The 5% Rule | Beating the 95% Statistic 

it's funny because when I started my first job at age 12, my dad showed me his budget and how he was saving for a family trip. Fast forward to today and I've saved 50 times more than he ever did, but it was the one conversation that drove me to saving. I still ask him for advice because I know he has a saving mind.

My family talked about money all the time... Let's see, there was: "Put that down, do you think we're made of money!" ... and... "Turn off the lights, do you pay the bills here!" ... and.. um.. yeah, that was about it...

I grew up in a house with financially stable parents who did NOT educate their three kids. We did not talk about finances. When I tried to ask questions, I’d be faced with “why do you need to know? Don’t worry about it”. It was so bad, I would sneak peeks at utility bills to get an idea of costs. My partner gave me my financial independence start. He guided me on how to go about with my money so I would have a credit history, be able to take out loans, how to save, having an emergency fund, etc. Not educating your kids is NOT helping them. It’s actually setting them up to fail and potentially surround themselves with negative influences. I’m one of the lucky few who found a partner who didn’t take advantage of my lack of knowledge.

When my father retired from the military he landed a job at a bank and over the years he learned about money by observing how those that had money behaved. He brought home stories at the dinner table and the entire family became much more financially literate. Mistakes were made, but the idea that money was something you could manage rationally was much better than how my parents behaved before the banking job.

Pay compound interest and make someone else wealthy. Earn compound interest and make yourself wealthy. Once a person realizes that we have been conditioned to spend and can break out of the cycle of spending it all, life becomes very manageable.

My mom was the financial wizard in the family. She obtained her GED when in her 40's too. she taught us hoe to manage money and what was important. "You want that bicycle?". "You can go shovel snow and make $5 per driveway. I'll hold $4 of that and put it towards the bike." Life's lessons learned well. I retired at 52 because of those lessons. Thank you mom!

That's a scary statistic, Thanks, Erin! Growing up until the day I left my parent's home at 18 my dad made me save 50% of everything I earned, at 20 I purchased a 33K condo that jumpstarted me financially as I always had a place to live without rent. Thanks, Dad.

I’m 53, so I’m older than you are, but I was taught some personal finance when I was in high school in the 1980’s. Before I could graduate I was required to put together a budget and submit it to my history teacher. If any student didn’t submit that budget to that one teacher s/he didn’t graduate. It was a requirement for graduation. Things have gone backwards since then.

Your question as to the origins of anyone's financial literacy resonated, Erin. Growing up, my mother was treasurer of a small credit union attached to a labour union to which my father belonged in our company town. She issued loans and met with members in an office she created in a spare room in our house, and convened annual general meetings. Today, 50 years later, she is a volunteer tax preparer for low-income people and seniors. My father was not that interested in money, but in her unassuming way, she has inspired my interest in personal finance, and my own "hobby" of managing retirement accounts for a number of family members and friends.

I had a physically and verbally abusive father. Became my early life goal to never be financially dependent on him. Left him in the rearview and never looked back.

Interesting story about your family and money. In mine my parents never talked about money. So when we started making real money, we hire a financial management firm. They, and I think many financial managers where good at doing trades and generating fees for themselves. However, in 20 years the balance rose only 20%. This was at the same time the money we managed ourselves via stocks (with dividend reinvestments) and other investments grew over 10X. No more money managers for us.

I'm no economist, but I don't think a society could survive if 95% of the population was broke or dead

The quote is from The Strangest Secret by Earl Nightingale.

You are 100% correct on how simple a personal save/invest plan can be, I’ve watched hundreds of financial videos and read books on personal finance and my conclusion is in harmony with this advice, I don’t use fancy spreadsheets, don’t pay financial advisors, don’t live by a budget, we keep it simple and enjoy life free from most financial worries (folks will always worry a little that’s being human) and enjoy our financial freedom!

My grandparents saved “till it hurt” according to my Mom. They retired early and lived comfortably but didn’t pass on much in the way of lessons learned other than “live beneath your means.” Learned allot on my own and started investing early. Also, joined the military out of highschool and retired after 28 years. I don’t consider us “rich” but we are quite comfortable and can afford to do most anything we would want to do. We do talk to our kids about money and the importance of starting early with investing and taking advantage of 401k matches and any available retirement programs. It really does pay off down the line!

