The 3 numbers that can make you a millionaire


Last week I gave a talk to a room of people about 3 numbers that can change your life.

I’d been invited to speak to a London team of an American multinational company by a reader who is a good guy and an unusually enlightened manager.

He’d been struck by the lack of unbiased financial guidance that his team had been receiving from financial advisers that the HR department had got in.

I had to create some content for my talk but I didn’t play on the whole “quit your job” thing as it seemed inappropriate in the circumstances.

So instead I kept it factual and illustrated the power of getting your financial act together via The 3 Numbers That Can Make You A Millionaire.

You may have read some of this before. But there’s a big difference between a) having read something and b) taking action to follow it through to its logical conclusion.

Here are the 3 numbers, illustrated with fictional characters.

1) The age you start saving

We are told by the media that there is something called a “Pensions Crisis” and its impossible to save enough for retirement because we live too long and earn too little.

But meet Kate…a bright school leaver who gets a job aged 18. Unusually, Kate does not go to university to learn how to eat vodka jelly but instead gets a job that pays, say, £16,000 and lives with her parents for the first couple of years before sharing a cheap house with roommates.

As a result, Kate avoids taking on student debt…which is great because having debt is like your compounding machine getting stuck in reverse gear, pushing your net worth backwards. Instead, Kate is able to start saving after the first 6 months.

Over the next 7 years, our heroine does well and learns stuff at work that actually helps her in life. Things like how to work hard, deal with people and use basic arithmetic. And she does not spend all her salary on knick knacks. Instead she saves, paying herself first every month, setting up a direct debit to stash £167 per month for a total of £15,000 over that period.

Kate focuses on what she can control and directs her monthly savings into a low cost equity index tracker. Kate doesn’t waste time on pointless speculation about what future equity returns might be because who knows?  Kate understands that shares are the asset class that have delivered the highest returns over long periods and can’t see why that won’t continue.

Kate saves £2,000 per year until age 25 when she stops making contributions into her pension. She doesn’t do anything else with her pension for the next 40 years. Fortunately, Kate’s TV is broken so she doesn’t see the circus clowns encouraging her to panic or sell when the stock market falls.

Kate is lucky to start investing at a favourable point in history where people, for the most part, focus on innovating and creating wealth rather than fighting wars to colonise and exterminate each other. As a result, Kate gets roughly the same annual return (~10%) as the S&P 500 has done over the last 100 years or so.

Kate never really earns big money. She’s only human so she sometimes wonders what it would be like to earn a lot or win the lottery.  But something inside tells her that spending doesn’t equal happiness so she just focuses on living a good life and improving the things she can.

At age 65, Kate fires up her laptop and is pleasantly surprised to see that her £15,000 of contributions have grown to just over £1 million.  True, inflation means that a million pounds isn’t worth as much as it used to be.  But, based on a 4% withdrawal rate, this is probably enough to provide Kate with £40,000 per year (inflation adjusted) for ever.

That is fine for Kate who just wants enough to buy champagne from Lidl occasionally and buy presents for her grandchildren without worrying if she can afford it.  So she retires.

Being a cautious sort, she spends less than £40,000 per year and lives for another 15 years until the age of 80, by which time her portfolio has continued to grow to £1.25 million, which she leaves to her children and her favourite charity.

On her deathbed, peacefully surrounded by her loved ones and having achieved everything she really wanted in life, Kate realises that she could have spent more time in the office and afforded to buy more shite.  But she’s just fine with that.

2) The investing costs you pay

Meet Keith.

Keith is an intelligent and successful guy who is kept very busy by his full-on job. He gets up early in the morning, goes to bed late at night and works hard for his success. Keith has done really well in his career to date. He progressed quickly up the ladder of seniority and is one of the younger senior managers in the firm.

The good news for Keith is that he earns a salary that is very high by the standards of 99.9% of the world’s population.  The bad news is that Keith doesn’t feel like he is rich, partly because he is surrounded by other high earners who are fronting and maxxing and partly because his spending inflated as his salary grew.

Now you might imagine that if you earned a salary like Keith’s you would be set fair and financially independent in just a few short years.

Unfortunately, Keith is too busy to get rich. He has an elaborate and expensive infrastructure to maintain.  He has outsourced everything to an army of cleaners, gardeners, tradesman, nannies and financial advisers.


