The Rule of 300 is a shortcut that enables you to estimate how much money you’ll need for retirement or to achieve financial independence.
Even more excitingly, it enables you to estimate what any particular line item in your budget will require in terms of capital funding.
That’s right! The rule of 300 turns amorphous future you into a flesh and blood person with their own wants, needs, and bank statements.
And if future you wants – or needs – a monthly subscription to a luxury hot chocolate delivery service, then the Rule of 300 will tell you how much you’ll need to have saved up to pay for it.
Most of us find it hard to imagine paying for stuff several decades hence. But the Rule of 300 bends the space-time continuum to make it easier.
Basically right but specifically wrong
Let’s get one thing straight upfront. The Rule of 300 is not a scientific law that can’t be broken. It will probably always be off a bit. It’s just a rule of thumb.
Some of the assumptions behind the Rule of 300 are open to debate.
Moreover, thinking we can predict exactly what we’ll be paying for in 30 years’ time – from robot insurance to our annual getaway to the moon – is delusional.
But as always with investing: what’s the alternative?
All forecasting methods have downsides. Few compensate by being as simple as the Rule of 300.
We’ll return to the caveats later. Once you know what assumptions you disagree with, you can replace them with your own guesswork.
Let’s first outline the rule as it stands.
What is the Rule of 300?
The Rule of 300 is dead simple. To use it you need only two numbers – and one of them is always 300.
Take your monthly spending. Multiply it by 300. The result is how much you’ll need to have saved up to keep living like you do today after you quit your job.
Let’s say you currently spend £3,000 a month.
£3,000 x 300 = £900,000
The Rule of 300 says you’ll need £900,000 to quit work and still pay your bills.
(Or to tell The Man to go hang. Or to safely smirk in meetings. To swap your job to do something less boring for money instead. Or to keep loving your job with a safety buffer. You decide!)
Be sure to multiply 300 by your monthly expenditure today. Not by your monthly salary, or a guess at what things will cost in 20 years, or by two-thirds of your income, or anything else.
Simply enter your expenditure as it stands. The Rule of 300 tells you what you’ll need to have saved to keep spending this amount from your capital. (Probably!)
Do not include any regular ISA or pension contributions in your budget. For the purposes of this calculation we’re assuming you stop saving and start spending.
A spartan guide to using the Rule of 300
The Rule of 300 is the easiest maths you’ll ever do in personal finance. But to save you even more bother, here’s a table that shows how much you’ll need saved according to the Rule of 300, based on various monthly expenditures:
| Current spend (monthly) | Capital required |
| £750 | £225,000 |
| £1,000 | £300,000 |
| £1,500 | £450,000 |
| £3,000 | £900,000 |
| £5,000 | £1,500,000 |
| £10,000 | £3,000,000 |
Source: Author’s calculations
Depending on your lifestyle and your penchant for caviar and avocado on toast, those numbers may seem dauntingly high or very achievable.
But are you in the “HOW MUCH?” camp? Then the Rule of 300 is extra useful. It helps you see what your monthly spending habits will cost you in capital terms.
Let’s say you spend £12 a month on Amazon’s music streaming service. Multiply that by £300, and voila! You can see you need £3,600 saved today to keep the music playing indefinitely.
Not so bad, perhaps. However you may have other more onerous commitments:
| Spending | Monthly cost | Capital required |
| Gym | £30 | £9,000 |
| Premium AI tool | £50 | £15,000 |
| Golf club | £150 | £45,000 |
| Weekly meal out | £250 | £75,000 |
| Fancy car on PCP | £500 | £150,000 |
| Monthly mini-break | £800 | £240,000 |
Source: Author’s research (and bills)
I’m not judging. If your idea of retirement bliss is playing golf every day, then something has gone badly wrong if you’re not planning on paying for golf club membership.
However by looking through the lens of the Rule of 300, you might be motivated to cut back those things you don’t care about so much. This way you can reduce how much you need to save for financial freedom.
Maybe you were happy paying £10 a month for a Disney+ subscription when your kids were young. But now they prefer YouTube and you’re done with the Star Wars spin-offs.