My dad was quite similar to yours.. can’t remember how many times he started the next visionary business .. and failed. Luckily, my mom had her own mom who survived the Depression and had to be financially independent. They both taught me to take charge of my own financial fate.

Erin love the video The 5% I heard from an Life Insurance salesman when i was 10 , that scarred me into saving and living below my means. Now at 70 I'm FI and still investing

I had to learn most things about saving and investing on my own. The extent of my parents' advice was "pay yourself first," but I was well into adulthood before I learned what an emergency fund is supposed to be. My dad's take on debt was really bad and did not set me up for success when I was younger. But, at the end of the day, they did the best they could with what they knew/understood, and it's correct to say that you have to take responsibility for your own money either way.

Raised by common sense survivors of the 30s great depression. They used a savings account at the local bank. I of course revolted and lived a YOLO lifestyle for about 15 years. Woke up late in the game. Thankfully I did not adopt a fear of the stock market. Had to save 55% to retire in the double comma club. If we can do it so can too. Intentionality is a powerful thing.

Really awesome you did the legwork to research that quote/statistic you'd heard! It's so valuable to think critically about these things and dig deeper, not just about finances but really everything else including the "statistics" trotted out in arguments for and against!

I took my first accounting class in high school and that is where I learned about money. I got my associates degree in accounting at twenty one and then graduated with my Bachelor’s of Accounting in 2010. I definitely did not spend like my peers. It’s paid off in the long run.

Erin, your videos are excellent. Thank you.

My family never talked about money but I picked up on the stress from my parents as they lived paycheck to paycheck. It scared me enough to become an extreme saver. It was my wife who started investing in mutual funds. She always had an interest in investing. The drive to save and investing those savings let us retire early - very comfortably.

Erin, got some thoughts on this one. First, IMO, I think the number of people that have some level of financial security is probably closer to 20% than 5%, which is sort of alluded to in the 78% number living paycheck to paycheck. Second, I dislike the phrase "the odds are stacked against you." I believe that most of us have the ability to achieve financial stability, even wealth, but as you've pointed out many times, IT'S A LONG GAME. If people follow plans similar to the one you laid out, darn near by definition they'll be in that financial secure region. So the problem isn't one of "the odds", but of our behavior. Also, as you point out, most successful plans are painfully, embarrassingly, simple. They also succeed. Another great segment, thanks!

Erin this was a great discussion and your remarks were spot on IMO. When I grew up there was no discussion on finances at all. We lived a low middle class live in a home my father built himself after WWII. My parents were fugal and my dad was the sole wage earner as a police officer. My mom got polio right after I was born so she was unable to work. The only exposure to finance I ever received was after I started working at 15, yep, still in HS and had to get a permit to do so. I don't remember if it was my mom or day who showed me the envelop system. Identified on the envelop was the amount or % of pay that went into each for the designated purpose. That lesson stuck and I was never without money for what I wanted to do or needed. I am self taught on all my financial knowledge. You are absolutely right when you say it is easy to reach the 5% mark but few people do. It is very sad but most make excuses why they can't do it, how for their generation it's more difficult because, when it all comes down to they don't know, or won't do it. Sadly, financial literacy is still not part of our education system, regardless of level. I have exposed my children and grandchildren to budgeting, finances etc and they are all doing well. I appreciate your content and the amount of time and effort you put into it. I am retired 13 years, enjoying my passions, family and living a good life. I'm certian you are impacting many people with your content Erin, keep up the great work! Larry, Central Valley, Ca.

'you have to take responsbility for understanding your money' that was probably the core mantra that got me to 3%

Your commentary is true to most homes today and in the past! Finally in Michigan, personnel finance is required in our school system but at least it's a start...My parents were like yours, so I learned the hard way!!!

Another great video - makes you think!

I got tired of listening to music on the radio one night and started listening to talk radio Clark Howard was the first then Dave Ramsey, thank God I got tired of listening to music.

Great video!! I love sharing your videos with my classmates. The one we reference often is the $1 per use rule (Like using a $200 blender 200 times) in one of your older videos.

I wish I had better financial literacy as a youngster (should be taught in school), but still figured it out in time to find those rules on my own... except I invest 30%.

My exposure to finance was two items: an allowance from my mother and a savings account from my grandparents. I enjoyed watching my money and savings grow.

