Transcription
So, a few months ago, I was chatting to the son of one of my wealthiest clients, and he said something to me that, for the first time in a long time, completely changed how I think about money. So, we were going through his finances, pretty routine stuff, right? And looking through his paperwork, and he just kept repeating this phrase: "I just have to stick to the 100K rule. My dad said it's non-negotiable."
And I'm sitting there thinking, "What the hell is the 100K rule?" I've literally never heard of it before. It turns out it is something that wealthy families teach their kids, like a rule that they pass down. It's something that millionaires treat as non-negotiable. And once you kind of understand the math behind it, you'll see exactly why, to be honest with you.
So, by the end of this video, you will know exactly what the 100K rule is. You'll see why it's the tipping point that changes everything, and I'll show you the fastest way to get there. So, let's break this down.
What is the 100K rule? Well, it's dead simple. Your first priority, before any fancy car, any nice flat, anything like that, is to get £100,000 in savings and investments. Not tied up in your house, not your car. Liquid, invested wealth. Why? Because £100,000 is the absolute tipping point. And I do not use that word lightly.
So, here's what's happening. Let's say you are investing, say, £800 a month. That's £9,600 a year, which is brilliant, by the way. Now, let's assume that you've already got £100,000 invested and it returns about 8%, which is roughly in line with the historical average of a diversified portfolio. So, that is £8,000 returns in one year. In this case, your money is almost making as much as you are putting in.
I remember showing this to one of my clients last year and he was like, "Wait a minute. So my money is basically growing as much as I'm earning and then putting in?" Exactly. That is literally the whole point. Before 100K, you are doing the heavy lifting. Every pound into your account came from you, from your effort, your sacrifice. But after 100K, your money, it starts like pulling its own weight, right?
So, let's assume you've got 200K and you're making that same £800 per month contribution with 8% of returns. Your investments are earning £16,000 while you're contributing £9,600. Your money is working way harder than you are. So, can you see how it changes at these various levels?
And millionaires know that this is the hardest part of the journey. The first 100K can take 10, 12 years, but they know that once you hit it, the game completely changes. So, they make it an absolute non-negotiable thing to try and hit that as hard and as fast as humanly possible.
I'll show you exactly how to get there faster in a minute, including one trick that's basically free money. But first, you need to see the timeline because that's what makes the kind of whole thing real. But here's what they don't tell you: knowing the rule isn't the hard part. It's surviving the timeline because the first 100 grand, it like weirdly plays tricks on your brain.
So let's say, let's say that you start from absolute zero, saving that £800 a month with average 8% returns. How long to hit 100 grand? Eight years. Eight years. That is going to feel like forever. But here's where it gets wild. With 100K already invested, the same contributions, how long to get to 200 grand? Four and a half years. You just cut the time basically in half, right? Then it gets crazy. 200 grand to 200 to 300 grand, that's about three and a half years. 300 grand to 400 in under three years. And this is exactly why millionaires treat the 100 grand rule as non-negotiable. You've just got to get to that 100 grand mark as soon as you can.
Think of it a bit like rolling a snowball down a hill, right? In the beginning, you're packing snow into it with your bare hands, right? It's cold. It's slow. It's kind of miserable, right? Honestly. But once the snowball gets big enough, it starts gathering snow on its own, doesn't it? Faster than anyone can actually manually pack onto it. That is compound interest. In the early days, you're putting in £800 quid a month and making maybe like £50 in returns. It feels pointless, but it's building. It's snowballing.
And here's something crazy. There's this like famous story in the investing world that the best performing accounts on any platform or with any company or whatever are the ones that belong to people who have either died or forgotten their login details. Now, whether that's an urban legend or real data, every advisor I know has seen that principle hold completely true. The math works when you just don't quit.
So here's the question: Are you the type of person to check your account every day and panic, or can you leave it alone and let it work? The survival period is the hardest. This is why the first 100k is brutal emotionally. You are grinding month after month, watching your balance crawl from like 20k to 35k to 50k. It feels like you're literally never ever going to get there. I've been there. But then you'll start hitting 75, 80, 90, and suddenly things start like they feel like they're moving forward. You're seeing £500, £600, £700 worth of returns in a month, and you're thinking, "Oh, hang on a minute." Then you cross the magic 100 grand mark. And that's when you realize this is actually going to work. The math isn't lying. You just had to survive that absolutely brutal first phase.
So, drop me a comment and tell me where you are in your journey. Have you hit your 100 grand yet? Or are you halfway there? Are you just starting? I'm going to read every single one of them. So, just let me know. I'm really interested to know. But regardless of where you're starting, the goal is exactly the same.
And now you see why my client's son was so obsessed. His dad didn't just say to him, "Arbitrarily, just save money." He gave him a finish line, a goal to make him work a little bit harder. Now, the real question is, how do you get that line? How do you get to that line? How do you cross it as fast as humanly possible? 'Cause every year you shave off this timeline is a massive win. If you hit a hundred grand at 30 instead of 35, that's a five-year head start that could be worth over £400,000 by the time that you retire. Not because you saved more, just because you started the snowball rolling sooner.
So, let's talk about strategy. Okay, strategy number one: You just need to crank up your savings rate. Okay, most people invest like, well, if even if they do, 5-10% of their income, that's your typical saving rate. But if you're serious about the 100K rule, you need to ramp it up. You need to be looking at 20 or 30%. Okay? Really, really important.
So here's the math. On an average £40k salary, saving 10% means that you're saving £4,000 a year. Obviously, at that rate, it will take you roughly 14 years to hit 100k. But if you bump that up to 25%, that's £10k a year, and basically, you get there in 7 years. Same salary, half the time. That is absolutely huge. Now, I know that sounds obvious and simple, but literally, you've just got to crank up the amount that you're putting away to start off with. In the early stages, contribution levels mean everything.