Like most highly paid people, Keith works in a highly specialised niche. This allows him to earn a lot but unfortunately he has not applied his talents to managing his own money.

Keith’s portfolio is being “looked after” by a financial adviser…in much the same way that Dracula would look after your blood bank.

Keith has done well and has accumulated a portfolio of, say, £750,000. But unfortunately Keith has no idea that he is paying £18,000 a year (2.4% per year) in fees.  The fees are automatically deducted (silently and invisibly) from his portfolio and, strangely enough, this £18,000 total doesn’t appear anywhere on the reams of crap paperwork he gets sent by his financial adviser.

It gets worse because those fees grow and compound over time. So Keith is going to end up losing about £3 million over his lifetime. This is a direct result of the fees taken from his portfolio and shared between his financial adviser and other intermediaries (fund managers, brokers and strippers). This money will not go to the family that Keith works hard to provide for.

The Escape Artist has previously talked about this with Keith. In response Keith shrugged and sighed. He’s busy and he’s not an expert on investing: what else can he do?

The Escape Artist respectfully pointed out that if Keith were to fill in a simple form he could move his money to a low cost broker and invest it in a simple portfolio of index trackers where he would pay fees of just 0.15% per year and make an extra £16,875 in the first year alone. And he would avoid losing almost £3m over 40 years.

Keith’s response to this was:

Yeah, good point. I really should get round to doing something about that…but I’m a bit busy right now.

That was some time ago.

Keith is still busy working in The Prison Camp.

3) Your savings rate

Perhaps one of the reasons that Keith never filled out that form and avoided losing that £3 million pounds is that it seemed too good to be true?

Or perhaps Keith was confused about something else that The Escape Artist had told him?

You see, Keith and I used to work at the same firm together. They both had the same title and grade. But Keith knows that he was paid more than me.

So whilst what I said was logical, Keith was puzzled when I talked about being able to afford to retire in your early 40s (or even sooner). How on earth can someone who was paid far less than him afford to stop working? It just didn’t seem to make sense.

But this mystery is not difficult to solve.  The maths is simple. You probably have enough to never need work again, if you have 25x your annual spending. So if you spend £25,000 a year, you need a portfolio of £625,000 (25 x £25,000).

So for every £1 you reduce your spending, the amount you need for enough falls by £25.

Having a high income only helps you get to financial independence to the extent that you save more. Yes, good investment returns help, no doubt about that.  But the key to getting to financial independence quicker is increasing your savings rate.

You can use the FI-o-meter to run the numbers for yourself. But here are the key points:

  • At a saving rate of 10% or less, you are setting yourself up to have to work for 50+ years.
  • But at a saving rate of 50% you get to financial independence in 17 years (if you start with nothing).
  • And if you can manage a 75% savings rate, it takes only 7 years to go from broke to financially independent.

If you haven’t seen this content before, you may (like the inmates I spoke to) be a bit shocked and wonder:

why has no one has told me this before?

It’s a good question. The answer is that there is no money to be made from telling people this.

But it’s the truth.


  1. wow, wow, wow I love the Kate story
    if only I had known this at 18.
    this info wasn’t accessable as it is now.
    ive been sensible with my money and saved well, bought and paid for my own home but never invested … if only…..
    never mind ive still done ok, but could have done sooooooooooo much better!!1

    1. Thanks Dawn. The universe needs you to pay it forward and find an 18 year old to send this article to…

  2. This is good advice for all people out there, especially the younger ones as they have the age parameter that boost them.

    Here is my situation

    Age: around 40, this means that the time already has had some compounding. I have done welll, but could have done better if I applied 2 and 3 better. Still, I guess I am ahead of the mass at my age.

    Investment cost: I go for index funds now. I have been savings account, mutual funds in the past. I decided to keep the mutual funds for their historical performance in bear markets – lets see what the next bear brings.

    Saving rate: Has always been ok, since I read blogs like this, it has gone up a bit.

    I hope to pass on this knowledge to my kids, so they can be like Kate

  3. Wonderful stuff. You’d have a field day at my prison camp. I’m surrounded by some of the highest earners in the country. At first I was in awe of their earnings, now I’m in awe of how the hell most of them are still working way into their 50’s and even early 60’s (if they haven’t been trollied out by then). My Boss, who earns about 10x my salary is already at the age where I will have stopped work and I only started seriously tackling FI a few years ago. He’s been there 32 years. Saying that I was no Kate in my early years, it was more like a Smirnoff Ice advert in overdrive.. Your talk should be compulsory on the national school curriculum.