At 100 K in income in our retirement using only 80% interest from our annuities and a Net Worth of 1.8 Million our Financial Adviser said we are at 90% tile in wealth (works for us )

My family NEVER talks about money! That caused problem as my parents got older, my father was in hospital No One was paying their bills! My older brother and sister had to step in and take over their finances! They got everything straightened out before it got too bad !

Dope video!

Excellent video.

Keep up the good work! We made FI years ago, but continue to work. I wish everyone could get to FI and be work optional or job optional. It makes life a whole lot less stressful. You do great spreading the message. Maybe do a spreadsheet video again showing compound interest over time. We have no fears of retirement - except how to fill all the day! It rains .........

I think one thing that non-savers don't understand is this. It becomes extremely addictive once you've built even a modest nest egg. Almost to a fault where you don't even want to use any of it for any circumstance. Well, maybe that last part is just me.

Always sound advice! I will add, you can even make some mistakes or not save every single year and still come out very well. Life isn’t a straight line, lots of dips and set backs. Stay the course and save more when times are good. Have some cash so you can buy the big dips.

Very interesting topic and evaluation! I certainly dispute the stats. If 36 were deceased, I would expect their life insurance would afford more than 5% to be financially secure. I consider myself blessed to be in the top 5%. It enables me to serve 70 families ( the bottom 54%) in my town at a food bank this morning. Oddly enough, those people all seem to be quite happy.

Listen to Earl Nightingale's "The Strangest Secret." I believe that quote, or one very similar, is on there. Great stuff!!!

Wow! Ok this 5% stat kinda blows me away!

Erin is right!!

I really appreciate you fact-checking the premise/topic you uploaded today. Too many RU-vidrs are "grab and go" on quotes without vetting sources. It's a worthwhile topic even if the statistical premise is substantially off. I'm about 8 years from retirement, and just attended my 40 year class reunion. Over 90% of us are still alive, from what I could figure, and I'd guess in the few short years remaining, we will still have at worst, a 15% mortality rate at age 65/67. If the numbers were that bad, life insurance would be WAAAAY more expensive.

Yes More great videos 😊

8:50 My Household Blueprint - Also laughably simple: 20% Federal and State Income Tax 20% Retirement and College (for child not yet college age) 20% Mortgage Principal and Other Debt 20% House Insurance, Property Tax, Health Insurance, Vehicles, Utilities 20% Food, Dining, Travel, everything else. If all goes to plan, the Mortgage is paid off in 8 more years, my daughter will finish college in 8 years, and I'll retire in 8 years. Looking forward to 2032.

Just subscribed. Great videos.

My father taught me everything about money, budgeting emergency fund, and everything. 50 years old and my house almost paid off and third in the family to be a millionaire. The younger crowd just save invest, and you could do the same to.

I think being wealthy is very subjective. Living in Sydney, my very basic run-down old 3 bedroom house is worth AUD2.5 million. That is poverty in Sydney. However, that kind of money in the Philippines would make you very wealthy.

I received so much financial training through my career in the USN. I got to see, second hand, good-terrible financial decisions of peers /friends and shipmates.

I was fortunate to work with a guy who encouraged me ( when I began working with him) to put enough in my 403B to get the employer match and then increase my contribution every year. He also showed me how to invest in real estate.

Was never taught anything about finances. I taught myself about 6 yrs ago at age 49. Got really serious with what little we had. Hubby wants to retire at age 60. In order to do that we're leaving the USA

2nd generation Dave Ramsey. Parents taught me his principles in high school in the late 90s. One of the best things they ever taught me.

« When work is a pleasure, life is a joy. When work is duty, life is slavery. » - Maxim Gorky

That quote is from Earl Nightingale’s The Strangest Secret

I have been working in Actuarial at life insurance companies for 15 years. The scenario presented explained that the sample population is a group of people starting their career and assessing them into different categories 40 years later. I picture this as a group of 20 year olds living until 60, but I also understand some people start work earlier or later. Using broad distribution assumptions (ie gender, tobacco usage, income levels, etc.) with standard CSO mortality tables, the expected survival rate would be more like 90%-95% depending on when the study was started (historically mortality on population improves over time: so people starting to work today will likely have a better survival rate compared to those who are retiring today). The assumption that 36% of the population will die by the end of the study seems high. This sounds more like an estimate for how many people are expected to die before reaching age 72, which as Erin assumes would include juvenile mortality plus a later ending age than what I would assume (age 60 vs 72).

