the tendencies of the majority: If you make $300 a month, you will spend $300 a month. Make $1000 a month, you will spend that $1000. People will automatically alter their spending habits depending on their income, so if you make $333.50 less every month – there is a good chance you won’t even notice it missing!

So, the first ten percent are yours, always. This is from now on your rule.

To get started, first set up a separate bank account and have ten percent of your paycheck automatically transferred to this bank account (visit your local branch for help with this). Setting up an account in a different bank or at least different bank account from the one you use daily is a good move, insuring you have to make an extra step to get your hands on the money invested will prevent you from spending it.

The comforting truth is that by transferring your money automatically to your bank account, there is a good chance you won’t even notice it gone and find yourself surprised later down the road with the lovely pool of cash that you gathered.

The magic of compounded interest and your money working for you

There’s a good chance you are sitting there and trying to figure out how the Ten Percent Rule can possibly make you rich – well, by itself it’s not going to do much but accumulate the few dollars you saved over the years. The way you are really going to make a fortune off of this rule is by making your money work for you via the magic of compounded interest.

And how do you make your money work for you? By investing it of course!

A lot of people will recommend to automatically invest that 10% into mutual funds, but you’re not going to get very far with those, since their average returns are around 8% to 9%. On the other hand, if you invest your money yourself, you can easily make many times more than that – for instance, we are making 142% returns in The BAG Fund.

Of course, 142% returns can be somewhat difficult for most people to manage but follow Mr. Moneybag’s advice in the “Business & Investing” section and you should be making at least 30% to 40% a year on average.

Let’s look at some numbers to show you what your monthly contribution of $333.50 a month ($4000 a year) can turn into after a few years:

$4,000 invested every year growing at 8% a year will grow into: $25,343.72 in five years, $62,581.95 in ten years and $197,691.69 in twenty years.

$4,000 invested every year growing at 30% a year will grow into: $47,024.12 in five years, $221,621.39 in ten years and $3,276,860.39 in twenty years.

If you follow the 20% rule as opposed to the 10% rule and invest $8,000 a year growing at 30% you will have: $94,048.24 in five years, $443,242.77 in ten years and $6,553,720.78 in twenty years.

And if you can make returns that rival ours, $4,000 invested every year growing at 142% a year will grow into: $558,984.27 in five years, $46,954,543.87 in ten years and $323,514,926,657.20 in twenty years.

Yes, you read that right.

And yes, those numbers may seem quite unbelievable, but they are all explained in our compound interest article and in Part One of our free eBook. I would highly recommend you read the eBook so that you understand how compounded interest works along with all the other intricacies that come with the stock market.

YOUR MONEY

And there you have it: the secret to getting rich!

To get the best out of this secret – use it. It is very simple, yet so rewarding and enriching that you will be asking yourself why you didn’t think of it earlier. And by the way, if you know you can put aside more than ten percent of your income – go for it. Here at Big Fat Moneybags, we follow the 99% rule – which would explain our ridiculous riches.

Big Fat Moneybags’ rules of thumb:

1. Set up a separate bank account
2. Make sure the money automatically transfers to your new account, leaving you with the exact amount you can go around spending
3. Keep setting aside the money for as long as you can
4. Find a proper investment that would accumulate and grow your money steadily
5. Enjoy the rewards of a financially healthy life!
6. Have your hardest decision in life revolve around decisions such as choosing between a Rolls Royce limo versus a Bentley limo

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