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How to become a millionaire – the surprisingly easy way

How to become a millionaire? The question we all ask ourselves and dream of growing up, right? The problem is, no one tells us how to do it. We all know it helps to have a good job and save some money, but if it was that straight forward, why isn’t everyone a millionaire?

Put simply, anyone has the potential to become a millionaire. However, it takes a few key ingredients, ambition and a solid plan. That’s where we step in. In this article, I’m going to show you how you could become a millionaire in a simple straight forward way. In fact, it’s the plan that I use.

Of course, we mustn’t forget what not to do. Are you doing things that may actually stop you from achieving millionaire status? For many of us, becoming a millionaire is technically achievable. But have you got what it takes?

Can anyone become a millionaire?

Becoming a millionaire typically requires you to save a high percentage of your salary and invest it wisely.

Dave Ramsey, an American financial ‘guru’ who achieved millionaire status at 26, lost it all within a few years. He then went about building himself back up to become a multi-millionaire once again. From the lessons he’s learnt, he now advises starting to invest early and consistently. Of course, his advice also includes staying away from debt and cutting your expenses.

The Financial Independence, Retire Early (FIRE) community champion similar advice. Many members from the US have gained notoriety by funnelling huge chunks of their salaries into low-cost index-tracking investments. As a result, many reach that coveted millionaire milestone as early as their 30s and some even in their late 20s.

In the UK, salaries are not so lucrative. While we can take cues from our American counterparts, we often have to adjust our timescales.

How do I know? Because what I describe below is the framework I have used to significantly increase my net worth. Over the 20 years I’ve been investing, I’ve come to realise that there are just a few key ingredients everyone needs and some simple math.

Let’s look at those key millionaire ingredients that pretty much all of us have or can learn, so you too can plot your course to that illusive seven-figure net worth.

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

The three key ingredients to becoming a millionaire

Money, Discipline and Time are the key ingredients to becoming a millionaire. Here’s why they are important.

1. Money

Firstly, in order to become a millionaire, you need to save or invest as much of your salary as humanly possible. If you’re spending every single penny from your paycheque, you simply won’t be able to save or invest. Put simply, the more free cash you have, the quicker you can become a millionaire. If you want to learn how to free up some cash then check out our Budget like a Pro article. It’s essential you have a decent chunk of your salary available to pay into your millionaire fund. Without this, you’ll never make it.

2. Discipline

Secondly, once you’ve freed up some spare cash, it is essential to maintain focus and stay disciplined. You need to stick to your plan each month to ensure you create a money snowball that you completely ring-fence. As you save, your money snowball will start to grow larger and larger. Taking money out of your snowball will only slow things down dramatically and potentially sabotage it completely.

Discipline is often one of the hardest factors. Most people can save for a few months, at least. After this point, life gets in the way. You might want a new car, a bigger house or you might have a financial emergency. Either way, withdrawing money from your fund or stopping your monthly payments is going to have a negative impact.

3. Time

Finally, the most important ingredient is time. Given enough time, even a small amount of money can make you a millionaire eventually. For example, if you were to invest £40 per month when your child is born and continue to do so until their retirement age of 65, they’d be a millionaire.

Essentially, 65 years of compound interest from investing in the stock markets with an 8% return can do a lot to £40 per month. However, if you’re like me and don’t want to wait 65 years, then read on.

How to become a millionaire

With interest rates at all-time lows, sticking your cash in a savings account is not going to result in becoming a millionaire in any reasonable timescale. Put simply, you’re going to need to find better returns in order for your wealth to reach millionaire status.

In fact, even if you managed to save a massive £1,000 per month and put that money into a Marcus savings account with 0.5% interest, even after 40 years you’d have around £530,000.  That’s an increase of about £50,000 on top of what they put away. In total, whilst that’s not a small sum of money, neither is it the £1 million we’re after! Plus, most people can’t afford to save £1,000 per month.

By contrast, a savvy investor who manages to save just £300 per month and gets an average return of 8% from the stock market, would end up a millionaire over the same 40 year time period.

To illustrate, the comparison diagram below shows just how big a difference a higher return or interest rate can have on your funds. We see the savvy investor putting away £144,000 over the 40 year period. However, the money snowball this has created by investing has accumulated an additional £900,000! That’s in comparison to the £50,000 increase the saver saw from putting away more than three times the amount each month.

Where and how you invest your money can be more important than how much you save.

How to become a millionaire - Saving vs Investing

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What return can I expect from investing?

Unlike a savings account, investments don’t return a fixed percentage. So your returns are going to be different each year. This is one reason why investments are considered riskier than basic saving accounts. Some years your returns could be positive and some years they may be negative. To be 100% clear, this might mean that you could save for a year and end up with less money.

While that might sound scary, historically, investing in the stock market has outperformed savings accounts by a long way. Of course, no one can predict the future based on the past and there are no guarantees.