    1. Based on the trolley reference and the ages that sounds like a Big Law prison camp to me 😉 …tough to break into, even tougher to break out of!

      all the best and thank you for your kind words Starla

  4. Loved this post. Feeling sad for Keith. I was him once.

  5. Hi Mr TEA

    Firstly very much enjoy catching up with your latest posts.

    In Kates example above,for her to have £1m today aged 65 she would have started work aged 18 in 1969. A quick search shows the average salary then to be apx £2,000 so to be earning £16k in 1969 to stash her £2k away she would be earning 8 times the average wage back then, equivalent to an 18 year old making over £200k today.
    I appreciate this is a made up scenario to illustrate compounding time in the markets so don’t mean to nit pick but am struggling to see how saving that much money 40 years ago on an average wage would work in practice, or am I missing something?

    Regards Woody

    1. Hi Woody. Kate starts on a realistic wage of £16,000 in todays money…and she ends up in 47 years with £1m. That £1m will of course be worth less in real terms then than it is now due to inflation. Which is all the more reason not to sit in cash but rather to invest in assets like equities that should outpace inflation.

      All the best, TEA

  6. Ok thanks, i see what you mean.
    Hopefully, for a Kate starting today, with inflation included, her £1m nest egg generates £40k a year in 2063 will be enough to cover her living costs, save a few £’s and treat herself to the odd bottle of Lidl bubbly, cheers.

    1. The principles here are sound and everyone should follow them. However, the examples are extreme.

      Woody was making a very good point about inflation. Kate’s returns are the S&P average of 10% per year. However if you say inflation is an average of 3% per year that £1m turns into £303K in today’s terms. If your returns averaged 8% instead of 10% it becomes £130k. Kate would be better to continue that £2000 savings if she wants to get to £1m!

      It still makes the point but is a bit more realistic. Still, saving £130k from £15k is more than worthwhile.

    2. Dickrog · · Reply

      That’s true Woody, but in this hypothetical example, Kate only saved £15k over 8 years and was evenutally able to create a £40kper annum passive income from it. Just *imagine* if she had a higher savings rate, or if she saved for a longer period of time.

  7. Hi TEA, I was about thirty when I learned the lessons you outline above, courtesy of the Motley Fool. It literally changed my financial life and I hope your talk (and post) likewise affects someone the same way.

    1. Thanks…I wish I’d known all those lessons at 30!

  8. John of Hampton · · Reply

    The point here, actually, is to start saving early and to be thrifty from the beginning (“Spending money doesn’t equal happiness”). However, given the pressure on young people to go to university, it is worth seeing what this leads to. Thriftiness would suggest that they should not set up home miles away to attend university but go to their local university (and why not.? It is what all of our European competitors expect their students to do…). This would minimise the necessary student loan. In my rough calculation, this reduces the earning period by 3 years and takes about £50000 off the savings. The result is an admittedly reduced retirement income, but at around £29000 a year, it still acceptable AND above the current average income in the UK. In reality the shortfall could be made up by saving for longer.

  9. moneycounselor · · Reply

    Very nicely done, thank you! The overall message I think of your ‘case studies’ is that long-term financial success is a function of, more than anything else, our choices. A few of course just have a bad go of it–health challenges, larceny, etc.–but for the overwhelming majority, we write our own financial ticket, whether or not we’re conscious of it.

  10. Wonderful post! I knew after graduating that I needed to save money and “pay myself first” but had no idea on how much to save or where to save it. I wish I was like Katie and had known about indexed investments at the early age of 22. Thankfully my husband had a very informative seminar at his first employer about saving for retirement so we are doing better than the average Joe.

  11. Wonderful post! I started investing when I was 21 and hustled my butt off to pay off student debt. ‘Having a high income only helps you get to financial independence to the extent that you save more.’ YES. plus invest the savings. To help with living under your means: a quick rule is amortize your purchases to get the $/day. Is it worth that purchase? Value for money is key.