So, how do you do it? Well, one of the big ways is just trying to live below your means in your 20s and your 30s. So, one thing you can do is every pay rise, increase your contributions, not your lifestyle, right? So try to cut the big three or keep a mind on the big three: housing, child-born, food. I know that sounds rough, but thinking of it this way: you are buying yourself essentially years of freedom later. Someone who hits 100 grand at 28 can genuinely coast into a comfortable retirement. Someone who hits it at 40 is kind of playing catch-up for decades. Not forever, but just until you hit the 100 grand. And that's when the numbers take over.
Now, most people hear that and they think, "Great, I'll just save a little bit harder." But saving and investing are not the same thing. And confusing the two, that is the most expensive mistake that I see on the road to 100K. Which leads me to strategy number two.
Stop saving. Start investing. Here is where most people absolutely sabotage themselves. They're putting money aside each month, which is great, but it's just sat in a bank account earning four, 5% if you're absolutely lucky, and they're telling themselves, "I'll invest when I have more money." That is a huge, huge trap.
Now, listen, because this bit winds me up. I see this constantly. People sitting with like £30, £40,000 in cash telling me that they are being careful, and I'm sat there thinking, "You're not being careful at all. You're being robbed by inflation every single month." Here is what the numbers actually look like: £500 a month into a savings account at 4% over 8 years gives you £56,000. Not bad at all. But if you invested that same £500 at 8% average returns, you would have £67,000. That's an extra £11,000 just from investing rather than savings.
Now, obviously, it's not always that simple, but this is a really good point to illustrate the benefits of trying to get that extra return. Here's the bit that will definitely get you: that £11,000 of difference doesn't just sit there. It keeps compounding over the next 20, 30 years. By retirement, that one decision of investing, saving, investing instead of saving, sorry, could be worth over £100,000 to you for the same money. That's just the cost of waiting and not doing it right.
So, do something simple. Open up a stocks and shares ISA. Even if you kind of fully don't really understand investing yet, just get it moving. Put it into something like a low-cost global index fund, something like that, or a risk-appropriate ETF for you, Vanguard Life Strategy range, something like that, that's basically just set and forget. Start contributing monthly automatically and just get it done.
I've actually, on this note, got a great app that you can download for free in the link below that will help you understand how much you can actually move from savings into investments. It's called the Headroom app. Um, I'll throw something up on the screen here now so you can see it. Grab it in the link below. This will really help you with this decision of saving versus investing and how long you can, how much you can shift between the two.
Now, strategies one and two, that's what everyone should be doing, right? But this next one gives you an absolute unfair advantage. This is how normal people on normal salaries shave off years of the timeline. Strategy number three: Eliminate tax drag.
Here's the problem. If you're earning like £50,000 and you try to invest £10,000 a year from your take-home pay, say through an ISA, well, you need to earn that £10,000, pay 20% or more tax on it, and invest what's left. So, in that scenario, let's say you're a basic rate taxpayer. You only get £8,000 in your bank account that you can put into an ISA. So, you've lost £2,000 or more to tax before you've even started.
But with a workplace pension through salary sacrifice, you keep every penny. That £10,000 goes straight into your pension before the tax man even touches it. Zero tax. You've literally just saved yourself £2,000 instantly, and your money starts compounding much from a much higher base. Plus, this is where it gets crazy. A lot of employers will actually match your contributions up to a cap, typically anywhere from like 3 to 6% of your base salary. Just check yours out. You might be surprised what they would actually pay you.
So, let's say, for example, on a 5% employer match, let's say you pay £2,500, your employer will match that to £2,500. That is £5,000 into your pension from just £2,500 from your gross salary. If you'd have taken that same like £2,500 as income, you only would have gotten like £2,000, maybe less, after tax. So getting £5,000, £5,000 invested for what would have been £2,000, £1,500 potentially or less in your pocket, that is basically an instant 150% return.
Now remember the snowball analogy from earlier. This is like someone like packing snow onto it for free for you. Your employer is literally adding to your snowball and you don't have to do anything except just say yes. Most people don't. It's crazy to me. And also, you can scale it up, right? If you want to invest £8K in your total year, first £2,500 gets matched. Boom. That's £5,000. Add an additional £3,000 via salary sacrifice with no match. Well, that's still tax-free. So, totaling to your pension in that case, £8,000. Same money through an ISA? What? £6,400 if that. If you're lucky. Not the same.
So, through an ISA, putting in £6,400 a year takes you just over 10 years to hit 100K. Through a pension, putting in £8,000 a year, you're getting there in under nine. That is the same money leaving your pocket. But one account gets you to the finish line a whole year earlier. And that's before you even put in employer matching. And that will absolutely exponentially ramp that up even more.
Now look, okay, yeah, sure, pensions, you're locked in until you're at least 55, rising to 57 in 2028. But honestly, I genuinely believe that that is a feature. It forces you to leave it alone, which means it compounds untouched, and 25% of your pot comes out completely tax-free when you do take it.
So, here is your priority in my opinion. This is the bit that you might want to screenshot: Max out your employer match first. That is free money. Then you might want to build an ISA alongside for a little bit of flexibility and accessibility. If you do both, you are racing to 100k with two engines instead of one. And if you know someone who is leaving their employer match on the table, send them this video. Seriously, it could be worth thousands, thousands of pounds to them.
Now, here's the thing. Everything that I just kind of showed you about racing to 100k falls apart if you've got like wealth leaks that are draining your money without even realizing it. And most people do, which is why you should really watch this video here next because it's the silent killer of compound growth. I'm going to cover the five worst ones and exactly how to plug them. So, give it a click and I'll see you.