Ten Percent Rule To Build Wealth

It takes 80%-90% of your energy just to break even – maintain status-quo. The last 10%-20% is where you build wealth. That is why so few people succeed financially: they stop moving forward after getting 80%-90% of the way there. The last 10% is what you need to make forward progress.

I was reminded of this lesson during my regular workout in the gym this morning. A personal trainer commented that all reps prior to the last two are just a warm-up for the "real" workout – the last two reps when you are straining and your muscles are aching. If you quit before those last two reps you will deny yourself most of the value of the workout.

"Amazing", I thought because that is the same principle I teach my financial coaching clients. You work your tail off just to support your lifestyle and survive. By the end of a long day you are tired and just want to rest – but you are only 90% of the way there. You have only done enough to survive, and now you must put out that last 10% to move forward.You must use that last ten percent to:

• Improve your financial intelligence by reading and researching investment strategy.
• Earn the extra income needed to purchase investment assets.
• Control expenses so that more of what you earn makes it to savings.

In short, you must do what others won't so you can have what others never will – give it that last 10%.

But what do most of us do? We stop after 90% because we are comfortable - our lifestyle needs are satisfied and we feel tired. We've earned a little rest. Putting out that additional 10 percent is hard work which takes us from an already comfortable situation into an uncomfortable one. Needless to say, we don't do it. Nobody wants to get uncomfortable so they don't give it that last 10%, and that is why so few people succeed financially.

The gym is a perfect analogy. Think about it. You just did 10 reps with the barbell and your arms are shaking and aching. You are tired and want to set the weights down. Those extra one or two reps hurt bad and yet that is where all the forward progress happens. You don't want the pain, but you have to go through it if you want the gain. It's a cliche, but it's true.

The same holds true after you have worked all day to pay your mortgage and bills. You don't want to spend your evening reading investment strategy newsletters like this one to improve your financial intelligence, and you certainly don't want to be bothered fixing the leaky faucet to keep expenses down. You want to chill out and hire the plumber to do the dirty work because you're tired and deserve a break. But if you don't put out that last 10% then you make no forward progress that day. You just break even.

When you do put out that last 10% then you make a small contribution to your financial freedom. You increase your financial intelligence and you increase your assets that day – just a little. And every day all those little differences begin to accumulate. At first it isn't much – a few hundred dollars here and there. But over time it can and will compound into financial freedom when you persist. In fact, there are two ways this small 10% multiplies into something huge.

The first way is through the compounding equation as illustrated above, and the other way small changes create huge results is through the principle that wealth is built at the margin. For example, one exercise I take beginning financial coaching clients through is to track how they spend their waking hours each day. It is a simple process of labeling each hour either "current lifestyle" or "future financial freedom". Try it and you might be surprised how little of your time is dedicated toward your financial security. Preparing meals, recreation, working to pay the mortgage all count as current lifestyle activities. Earning income to fund investments and learning investment strategy count as financial freedom activities.

Assuming you are like most people more than 90% of your hours are dedicated to maintaining and supporting current lifestyle. For many the number is 100%. That means just 10% or less of your hours are dedicated toward financial freedom. Now, when you refocus just slightly so that an additional 10% is dedicated toward financial freedom it can double, triple, or quadruple  your progress toward the goal. It isn't a little change, but a dramatic change. In other words, a small incremental change multiplies the gain – and that is how success is created at the margin.

But none of this happens without that last ten percent effort, and that is one reason so few people succeed financially.

So what about you? Are you putting out that last 10% so you can enjoy financial security?