Below is a chart showing the calendar-year returns for the FTSE All-Share Index over the past 20 years produced by Vanguard (source).

Average FTSE All-Share Returns 20 years

As you can see, performance varied massively over that time. Returns of 15%+ are common, however, significant drops every few years are also typical.

If you started investing in 2005, you would have seen three years of poor performance. At that point, you’d probably be thinking that investing isn’t for you. You may even sell at a loss and more your remaining money into a bog-standard savings account. But, and it’s a big but, doing this would mean you just missed out on the next four years of 10%+ gains.

In fact, Vanguard states that the actual average returns over this period are 9.9% (source). I’ve used the more conservative 8% for our illustrations above, but you can play with your own figures and adjust your rate of return using this calculator.

Investing is too risky

Many people, even those good at saving money, are put off by the risk associated with investing. There’s no sugar-coating this – investing is riskier than a cash savings account.

Yes, investing can feel daunting and scary. However, this is usually born out of a lack of knowledge. Spending time learning about investing can pay off hugely over a lifetime. As you can see from the previous figures, you don’t need to invest a huge amount each month to realise significant savings.

That being said, there are downsides. You may well be worried about losing money, and rightly so, so it’s best to prepare yourself for your investing journey. To help with this, we’ve created an Investing for Beginners guide to cover the basics. Even if you’re already investing, it could save you thousands and stop you from making some common mistakes, so it’s worth a read.

Compounding - the millionaires secret

The impressive figures illustrated above are down to the power of compound interest. In fact, brainiac Albert Einstein is reputed to have described compound interest as the eighth wonder of the world. He went on to say that ‘he who understands it, earns it. He who doesn’t, pays it.’

The easiest way to think of compound interest is ‘interest upon interest’ (Investopedia). Essentially, this means that as your money earns interest, that interest then goes on to earn interest as well. Over time, the compounded results can be huge. I often refer to this as a money snowball; as it rolls downhill gathering momentum, it picks up more snow (ie, money) and becomes larger and larger over time.

There is one key factor that will make all the difference and that’s the rate of return you get from your investment.

In my example, the poor saver put over three times as much away each month (£1,000) compared to the savvy investor (£300). However, the investor ended up with nearly twice as much at the end of a 40 year period.

As a result, the investor became a millionaire, whereas the saver was only halfway there.

So, trying to save your way to becoming a millionaire using a savings account is going to take unrealistic amounts of cash (for most) each month to achieve your goal.

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Millionaires have a flexible plan

I need to put a very important clause here: savings rates have been very low for over ten years but they haven’t always been that way. Back in 2007, the Bank of England interest rate was above 5% (UK Bank Rate History).

If you were to compare a 5% interest savings account which is guaranteed against 8% variable returns from investing, then you may not be comfortable with the higher risk for the comparatively smaller difference.

Therefore, it’s key to have a plan that can be adjusted as required. If interest rates were to rise, then investing might not look so good. A guaranteed rate of 5% interest in a savings account may help you sleep better at night.

If interest rates do change significantly, it’s important to review your plan and the risk you are taking versus the reward. Set a date in your diary each year to review your plan.

You don’t have to go all in

Investing isn’t for everyone. Some people want guarantees and value stability. If this sounds like you, then investing might not be the right place for your money. Just remember there may be a compromise and you don’t have to go ‘all in’.

For those starting out, it’s often a good idea to dip your toe in the water. Instead of diverting all your savings into investing, you can simply start with just a small amount. Most investment platforms, such as Hargreaves Lansdown, allows you to invest with as little as £50 per month.

Importantly, starting your investing journey with small amounts of money will help you experience the ups and downs associated with investing. Because you won’t be risking large sums of money, any mistakes or fluctuations won’t cost your life savings.

In reality, although many people see investing as a get rich quick scheme, investing, particularly through index funds, can actually be really boring. Remember, chasing the next meme stonk is considered speculating, not investing. Speculating is simply another word for gambling.

Crucially, if you do have a tendency for speculating, then it’s best to start small. When I started investing, I was certainly more of a speculator. However, as the years progressed, I have moved more towards investing in index funds such as Vanguard LifeStrategy funds. For sure, less ‘exciting’ and volatile investments have certainly helped me sleep better at night and in fact, have actually returned better results for me.

How much do I need to save to be a millionaire?

I’ve created the table below to help demonstrate the power of compounding. For illustrative purposes, it’s built on the assumption of fixed returns each year. In reality, investing won’t be as linear as this, but it helps to paint the picture and give you some rough timescales.

Also, I’ve assumed you are starting from zero. However, if you already have another starting figure, you can play with your own numbers here.

Use the table below to work out how much you’ll need per month to save or invest based on the time (left axis) and interest rate (top row).

How much do I need to save or invest to become a millionaire?

