"Ten per cent" is repeated so often that people ask for it. The honest answer is that the number is not a percentage — it is the largest amount you could lose and still meet every other commitment. Here is how to find it.
Step one: know the floor
Before anything else, be certain of the money that is not available for depositing:
- an emergency reserve — several months of essential costs;
- every committed payment in the next year: rent, debt, tax, school, insurance;
- anything you owe someone.
Step two: subtract honestly
What is genuinely left after the floor? Not the number that looks good on a statement, and not the amount that would not change anything this year if it vanished. The second one.
Step three: halve it
Halve what is left, then choose a tier. The halving is not superstition. It is the margin that lets you sit still through a bad cycle instead of selling — and sitting still is what makes the difference between a plan working and a plan turning into a loss you act on. The volatility is real; the margin is how you are unaffected by it.
Step four: check the horizon
The plan's cycle must end before you could need the money. If it does not, the amount is wrong regardless of the arithmetic — cycles are fixed.
Step five: stress it
If this went to half next month, what would change? Write the actual answer. If it names a commitment, go back to step three.
Step six: write it down and stop
Amount, plan, horizon, and what you do in a bad month. Then stop recalculating — why a written plan ends the daily second-guessing.
Whatever number you arrive at: it should be an amount whose loss would annoy you, not end you. If it would end you, it is too large, and no tier changes that.