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The 10 Percent Solution - Tips On Becoming A Millionaire

Updated on June 21, 2015

Everybody dreams about the day where they win the lottery and become a millionaire. However, with the same likelihood of being struck by lightning this dream will stay a dream. Well, there can still be a guaranteed way to become a millionaire without the lottery ticket. The ten percent solution is one of the best kept secrets in banking. Even just a limited knowledge of the 10 percent solution can guarantee huge savings. The full requirements of the 10 percent solution include a salary, knowledge in compound interest, and a whole lot of time.

The only requirement to begin the 10 percent solution is a salary. Of this salary 10 percent will go towards an investment program known as a mutual fund. Many people complain that 10 percent off of each paycheck is not attainable. While 10 percent is considered a hefty chunk becoming a millionaire does require some sacrifices. Also, there are some tips and tricks help ease the pain of forfeiting 10 percent of each paycheck. There was a high school teacher who was able to overcome this hurdle. He had his bank directly wire the money from each of his paychecks into his investment program. After a couple months he stated that he completely forgot about the 10 percent of his income that he gives up each paycheck. This same high school teacher was able to purchase an expensive home in Vancouver just with a teacher’s salary. Once the benefits of compound interest are known it will be clear that the 10% of the income forfeited is very small compared to the huge amount of savings.

Compound interest grows exponentially
Compound interest grows exponentially

Compound interest is the bread and butter of the 10 percent solution. It is one of the main reasons many people are able to benefit so much from such simple investments. The gist of compound interest is that the interest will generate more interest which in return will generate more money. For example, person A invests $1000 in a 10% normal interest savings account for 2 years. In these two years this person will have accumulated $200 in interest. Now, person B invests the same $1000 in a 10% compound interest savings account for 2 years. Instead of getting $200 dollars back person B will earn $210. It is evident that a $10 increase is nothing to gloat about. However, the benefits of compound interest are not evident overnight or in this case over 2 years. Only time and numerous years will yield the true earning potential of compound interest.

Time is one of the world’s largest commodities. There have been many written accounts of people who wished they had started the 10 percent solution much sooner. Time and compound interest will guarantee colossal amount of savings. Using the same example as before it will become clear just how valuable time and compound interest really is. Again, person A invests $1000 at 10% but this time he invests for 40 years instead of 2. In total person A will have accumulated $4000 in interest. Now, person B invests $1000 at 10% for the same 40 years under a compound interest savings account. After the 40th year, person B will have accumulated over $50,000 in interest. It is evident from this example how valuable compound interest and time are when put together.

Right now, there are not many guaranteed ways to make a million dollars. There is a chance to hit the lottery and win a million dollars. But the chances of this to actually occur are astronomical. However, with a salary, knowledge of compound interest, and a whole lot of time anyone could become a millionaire without having to get lucky. Even if a minimum wage worker were to put away 10 percent of their income for a few years. All it takes is 10 percent.

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    • kbdressman profile image

      kbdressman 

      3 years ago from Harlem, New York

      Great hub! This also explains why credit cards are dangerous. Instead of being the investor, you're the one that gets to pay out the interest! A wise friend once told me, "There are two types of people in this world, those who understand interest, and those who pay it." I think we could modify it to "There are three types of people in this world, those who invest and collect interest and those who pay interest" and be just about as accurate!

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