  12. serenity · · Reply

    I wanna be kate…. too bad i’m already 30 and only started contributing to my retirement 3 yrs ago…

  13. How many Keith’s do we all know? Other than a fateful google search a few years back I could be him.

    Just saw you’re now offering financial coaching TEA. Thats fantastic. Great to start the lifestyle business on your terms

  14. Kate’s story will definitely be an inspiration for those who are unable to go to universities and get education. While Keith’s story will be a lesson for those who easily get to universities for higher education and for those who take loans to continue their education. Education is very important if one can manage to get education ,either with or without loan, he or she should go for it. But getting paid more does not mean that you will be financially better and stable as compared to those who are earning less than you.
    The more one earns the more he focuses on showing his wealth to others. This is achieved by buying expensive residence, cars, cellphones, food items etc. In short everything that is bought is to show others how wealthy I am. People hire managers or firms to manage their income and invest it. This is where the problem lies. We just waste our money which could have been saved for future use if we bought a less expensive item. Items that are bought should be just to fulfill ones requirements and not show off.

  15. This is such an awesome post. And I love the whole prison concept of your blog. It’s amazing how thinking about a few simple concepts can totally change your life! Looking forward to reading more from you.

  16. Those three numbers are absolute gold. And each drives decision-making at the lower levels. Often we just get too much detail from so-called experts to shield themselves with complexity.

    If we follow these three rules, the rest mostly sorts itself out. Thanks for spreading the gospel and helping others help themselves.

  17. physicianonfire · · Reply

    #4: Your income. All other variables being equal, including annual spending, additional income goes straight to the nest egg. Your first 3 are spot on, of course.

    1. Your income (and its upside potential) is a huge point and one that is often not seen as a superpower because most people believe in earning income from one major source.

      Side hustles have worked really well for me and helped created cash that accelerated the FI journey much faster.

      I am coming at this from a totally different perspective to most as a first gen immigrant to the UK. When sink or swim are the only options you have, you tend to do things very differently.

      TEA – Brilliant post by the way!!

  18. moorgate man · · Reply

    It is interesting to note that a few months later, half my team have altered their escape plans as a result of the visit by The Escape Artist. Most of them have started to move their investments into low charge funds/platforms and a couple have reviewed their spending!

    The rest continue to be a bit too busy and like the toys…. 🙂

    Sadly none of them have been able to do anything about their age….!

    1. Thank you for the update and the feedback….its great to hear when people take action and start putting themselves before their fund managers next Porsche!

  19. Hi TEA, I find this article very inspiring, thanks a lot for sharing… one question from a beginner in this topic: what about capital gains tax in Kate’s example?

  20. Enjoyed the info but damn that’s a long time to see any significant return or even enough cash flow to live the life you want to without trading dollars for hours. Technology has changed the game and those who have tapped into it are creating massive wealth. My personal mentors have created multiple seven figure a year passive incomes and now I’m learning how to duplicate their model by leverage. “A goal without a plan is just a dream” – Dave Ramsey

  21. […] Financial post: The 3 numbers that will make you a millionaire. […]

  22. […] favourite piece of advice relates to this Escape Artist Post and new parents, which because of my time of life I meet quite a lot of (parents that is, not […]

  23. 1 question about the ‘Kate example’ I’m in position where I am now getting involved in investing but as I am now 40 am playing catch up. I can max out my ISA every year – it worth going over that and taking the tax implications or just get up to ISA limit ? I take it CGT would be charged on the amount that was not sheltered by the ISA ? How would taking out 4% work ?

  24. Little Miss Fire · · Reply

    Some really good advice! Like everyone I wish I was Kate!

  25. Hi,
    Your analogy of $25,000 annual expenses goes to show that one does not need $1 million to retire.

  26. My son just turned 18 and we invested his saving and lump sums he got from folks when he turned 18 into a Vanguard ftse global all cap index fund.

    His target is now to follow Kates example, and get that pot topped up.

  27. […] The three numbers that count: The age you start saving, how much you save, and your investment charges. TheEscapeArtist has spreadsheets! […]

  28. Hi. Can someone help with how they calculate their savings rate taking employee and employer pension contributions into account.

    If for example :
    £2,000 Take home pay after pension contr and tax
    £250 employer contribution (already stripped out above as pre tax)
    £750 employee contribution (extra contributed and again already stripped out of the above as pre tax)
    £1,100 post tax savings into ISA

    This gives 105%!? Or should pension contribution be added back I.e. savings become £2,100 / £3,000 = 70%

    Can anyone shed some light


    1. How I do it would also give the 105% answer. To me it sort of makes sense as your start point is how much money you have to live on every month after your savings.

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