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Is the 10% Rule Dead?

Like almost everybody else my age, I grew up hearing “put 10% of your paycheck in the bank!” It was even quoted on Friends (“The One With the Prom Video”). You know something is culturally ubiquitous when it gets quoted on a famous sitcom and doesn’t require any setup or explanation!

I’ve done my best over the years—tucking away 10% whenever I could afford it. It wasn’t as often as I wanted; for most of my life money has gone out at pretty much the rate it has come in. Still, it was better than nothing, right? Maybe not.

The 10% rule, for as long as it has been around, has become largely outdated. This is because it doesn’t really set you up to increase your savings over time. Yes, the amount of money you’ve saved will grow as you add more to it but, unless you adjust your savings amount to include cost of living increases, inflation rates, etc.—the likelihood that you’ll have saved enough money to retire at a reasonable age (even with your social security benefits check) is very small.

Today, sites like LifeHacker, Get Rich Slowly, etc. are advocating “the 20% rule.” This means, basically, that you should be saving at least 20% of your income and never ever touching it if you eventually want to retire.

The 20% rule is actually part of a larger 50/30/20 rule. This rule, says MSN Money, is to make sure that you’re spending as well as saving responsibly. It advocates that your essentials like housing, utilities and food, make up no more than half of your income, that you spend no more than 30% on lifestyle things like clothes and other non-essentials  and that 20% automatically gets tucked away into savings.

The problem with this ratio is that, of course, it doesn’t take into account things that most of us actually do *need* now, that were once considered frivolous—like cellular phones and internet access. Some of us require these things for our jobs! It also doesn’t ever expressly state—outside of your mortgage (something that most of us can’t get anymore)—how much of your income should go toward debt repayment. According to the blog post Credit Fixes and Retirement Savings are Ideal for Older Service Members, “eliminating debt prior to retirement is of the utmost importance.”

Articles like the ones I keep finding also fail to take into consideration the fact that so many people are unable to start saving for retirement as soon as they get their first jobs. A big chunk of the population isn’t even able to start building an emergency fund until their kids are in high school (if then!) And what makes retirement saving so stressful is that, the later you’re forced to wait to get started, the more of your income you need to save to be able to retire at all.

So what can we do? What can those of us who are drowning in debt, frequently spending at least as much as we make and struggling to stay afloat but who also do not want to be forced to work full time until we drop dead supposed to do?

Start Where You Can

Most financial experts advise people to send a portion of every paycheck to savings before they see their paycheck. For example, when you set up direct deposit (which most employers require now), set it up so that at least 10% (or 20%) goes directly into savings and the rest goes into your checking account. The idea is that you can’t miss it if you never knew it was there.

This is great if you can afford to do that. If you can’t, though, what I did was send 5% over (better than nothing, right?) and then increase everything else in my budget by 10%. Then, every month when I pay my bills, I put whatever the difference is between that bill payment and what I budgeted for that bill payment into the bank. As I pay off bills and learn to survive on less, I’ll naturally be saving more until tucking away 30, maybe even 40% of my income won’t feel so painfully impossible.

Get Aggressive With Debt

Guess what: you really can get by just checking books and DVDs out of the library and borrowing them from friends instead of buying them or paying for expensive subscription services. I made it my priority to not shop for anything fun for at least a year and put all of the money in my budget for things like movies, dinners out, new clothes, etc. toward my debt. I didn’t pay everything off, but it made a huge difference in what I owed. And the effort allowed me to negotiate down my interest rates which means my debt will be gone even faster. Plus, it made me realize that I did not actually need most of the things I thought I needed.

If you need motivation for doing this same thing, read Not Buying It, My Year Without Shopping by Judith Levine. It’s great and will help give you ideas for your own shopping embargo.

Invest Invest Invest

It seems counterintuitive to talk about investing in a post about saving. Here’s the truth though: a savings account alone is not going to be enough for retirement. I didn’t believe that either until I started looking at the interest rates on standard savings accounts compared to retirement accounts and other investments. Personal Finance for Dummies does a great job of explaining how this all works (and teaches you how to find an investment advisor) and you can get it at the library!

