How to Save £100,000 by the Age of 25 – With a Normal Job

Admittedly, the headline to this article sounds a little like an online ad for a ‘get rich quick’ scam.

Millennials are more used to being bombarded with reports around how ‘generation rent’, have it tougher than the previous couple of generations.

Inaccessible property prices are making home ownership seem like an impossible dream for many of those in their twenties.

Forget about the good fortune many Millennials’ parents had in waking up 5, 10 or 20 years later to the financial boost that the value of their home has doubled or tripled.

Today’s 20-somethings are the ones that have to pay those inflated property prices if they want to have a roof over their head they can call their own.

And while it’s certainly still possible to see the value of a first property increase over the years, a repeat of the kind of growth seen over the previous 20-30 years does not seem like a practically possibility.

Being on the wrong side of the property boom is not the only thing impacting the wealth-building prospects of 20-somethings.

The globalisation and ‘casualisation’ of the job market have led to real wages, especially those of younger, more junior employees, stagnating and even dropping in recent years.

Job security is also widely considered to have dropped off. To get a foot in the door of that poorer, less stable jobs market, Millennials have been forced to take on far higher levels of student debt than those of previous generations.

Nonetheless, despite all of the doom and gloom of the picture just painted, building up a net worth of £100,000 by the age of 25, and doing so on a ‘normal’ graduate income, is not impossible.

There are plenty of examples of those who have done it.

The ‘rules’ followed by those who have succeeded in achieving a remarkable level of financial security at a young age are just as remarkably similar from person to person, demonstrating that there is no magic formula, just a regular formula.

Admittedly, it requires an unwavering dedication to thrift, and a little hard work or luck along the way to top up what can be saved from a modest salary, but it is possible.

Even for those who are not quite ready to make the sacrifices required to be among the ‘star’ savers who seem to manage the impossible, anyone who sticks to following rules should be able to save a good deposit for a first property or more generally start building net worth within a few years of entering the workforce:

Live Well Within Your Means

While it may not seem like it, even those living on a modest salary can almost certainly reduce their living expenses to 20% or 30% less than at present by making relatively painless cuts across the board.

  • Is that £3 coffee on the way to work necessary?
  • Why not take a packed lunch from home instead of going to the sandwich shop?
  • How much is spent in the pub or on brunches and dinners and lunches out on a monthly or yearly basis when meticulously calculated (it’s probably a shock)?
  • Would life really change if the amount of money spent on new clothes every year was halved and bargains searched out in the sales or second-hand shops visited?
  • Sell your items you do not use. Hit Ebay, Schpock and local boot sales.

Every ‘I saved £100,000 in 3/4/5 years’ tale has cutting the fat from day-to-day expenses as the central tenant to success.

Take on ‘Side Earners’ Where Possible

Depending upon pay bracket, which is unlikely to be too high for anyone in their early 20s, there will only be so much that can be saved from a modest salary regardless of how thrifty an individual is.

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Savings success stories almost always mention the fact that they took on extra part-time work whenever possible.

This will depend upon personal skills and knowledge, but whether it is building website on the side, selling things you’ve created,  or working as an Uber driver, there is usually always something that some evenings or weekends can be given over to that will bring in additional revenue.

Income from side-gigs should then be entirely put towards savings rather than considered as additional funds that can be used for little luxuries.

Put Money to Work

Savings being put to work to earn more money is also key. Over the long-term, compounding returns is perhaps the single biggest factor in growing wealth.

Over the shorter term it still makes a difference. Interest rates on regular cash savings accounts are currently lower than inflation rates so relying on interest alone is not the answer to building wealth with even 4-year plus savings bonds rarely offering more than 2.5% interest.

However, investing in financial markets through lower-risk index trackers, funds, company shares and corporate bonds can realistically yield around 5% per annum without putting savings in too much danger.

Even if markets take a downturn, historically this has always been followed by recovery so if savings have a longer-term horizon, investments such as FTSE 100, FTSE All-Shares or more globally diverse index trackers that have very low fees is a good option.

Doing so through an ISA or a SIPP, which come with attractive tax breaks, is even better.

Avoid ‘lifestyle inflation’

It is a very natural temptation to start allowing oneself additional luxuries if salary level increases and/or side earners start bringing in more money.

However, strictly adhering to the budget already in place and diverting all additional income towards savings is a solid rule the most successful savers stick to.

Use Windfalls Wisely

Reaching savings goals as impressive as the £100,000 by 25 headline figure probably needs a little help no matter how strict a saver is, or unless side projects start to become particularly profitable.

Windfalls such as an inheritance or other lump sum of cash again offer the temptation of spending.

Resisting the temptation to spend money that perhaps wasn’t expected and directly diverting all of it to savings funds is something a lot of savers don’t do and what can make the final difference in hitting headline figures.

Monitor Progress

And finally, monitoring income and outgoings on a daily or at least weekly basis, and also monitoring the steady growth of savings and net worth is what star performers usually say helps keep them on track and from getting careless.

So, whether you hit £100,000, or get to £75,000, £50,000 or £25,000, following the golden rules of super savers as closely as you can, or choose to, will put most Millennials way out ahead of their peers when it comes to financial security.

Life is for living but for most of us life will hopefully be long and healthy.

Keeping good spending and saving habits from a young age will help you enjoy all of it to the full, not just the first part!

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Last updated: October 16th, 2017

John Adam

John Adam co-founded iNVEZZ.com, a news, analysis and comparison portal for retail investors. iNVEZZ was acquired by Investoo in 2017.

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