The 10% Rule is a 10 year path to replacing your full-time income, starting from scratch. I came across the rule in an article by Ben LeFort , on Making of A Millionaire (Medium)
You can read the entire article here:
From the article:
If every year you can replace an additional 10% of your current income doing work you love, you can achieve financial freedom in no more than 10 years.
My return to full-time work combined with my side projects provides an opportunity to put this plan into action. As with any technique that I implement, I will be putting on spin on it. In this case, I’m going to apply the rule to multiple side projects to provide diversification and acceleration.
As we’ve learned in the past two years, life is unpredictable and events can have a severe impact on our lives and our finances. Much like an investment portfolio, I’m looking to protect myself against catastrophic changes by having multiple income streams. Even a full time job isn’t immune to economic downturns, despite the best laid plans. My previous side ventures have also experienced ups and downs. In my experience, they don’t all tend to happen at the same time.
In many ways, I’m playing catch-up financially. I’ve made some investments with both my money and time that didn’t work out the way that I’d hoped. My career approach was very similar to the Atlanta Braves of the 90s, a team that relied on string pitching and home runs for their success. For me, the strong pitching meant maintaining very low living expenses (much like a low ERA) while depending on the long ball meant starting or working on ventures that could have huge financial upside. Like the Braves, that approach resulted in much less success than I expected (1 World Series title was a huge disappointment)
I’ve taken a step back to course correct and make some changes to my financial action plan. I’m no longer a 20-something with years ahead to keep taking big swings for the fences. So my new strategy is to employ a small ball strategy, one in which I get my runners on base and advance them in deliberate, methodical manner. It’s the approach that worked for many of the Braves’ opponents. So like a manager that manufactures runs, I’m focused on manufacturing income.
My 10% Rule Approach
I’m using the 10% Rule as defined as the basis for my strategy:
- My current living expenses are about $2800 per month, up significantly from last year’s $1850. While I don’t expect it to remain this high, I wanted to use a figure that represented the high end of my expenses.
- My full-time job pays enough to cover those expenses, plus some cushion.
- My goal in the first year is to replace 10% of my living expenses, which means $280 per month from a side income stream.
- In the second year, my goal is to increase that to 20%, which means $560 per month.
- Each year, I’ll strive to increase the income by an additional 10%, until I reach 100% of my living expenses.
And here is where my strategy diverges:
- I’m adding additional side income streams (extra base runners), each following the same 10% Rule strategy but staggered behind the primary side income stream. They may be staggered by an entire year or just a few months, depending on how much time it takes to launch.
- If a particular stream outperforms the yearly goal of 10% (for example, I earn 30% in year 1), the following year’s goal remains at an additional 10%.
- I’ve detailed my income streams on my YouTube channel.
- I get the diversification of income streams and if I miss my targets for one of the streams (or it goes away completely), I can still maintain some progress and not get discouraged.
- If things go well, I get the advantage of acceleration and can reach the goal in fewer than 10 years.
- Trying to maintain multiple income streams can be draining. I’m working to make sure much of my work on these streams is closely aligned and that I’m outsourcing for help to accomplish tasks where I lack expertise.