My greatest asset was a quote from Thoreau. That man is the richest, who's pleasures are the cheapest. I could retire now and my net worth is only a bit North of 600k. Didn't start investing but only about 15 years ago at the age of 36

Bottom line: we need to teach financial literacy to high school students!

Picking a like minded life partner is super critical for success in building wealth.

My late mother taught me to save money because she grew up in austere times, but she never taught me how to invest. It was by sheer luck that the company I worked for in the 90's had a 401k plan and I put in only 10% of my paycheck into that plan without really knowing what I was doing. It wasn't until much later in life I learned the basics of investing via Internet and RU-vid, tools which weren't known of or available back then. Nevertheless, that 10% back then has grown into a sizable amount and will definitely help me retire. Younger people today are so lucky to have investment options and knowledge resources so readily available.

Erin, I appreciate the message and I have pursued it all my working life. But, I do take issue with “it just that simple, you cannot fail”. Unfortunately, there are many many people who just can’t make enough to save a meaningful amount of money. It’s a sad fact of our financial system.

well said.......

There are so many money rules, it might be a fun video to highlight some of the worse ones and explain why you don't like them. I just ran across the 50/30/20 rule, 50% of your after tax income for needs, 30% for wants, and 20% for savings and investing. As someone who thinks everyone should be striving for FI for their own good, that 30% for wants seems like you're just making your own journey to FI harder. I'd drop that to 10% and up the savings to 40%. When you reach FI, or at least get much closer, then you can ease up and enjoy. 30% from the beginning only makes sure you get into bad habits of confusing wants with needs, and risk your own financial security in the long run.

I have seen this somewhere before Erin. If I find it again I will send the link.

Great video Erin. I agree with your plan completely. I followed a similar plan over the course of my 40+ year work life and retired 2.5 years ago with a high 7 figure net worth. I have one question about your video: are you using the terms “wealthy” and “well-off” generically or as terms of art? If terms of art, what amount do you consider wealthy and what amount do you consider well-off? If you are using net worth, is it individual net worth or household net worth? Thanks for your insights.

most people simply never give their money any serious thought. it's weird to say but it's true. if people put as much time and effort into managing their money as they do watching the NFL, more like 50% of people would be financially free.

While it is a topic for debate, I think that I can say that I've taught myself a reasonable amount of personal finance theory and have put a good portion of that into practice. Yes, there are holes in my understanding, but I think I have the basics. This really was born out of necessity because we really neglected that aspect of our lives and the clock stops for no man. All this to say I think we will be in a quite decent position when we are both retired but it could have gone sideways with ease based on the direction we were headed. As for investing and saving, let's say that we are not spending about 50% of our income. That is what we are retaining. It is actually surprising how much money we are currently setting aside for our future, at the same time upsetting to think that prior to our great financial wakeup call that money was a mist on the horizon. I think though that some lessons have to be learned the hard way.

25% of those over 50 have more than US 1 million in assets. Top 10% have more than US 3 million. Basically data from your video. Even the median net worth of those above 50 exceed US250,000. With your social security, I would say Americans on the whole are doing well in retirement.The top 25% are basically millionaires with social security. Phenomenal.

I better start saving more.

You need to add in watch the investment expenses. Jack Bogle is big on that. In the 80s when I graduated from college, 2% expense fees were the norm

Most fortunes are so thoroughly distributed in 2 or 3 generations as to be considered spent by the heirs. The only real middle class asset is a commitment to higher education over multiple generations. I come from 3 rich families. The money was gone before I was born.

My dad read the way to wealth but didn't know how to implement it. I am walking it currently.

I don't buy the thought of not being taught. I was not taught anything about money and I started on my own investing. I am 50 and will be retired in 3.5 years.

Financial literacy should be taught in schools. Start early and continue to invest throughout your life is the only way too live.

If you correlate that with IQ, it would be very interesting to see how big a role IQ is related to financial security or wealth.

Hello Erin 🙂Thank you for the great videos. Have you changed your diet? or what it is that you are doing? You look great! 😊 Reading the comment section you seem to have a very smart and sensible audience, I guess in a way the people that follow you is a reflection of yourself and that's something you can be proud of. You're a smart young woman and a great communicator.

Living below your means is the key to financial success. It's really that simple. But unfortunately 90 percent of people aren't doing this.