Cancel the Disney subscription and that’s £3,000 less you’ll need saved up before you can declare financial freedom.
(Obviously you should be doubling down on your Monevator membership, though. We’ll keep you on the straight and narrow…)
The safe withdrawal rate (and the caveats)
The maths behind the Rule of 300 is based on a safe withdrawal rate (SWR) of 4% a year.
As you probably know, the SWR is said to be the money you can spend every year from your portfolio without (too much) risk of it running out before you die.
Here’s how the Rule of 300 works. Let’s say your monthly expenditure is £2,000. Over a year that’s 12 x £2,000 = £24,000. To find the capital required to fund that with a SWR of 4% we must solve (4% of Capital = £24,000) which is equivalent to (Capital = £24,000/(4/100)) which works out at £600,000. Alternatively, the Rule of 300 says multiply £2,000 x 30 0= £600,000. Ta-dah! Same!
Now, to say the safe withdrawal rate is controversial is an understatement. It’s the personal finance equivalent of the Kennedy assassination. People take it to mean different things, some of which may be contrary to the original research.
Some people are sceptical because it’s based on US investment returns for starters, which have been strong versus the global average. They say 4% is too high.
Others believe that the strong equity returns we’ve enjoyed for over a decade may mean future return expectations (and hence the SWR) should be lower.
And yet others believe 4% is too pessimistic. Bond yields have risen a lot. And anyway, the 4% rule was always too stingy in most scenarios, they argue.
Newer thinking – and our own Accumulator – even claims the SWR strategy can be improved by holding extra assets and using a variable withdrawal strategy.
Finally, some investing Luddites like me presume we’ll never touch our capital, but rather live off our income. We often coincidentally target an income yield of around 4%, even though the SWR research was based on spending everything.
Roll your own Rule of Whatever
I’m not proposing to win the SWR debate today. Just know that you can tweak the Rule of 300 to suit your own beliefs by reworking the maths to suit.
- Want to target 5% a year as your withdrawal rate? Then you can use a ‘Rule of 240’ to estimate how big your pot must be.
- Think 3% is more like it? For you it’s the ‘Rule of 400’.
Personally though, I’m sticking to the Rule of 300.
You’ll read all kinds of authoritative-sounding comments about what is the best number to use for either the SWR or as a rule of 300 multiplier.
Reflect on them, certainly. But understand that nobody knows, because we can’t be sure how our investments will pan out, how long we’ll live, nor how much money will really be required in the future for a decent standard of living.
Anyway, it’s only a rule of thumb. Keep it simple, Sherlock.
Not one rule to rule them all
Despite my rather analytical education, I’m not one for precise modelling in anything other than the underwear department.
Personally I don’t track my expenses or stick to a budget. I prefer to keep a rough idea of cash flows in my head.
I’m also not one for working out the exact amount of capital a person needs to target for some potential retirement in 23 years and three months’ time.
Back when I was still on my path to FIRE, I did sometimes look at what was needed to replace my income, but only as a ready reckoner. (This method targets pre-tax salary, unlike the Rule of 300’s after-tax spending. Both have their uses.)
I’ve nothing against precision, if that’s your bag. There are pros and cons to most approaches, and we can all learn from each other.
However even if you’re more particular than Dr Spock, note that the Rule of 300 demands zero effort in your everyday thinking.
You may have a 30,000-cell spreadsheet at home in the lab, but the Rule of 300 can still be a useful shortcut.
Much better than nothing
Most people don’t even have a financial plan written on the back of a napkin. They haven’t the foggiest what they’ll need to have stashed away for when they no longer receive a regular pay cheque.
Even high-net-worth individuals can seem deluded, while many of the less wealthy appear to think they’ll enjoy round-the-world cruises on the back of saving £50 a month.
At the other end of the spectrum, some people assume they’ll need so much money put away that ever stopping working is unrealistic.
Does any of that sound like you, or someone you know? Then the Rule of 300 can be a good start in getting a grip on things.
I repeat, it’s not a scientific law.
But in terms of changing how you think about your own financial needs, the Rule of 300 might be as significant for you as that falling apple was for Sir Isaac Newton!
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