Building wealth: three rules
I retired from finance at 42 by following three simple rules. I wrote them down partly because of something I kept noticing in my industry: plenty of successful people had mastered the first, and were very well paid, but hadn’t really figured out the other two.
A big salary doesn’t make you wealthy if it all gets spent, or if a large slice of what you save goes on fees and tax. The second and third rules are where most of the difference is made, and they’re open to anyone, whatever they earn.
1. Get good at something people will pay you for
Your earning power is your biggest asset, especially early on. Skills that are scarce and valued compound too: each year of getting better makes the next pay rise, promotion or client easier to win. Time spent on your craft usually pays far more than time spent on stock tips.
2. Spend less than you earn
The gap between what you earn and what you spend is the only thing you can invest. Early on, how much you save matters far more than how cleverly you invest it. At 6% a year, saving £300 a month for 25 years grows to about £203,000. Finding an extra 1% of return on that £300 gets you to about £235,000. Saving £500 a month instead gets you to about £338,000.
3. Invest your savings well: mostly in shares, inside an ISA or pension, and keep fees low
Over long periods, owning shares in good businesses has beaten cash and bonds, though with ups and downs along the way. Hold them inside an ISA or pension so the growth isn’t taxed, and keep the costs down: 1.5% a year can take a third of a pot over 30 years. The fee calculator shows yours, tax and your money covers the allowances, and the coast FIRE calculator shows when you could stop saving.
Why starting early matters so much
Compounding means your growth starts earning growth of its own. The longer it runs, the more of the final pot is growth rather than money you put in. Try it:
| Start saving at | You pay in | Pot at 65 | Of which growth |
|---|---|---|---|
| 25 | £96,000 | £381,536 | £285,536 |
| 35 | £72,000 | £194,903 | £122,903 |
Starting at 35 instead of 25, you’d need to save about £392 a month to reach the same £381,536.
Where moatshark fits
Rule 3 is where most people overpay. The great investors on this site show what patient ownership of good businesses looks like, and you can learn from what they own for free. If you pick shares yourself, My portfolio shows your holdings the way an owner sees them: your share of the profits, not the price on the screen.