To be a millionaire. Isn’t that the dream? Most of us only dream about reaching millionaire status but very few of us really achieve. I used to be one of those people who thought that becoming a millionaire was impossible. I thought it was only attainable by savvy entrepreneurs or city bankers. But then I did some research and found that becoming millionaire is easier and much more achievable than many of us think. This article will look at the different ways you can go about achieving your million pound goal.
When you boil it down, there are basically 5 routes to wealth in this country. Some routes lead to instant wealth with little effort but others take longer and involve an amount of consistency and dedication.Here are the top approaches many people take to becoming a millionaire:
(As you go down the list, the length of time it takes to accumulate your millions increases – but so does the chances of you becoming a millionaire. )
1. The Lottery: Winning the money
This is the number one approach many people take to getting rich in the UK. Many people go out and buy lottery tickets in the hope that they will be 1 out of the millions that end up with money.
You might say that this is ridiculous. Of course this is ridiculous, this is not a real approach! But do you know that people spend £7 billion on lottery tickets every year in the UK alone (https://www.national-lottery.co.uk/life-changing/where-the-money-goes)
Individuals who play the lottery lose an average of £150 a year.Think about that for a second. Imagine if that money had been put away for the future, they would be billions of dollars in savings available today for the british people.
2. Marry it
Yea wouldn’t it be great to marry rich. But this is never a good approach. As Dr Phil said “ If you marry for money, you pay for it for the rest of your life”. Aint that the truth.
It’s not that easy marrying for money. First of all, how’s that working for you so far? You might be laughing right now. yes that’s right, its not easy to marry for money but many still hope to become a millionaire this way.
3. Sue for it
Hey, why work when you can go out and sue for it. Taking this approach is getting more and more popular by the day. The amount of lawsuits being filled by people wanting to sue is growing each day. There are now lawyers and solicitors who only work on this and provide there services on a non win no fee basis.
But if you are serious about making money, this is not a real approach to wealth.
4. Inherit it
The truths is that inheritance is an actual real approach to wealth in the UK because we are going to see more wealth transfer in the next 15-20 years than we have ever seen in the history of this great nation. Reportedly there is $30 trillion in wealth transferring from one generation to the next over next 30 years.
5. Start a business
This is the best approach for someone wanting to get rich in a short amount of time. Starting a business is tough with. More than 90% of new businesses end up closing before the and of the first year. But if you have a great idea and execute it well, you can have success as an entrepreneur and become wealthy this way.
But the vast majority of people don’t want to take risks in starting a new business. They would rather have a safe secure job than be a business owner. This approach won’t be for you if you don’t have the entrepreneurial flair.
6. Invest for the long term
This approach has the longest time horizon and it will not make you rich instantly. But what it will do is give you the greatest chance of becoming a millionaire.
Consider this, if you invest just £150 a month in a low cost index fund earning the historical average of 8% throughout your working life (18 – 68), you will end up with a portfolio worth £1,077,014.19. Yes over a million quid!
If you start your working life three years later at 21, investing £180 a month will give you £1,020,157.40 at the end of your working life.
The amount of money you end up with by taking the investing for the long term approach will depend on three factors: Your Monthly Invested Amount, Your Rate of Return and Your Time Horizon. Look at the table below to see how much you need to invest each month to get £1 million dependent on your Rate of Return and Time Horizon.
How much you need to invest monthly to become a millionaire
As you can see from the table above, as your time horizon increases, the amount you need to invest monthly drops. Increasing your time horizon increases your chances of getting rich as compounding takes effect. This is truly a long term approach.
The rate of return also has a huge bearing on the amount you need to invest as well. The higher your rate of return, the lower you need to invest monthly to become a millionaire. Now I am not saying that you should go out there and look for 14% per annum returns. The aim of becoming a millionaire via the longterm investing approach is to be cautious. The rate you should look to aim to achieve is 8%, which is the historical long term average of the stock market. If you are not a professional investor, it is best to use 8% per annum as a guide and you can achieve it by investing in plain vanilla low cost index fund.
The above table is there to show you what is possible and what it takes to become a millionaire via the long term investing approach. If you start investing when you are 25 years old, you only need to invest £308 monthly at the historical average rate of 8% to become a millionaire by the time you hit retirement. It is really that simple!
If you do not want to wait till retirement to become a millionaire and want to get rich quicker, it would be more prudent to increase your monthly investable amount rather than your rate of return. Getting a rate of return in excess of 8% is extremely hard. There are arguments that many professional investor can’t even beat this market return. If the professionals can’t do it, it would be unwise for the average investor to attempt beating this rate.
If you want to get rich quicker, it would be more astute to ramp up the amount you invest by earning more money or investing more efficiently using vehicles such as a pension. Say you want to be a millionaire in 20 years, this would mean saving £1,746 a month. If you earn the close to the UK average wage of £32,000 a year, stashing away tho amount monthly would be a tall feet. One way of investing more money then you have is through a pension.
Most employers provide a match where they match a certain amount you put into your workplace pension scheme. If your employer has a 5% match, you essentially get free money if you invest up to 5% in your pension. So say you tuck way 5% (of your £32,000) in your pension, by simply putting away £133, your employer will add another £133, giving you a total of £266. Who doesn’t like free money?!
If you are smart about investing and use all your pension perks such as the work place match and the governments 20% top-up for basic rate payers, you only need to pay £1377 to be able to invest the £1746 a month needed to become a millionaire. Now that doesn’t sound so bad does it? The great news is that if you are a higher rate or additional rate tax-payer, you will need to stash away even less a month as the government top-up is higher than the 20% for basic rate payers. By investing smartly and using the right tax efficient vehicles, you can become a millionaire via long term investing quicker than you think!
The great thing about investing for the long terms is that anybody can become a millionaire this way. You don’t need skill or luck. You just need to be disciplined by investing a set amount on a monthly basis.
If you are really interested in becoming a millionaire and don’t want to leave it to chance, investing for the long term is the best approach.