It is a long road and if you’re standing where I was not so long ago, it feels impossible. Let me tell you, though: the goal of not having to flip burgers when I’m 90 has been a huge motivator. Hopefully it will work for you too!


  1. Yes many of those standard budget breakdowns like the 50/30/20 never assume or include debt. It only works when the debt is small or the income is bigger than average. Then you can squeeze in debt any of the categories. Saving 40% when finally debt free will speed up the process to help anyone not flip burgers when 90 years of age.

  2. The 20% saving category is also to be used for paying of debts as that is seen as a form of saving. If you borrowed too much to able to pay it off with 20% than pay more. The good point of the 50/30/20 rule is that it gives an easy way of analysing your expenditures. But the rule does not get rid of the need for self-discipline. I personally find the thought of being old AND poor far more more terrifying than being a bit less well of now.
    The 10% percent works fine provided you stick to it and you invest the money in a mixture of bonds and stocks with at least 50% stocks. If you believe that you cannot stick to the 10%, than use the 20% rule. But sticking to the 10% rule is cheaper!

  3. Long before you ask “is 10% enough” the question needs to be “when do I want to be financially independent”? Most people can’t relate to calling it retirement when at 35 or 45 you are able to quit working, so call it something different, like FI (financially independent). You have enough to never work again if you choose. If there is something you enjoy doing and someone is willing to pay you to do it, terrific. At least you have the option to walk away from it any time you want – you are no longer forced to continue because you need that salary to survive. On a nearly daily basis I kick myself for still needing to head off to work at 50, and lament that if I’d known in my 20s what I learned in my 40s I’d have “retired” a decade ago. Savings and retirement aren’t magic, it’s strictly math. If you start working at 22 and save 15% you’ll need to work for 43 years, in other words until you are 65. I grew up knowing that mantra and thought we were rock stars for putting 15% into our retirement accounts starting right after graduating. Now in hindsight I think, who decided I had to wait until I was 65 to retire? Why is it assumed that we need to work that long when there are so many other options. Given every age to choose from, who would actually say, yes please I want to trudge off to the office for the next 43 years? I can’t think of anything I’d rather do?
    Instead of following the herd mentality and designing your life to need to work for 43yrs consider some more appealing options. Save 25% and work 32yrs, save 40% and work 22yrs, save 50% and work 17yrs. That last one means the 22yr old retires at 39… **
    Rather than graduating and immediately taking on massive debt (cars, mortgage, kids etc) because that’s what everyone around you is doing, or “that’s what being a grown up looks like”, and then realizing all you can manage is 10% for savings and now you’re stuck in your beige office cubicle for 4+ decades, turn the calculation around. Decide when you want to retire (or be free to do whatever appeals with no thought to the money), deduct the required savings amount from your take home pay, and design your life to work on what’s left.

    **The article that changed my perspective: “The Shockingly Simple Math Behind Early Retirement” at It should be mandatory reading for every 20yr old. If you read this and still say yes please to 40+ years of work, then fine but at least you’ll always know you chose it even though you had other options. I wish I’d know this stuff a few decades ago. I only got my financial act together in my 40s. Yes we’ve now moved our projected retirement ages from 65 down to 55ish but oh what could have been if only we’d been on this path sooner. If the article strikes a chord with you read the entire blog from the start – it’s like a breath of financial fresh air.

    • I know who Mr Money Mustache is quite well! Believe me, he is an inspiration to many of us finance bloggers. I learned young about saving money, Im 33 now and well on my way to retirement in my 50’s…but I can’t live the minimalist lifestyle that MMM lives.

  4. 50/30/20 can be sort of rough, but once you get out of debt, I think it’s definitely do-able. Right now I’m usually at 50/25/25, but before I had school paid off it was nowhere near that.

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