1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
5 Years £16,247 £15,835 £15,431 £15,034 £14,644 £14,262 £13,887 £13,520 £13,160 £12,807
10 Years £7,921 £7,523 £7,139 £6,769 £6,414 £6,072 £5,745 £5,430 £5,130 £4,842
15 Years £5,148 £4,761 £4,395 £4,051 £3,726 £3,422 £3,137 £2,871 £2,623 £2,393
20 Years £3,763 £3,384 £3,039 £2,718 £2,423 £2,154 £1,909 £1,687 £1,487 £1,306
25 Years £2,933 £2,568 £2,237 £1,939 £1,673 £1,436 £1,228 £1,045 £886 £748
30 Years £2,382 £2,027 £1,712 £1,436 £1,197 £991 £815 £667 £543 £438
35 Years £1,988 £1,644 £1,346 £1,091 £877 £699 £553 £434 £338 £270
40 Years £1,694 £1,360 £1,078 £844 £653 £500 £379 £285 £213 £157
45 Years £1,466 £1,142 £875 £661 £492 £362 £263 £189 £135 £95
50 Years £1,285 £970 £718 £522 £374 £263 £183 £126 £86 £58
55 Years £1,137 £832 £595 £416 £286 £193 £128 £84 £55 £35
60 Years £1,014 £719 £496 £333 £219 £142 £90 £56 £35 £22
65 Years £910 £625 £415 £268 £169 £104 £63 £38 £22 £13

Example one: if I average my investments will return 8% each year and I want to be a millionaire in 35 years, I’d need to invest £434 per month.

Example two: my investments will return 3% each year and I want to be a millionaire in 35 years. I’d need to invest £1,346 per month.

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I don’t want to wait 40 years to become a millionaire

I don’t either! If you’re starting a little late (and later is definitely far better than never!) or want to become a millionaire sooner, the good news is that you simply need to adjust the proportions of your millionaire ingredients.

For example, let’s say you want to get there sooner and therefore have less time. This means you’re going to need more money and/or discipline. So, you could increase the amount you save by making sacrifices and spending less. As a result, this generally requires more discipline. But, it frees up more available cash and could allow you to achieve your end goal quicker.

To illustrate; investing £500 per month rather than £300, at an average rate of return of 8%, would shave six years off your time to millionaire status.

Alternatively, earning more money will allow you to save even faster. Here’s our guide on how to earn yourself a pay rise.

Still not quick enough? Well, don’t forget that you may have already started without knowing it.

You are probably not starting from zero

Most people are already investors, they just don’t know it.

In fact, if you have a workplace pension, there’s a really high chance your money is already invested in stocks and shares.

Therefore, this means that when plotting your course to millionaire status, you’re probably not starting from scratch.

So, when using the calculators above, instead of entering zero in the initial deposit section, you put in the money you already have in your pension pot. You could also include your pension payments in your monthly investments. Altogether, this may mean you are actually closer than you think.

For example; a 35-year-old with a pension pot of £30,000 could be saving £300 per month and putting £200 per month into a workplace pension. Whilst the compounding may not be combined, if they stuck to their plan, they may still be topping millionaire status by the time they hit retirement age.

This is where discipline comes in. Sticking to a plan, month in month out and being consistent over time will reap the biggest rewards.

How to start investing

Importantly, if you want to start investing, then it’s a good idea to educate yourself first. Learning from the mistakes of others can be a short cut to success. Plus, it can also save you from taking too many risks and potentially setting yourself back years.

First, read our Investing for Beginners guide. It will give you everything you need to get up to speed. Together with busting some investing lingo, it covers all the basics that you need to know to get started safely.

Next, you are going to need to choose a platform to invest with. So, read our guide on How to choose the right investment platform for you. It covers the main providers, types of investments they offer and how much they charge. This is important, as fees can make all the difference in your investing success.

Also, if you’re struggling to free up cash to save or invest, then check out How to Budget Like a Pro. It’s got everything you need to organise your finances so you don’t have to worry about having enough cash at the end of the month.

Finally, learning from others is really important. We’ve set up a Facebook group where you can ask questions or just see what other like-minded people have to say. I’ll be there and I’d love to see you there too.

How to become a millionaire - final thoughts

While there are many ways you can become a millionaire, saving and investing have stood the test of time. Remember, you don’t have to pick the next meme stonk or gamble it all on Bitcoin. Instead, anyone can be a millionaire with the right plan. It will take money, time and discipline. But as long as you stick to it and never deviate, you can achieve it even with modest means.

Crucially, free up as much spare cash as you can by having a solid budget in place. And remember, workplace pensions also provide a huge boost and have some great tax incentives. The only limitation is you can’t get to your cash until later in life and when you can, there are tax implications for taking out large amounts.

Taking on this journey isn’t going to be easy. If you want some support from fellow like-minded individuals, we’d love to see you in our free Facebook group. Join here.

We’ll see you in the millionaire’s club!

Here’s to Financial Fitness does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.