How the 1 per cent rule can transform your savings pot one step at a time

Nima Abu Wardeh crunches the numbers and shows how putting away a tiny proportion of your monthly income can quickly multiply

Illustration by Gary Clement
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New year, new you — that’s often how it goes. But wait, how many iterations of you have there been over your lifetime?

Here’s my suggestion for new year's resolutions: ditch the goal and embrace the process. Achieve it following the 1 per cent rule, and start right now. This will have a hugely compounded result over the course of your life. Stick with me to see how it plays out beautifully in your finances.

While 1 per cent can seem so insignificant, add it all up and give it time, and you have a huge result.

First, here are some life examples to contemplate, reflect and look forward with. These are things we’re encouraged to do with the end of one year and the birth of another. But how much lifelong change does this actually bring about? I have decades of notebooks full of grandiose wishes for my future. So how about breaking this down to a "how do I do it" process, one that has more of a chance of sticking than goals and resolutions.

I don’t like the term "goal" for a start. It becomes about the thing you identify, rather than you evolving into a person who does the said thing. Say you set a goal to lose X kilograms of weight, perhaps with a timeline associated. Or you set a goal to write a book or run a half marathon. How many people do you know who do this, only to gain back the weight they lost, and then some? In other words, they achieved their goal, but didn’t change their life. Or perhaps they didn’t get to the finish line — the book is still unpublished or the race not run. As a result, they felt horrible about it and the whole process became an unpleasant experience.

How about framing it differently? The goals can then become benchmarks on the road to your bigger picture of yourself as the athlete, a healthy person or an author.

What you do each day, week or month, then takes you one step towards, or away, from your big picture. Let's say you write five pages of the book each day or make your meals 1 per cent healthier every time by ditching the sugar or buying a pumpkin to roast, and so on. Then it becomes one thing at a time, provided the commitment is added to the previous, permanent change.

That's how the 1 per cent rule works. It's very simple.

In money terms, the 1 per cent rule plays out like this: each month, keep 1 per cent of what you earn. It sounds insignificant, right? But, if you stick to it, you’ll have 12 per cent of your monthly pay stashed away for you to add to some life-changing pot.

For example, and let’s keep the sums really simple, say your take-home pay is Dh10,000 a month and you save Dh100 a month of that money. You can then put it in a deposit account that pays you 1 per cent.  While interest rates aren’t great at the moment, this figure is for illustrative purposes.  By the end of the year you will have not only the Dh1,200 capital saved, but the compounded interest too — which makes it Dh1,280.933. Do this for 10 years, and you have Dh23,233.91, 1 per cent at a time. Now let’s bump up the figure. Imagine you save Dh1,000 a month, with the same 1 per cent interest rate over 10 years. At the end you have Dh232,339.08.

While 1 per cent can seem so insignificant, add it all up and give it time, and you have a huge result.

Now imagine you added another 1 per cent to each month’s savings pot.

So you’d go from Dh100 to Dh200 to Dh300 a month … that’s a bigger ask, but you get the idea. You start with a 1 per cent change, then make that your new normal before adding another 1 per cent change.

Before I had a child, I used to hike, bike, and kayak across countries. A friend that travelled with me used to process our seemingly impossible treks by focusing on what was right in front of her. She made it a case of simply putting one foot in front of the other rather than thinking of the trip as a whole. It’s not quite 1 per cent but you get the idea; it’s the consistent little steps, habits and things that you do that will get you to where you want to be.

So, besides keeping 1 per cent more of your earnings each month, what other habits are you going to create, and live by, 1 per cent at time?

Forget the new you and make it the permanent you. Ditch the goal and embrace the process 1 per cent at a time.

Nima Abu Wardeh is a broadcast journalist, columnist, blogger and founder of S.H.E. Strategy. Share her journey on