I seem to remember Brian Tracy using this quote here on RU-vid.

That's you👍

Thank you, thank you, thank you. Everybody can do this. Hardly anyone does. Then decades later, overwhelmed with fear, deep into a lifestyle of debt and overconsumption, they start the struggle to turn around their bad habits and climb out of debt... Why start in the middle? Why give capitalism a two decade head start? Capitalism is damn good at this game, you really can't afford to spot it a head start, not even two or three year's worth.... Start early, when you're young and have energy, and still are not completely buried under debt. I always thought of the western civilized landscape as a jungle for the human species, where everyone has to learn how to survive. And most don't. They don't recognize it's not just a consumer's paradise to live out your dreams in, it's really a capitalist jungle designed to keep you distracted, off balance, needing or wanting their products and services. Learn the money game, know your survival depends on it. Or end up working for the man your whole life and blaming everyone else for your lot in life.

Erin, could do video on Hybrid Pension Annuities as part of Retirement? Good/Bad/meh? I and getting Very Good and Very Bad about same things from different channels in my utube feed? SPIA Or Index Annuities? As part of income stream?

My mom was great at saving. She taught her kids to pay cash for things. Sadly, I'm the only one who listened. My siblings have great incomes but finance liabilities/cars etc. I buy assets. Stocks, rental real estate, etc. Now I hear how everything was handed to me. I'm way better off than my parents. So, i just ask my siblings how my mom gave me what she didn't have.

Live beneath your means and invest the difference. That about sums it up. It's not complicated, which isn't to say that it's easy. But, if you can maintain that discipline, you'll do fine.

80% of households get only one third of AGI. Forget savings.

Which RU-vid video are you referring to?

I now know how people afford their life styles. I was wondering how the hell can they afford that? They were borrowing and spending their retirement today.

It came from a longevity study conducted at Harvard University. They followed the lives of 1974 MBA graduates all Caucasian males for their entire working like. . The study came out in I think 2015 or so.

I was immediately suspicious of that quote because there's no way of obtaining that type of data without actually doing a study. They would have to do a retrospective study with a large number of randomly-selected participants and rely on the participant's recall and anecdotes. If such a study exists it would surly be published in a reputable journal and be easier to find.

Your parents views/habits around money completely mirror my parents!

Nearly all of my aunts and uncles are reliant on social security. With a few exceptions it doesn’t appear there was any attempt to develop an alternative plan.

Yet a 2021 Gallup poll shows 80% of retirees feel they have enough. That's a major difference from this report saying 95% feeling they don't have enough. I'm going with door #1. www.foxbusiness.com/lifestyle/most-retirees-think-have-enough-money-live-comfortably-vs-non-retirees-gallup-2021

There are no “odds that are stacked against me”, if I continue investing aggressively I will be set, if not then I won’t be, but odds have nothing to do with it….personal decisions

I think that quote is from earl nightingale

2:20 A person with $150k of investments that is able to safely get 4% on that for 20 years would add about $909 each month to their SS income. I know people do sometimes live past 20 years in retirement, but the CDC has the average lifespan in America at a little more than 76 years of age. This is why I use 20 years taking figures out to the 85 years marker. ....Would you be willing to forego all SS income IF the government would knock of limits on ROTH contributions and allow 60% of your current traditional IRAs to be counted as part of your ROTH account without being taxed on a rollover??

Lol, of COURSE chat GPT’s response was “sounds like it isn’t the but it’s probably commentary about income inequality”

Erin, what brokerage firm would you recommend? I am trying to decide between Vanguard and Fidelity.

Erin, nice plan I am wondering something about your 15%; is it entirely in the stock market? I have been saving money and looking to invest but it makes me nervous having 100% in the market. Problem is, what else does one do with it?

I believe that when one is clear in what their long term goals are, and what their priorities are, they won't be easily swayed by unnecessary distractions, marketing tactics and propaganda. Drifters on the other hand are easily swayed. Non drifters tend to fall in the 5% group. I believe more than half of the population are easily susceptible to society peer pressures that has them wasting more money and working longer than they have to.

I think the 5% saving goal is too low (but is a good starting point for average American who saves nothing) for the financially responsible that can save more. 5% savings won’t cut it if you’re trying to save up for nice vacations, house, car, etc unless someone is making like 500k+ a year haha

Its from the strangest secret earl nightengale