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The 10-Percent Principle

If your clients live on 90 percent of their income, they will accumulate substantial assets.

By Donald Ray Haas, CLU, ChFC, CFP, CFG, RFC, MSFS

Unfortunately, too many financial advisors and clients have never learned the most fundamental principle of wealth accumulation—the 10-percent principle.

Actually, its very simple nature is probably the reason why it is often disregarded or easily forgotten. For the Baby Boomer generation, however, understanding the basics about wealth accumulation and preservation is critical. We are living so much longer after we stop working than we did previously that we need to accumulate more wealth to support those extra years. Many people now go through three life stages: (1) childhood and education (2) working, parenting and continuing education (3) living a productive life during which they do what they want.

This third stage is not when you sit and rock and wait for death. It is when you still may be working, depending on what you choose to do. It may also be a time when you play, travel or volunteer—you will do whatever you want to do.

Because this third stage might be longer than the first two stages, you should have accumulated substantial assets during the second stage. But, how do you do it?

Tell your clients to set aside 10 percent of their earnings and to invest properly.

Living on 90 percent
The answer is simple—you live on 90 percent of your net income during life stage two. This means that you cannot spend 10 percent of income. It is that simple, and it works. What I am advocating here is an educational revolution.

As financial service professionals, we should teach our clients and their children this basic principle. We should also reach out to the schools and teachers to try to get across this fundamental educational concept of saving 10 percent. I believe that very young children can grasp this concept readily and learn that 10 percent, that is one penny for each dime, is not theirs to spend—at least, not now. It must be put aside for that third stage of life so that they will be in a position to make fun choices in the future and have the freedom to make them.

The math used to develop this concept is also fundamental. Just move the decimal point one place to the left, as indicated below:

Gross Earnings
$573.10 $57.31
$ 2.20 $ 0.22

If you were to accumulate 10 percent of every dollar earned since day one of your employment, I sincerely believe it is impossible for you not to become wealthy. Of course, wealthy is a relative term. However, regardless of what it means, anyone who adheres to this principle will feel wealthy by the time he reaches the third stage of life.

While I have said this principle is simplistic, it is not necessarily easy.

However, it is a requirement if you and your clients want to be effective and successful. The concept of living on what you earn is universally accepted; however, many people forget or disregard this basic tenet. At some point in our lives, most of us are tempted to practice instant self-gratification. Society makes it easy to spend money via credit cards, which offer “no money down” or “no payment until next year or even the year after next.” As a result, we forget the basics of proper money management.

A majority of my clients do not use household budgets. Many will make a tally of where they spent the money over the past year. Although they initially resist preparing this practical list, they eventually acquiesce when they are impressed by the importance of knowing “where it all went.”

Usually the next step is a shocker to my clients when they see it in black and white: Comparing how much money came in and how much went out. If what was spent is 90 percent or less than the income, the first step of wealth accumulation is accomplished. The second step is to develop a well-balanced investment portfolio.

If you don’t live on 90 percent of your net income, you will forfeit many choices otherwise available to you in the third stage of life.

Do your job, my fellow financial advisors! Help your clients—help everybody, including yourself—learn to live on 90 percent of net income.

Tell them to set aside 10 percent of earnings and to invest properly. As you well know, if done right, by investing for growth and not spending the profits and by allowing compounding to do its magic, you can become wealthy. Or stated differently, you will have available to you a wonderful third stage of life.

Happy choices!

Donald Ray Haas, CLU, ChFC, CFP, CFG, MSFS, is a member of NAIFA-Southeast (Michigan). He has been an insurance agent and financial consultant for more than 47 years. You may reach him at 248-213-0101 or at

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