When people think of a life changing amount of money, often our minds go straight to the thought of suddenly becoming a Millionaire and how that would bring the freedom from most of our responsibilities right now overnight.
In reality most people believe it is only possible to become a millionaire by winning the lottery or a large inheritance fund suddenly coming your way – but I’m here to show you that it really would surprise you just with small amounts of consistent savings and time in your favour (compound interest), the amounts to achieve that common money goal are closer than you think.
** DISCLAIMER – my blog and youtube channel are for information purposes only, and do not act as financial advice for every individual. Before changing any financial habit or investing, please ensure you are completely comfortable with your choices – it’s YOUR MONEY after all!
Let’s break down the steps of this goal and challenge it!
Like any other goal we have in mind, we need to look at the factors that really play a part in us making this goal of £1m saved a reality.
It will really depend on a number of factors, and this doesn’t include your background or education. It really is simple a numbers game!
The factors that affect creating that first million in savings
These factors that influence the speed of us reaching our goal can be broken down to:
- Ideally smaller amounts of money saved regularly so that the “pain” of the goal can be slowly and steadily achieved
- The time you can leave the money without touching it for other life events (such as weddings, building a home, births)
- The savings method you choose/interest growth on your returns every year
- Making it as automatic as possible – take the human emotional element out of it!
Smaller amounts of money saved towards any goal in general allow us to make the habit of saving less “financially painful” or rely on a sudden windfall of money to come into our hands to achieve this £1m goal. The goal of £1 million is one that may seem too large to achieve, but broken down into smaller chunks over a longer period of time slowly adds up.
We might not even realise that most of us will have close to £1 million come to us in our lifetime of working (if you were to add up all your wages since you began work until retirement for the average wage of £29k a year per person), it was just that we didn’t know how to use it to keep producing more income for us down the line.
If you choose the saving method of investing in low-cost index funds or in a pension, then regular payments every month also allow you to apply a theory called “Dollar Cost Averaging” where due to the nature of the stock market with rises and falls in stock prices, by purchasing the stock in smaller amounts over regular intervals we can minimise the fluctuation of our stock in the long term. We have bought when the stock was high and low, so therefore this will smooth out to a steady price.
Ideally for compound interest (where our initial deposit gains interest, which then goes on to gain even more interest over time) the longer we leave it, the longer the compounding effect can work it’s magic for us!
For most people to achieve that millionaire status within their lifetime, leaving your money ideally for 10-15+yrs whilst you work on that saving goal will allow you to gain momentum in the right direction as well as allow your savings to have compounded significantly.
This can be the hardest part of working towards any large savings goal – leaving the money without feeling tempted to withdraw it as soon as you feel the urge – but very much possible to still achieve if we are positive and clear on the end goal.
The Savings method, interest returned on our savings, will be a major factor on how quickly we achieve that £1 million goal without doubt too.
For example, the principle of the number 72 is vital to understand here and why it will affect our money growing efforts.
This principle states that to know how long it will take you to “double your investment money” in any savings forms – simply divide 72 by the interest rate.
If your interest rate is 2%, then it will take you 72/2 = 36 years to double your investment; interest rate of 7.2% and you would only take 10 years and so forth.
It is vital then that we choose a method of saving and growing our money that allows growth to happen as quickly as we are comfortable with, and for that reason I use the Stocks and Shares market for my own financial freedom savings every month.
If you are unsure about the Basics of the Stock market, and how everyone can use it to grow your savings, you might enjoy one of my videos here:
How to save money consistently as a habit for life for that £1m Goal
The greatest advice I can give you here is EARN MORE THAN YOU SPEND and you can make saving a lifetime habit for whatever savings goal you wish.
If you are living with struggles of spending more than you earn consistently every pay cycle, you will be your own downfall (as the famous Motivational Coach Jim Rohn used to say) and will probably love trying this cash only method to really hold yourself accountable for spending.
Having a physical and visual system for your money allows the relationship with money to change in your life.
Once you can see exactly how much money you have left for the time period, say a week ahead, and every transaction you make then has a consequence that you can physically see in front of you – it allows you to second check every financial purchase you make within some reason.
It turns a electronic or paper list of numbers in a budget “ideal” sheet to a very real source of energy within your life, and often this is why people swear by this system to change the relationship with money forever.
If you are looking for a electronic method to budget and control your finances smarter, to direct them towards your financial freedom and retirement – feel free to check out my own AutoPilot Money System collection of spreadsheets.
How to become a millionaire in 10 years – regardless of your age!
The major influences of when and how you become a millionaire really are down to time and rate of return on your savings. The more money you put in and the longer you keep it invested, the faster you’ll reach your target in summary. Spin this the other way though of course is that smaller amounts over a longer period of time will get you to that target too.
If you are in your twenties right now, looking to invest in a high interest savings or investment portfolio as part of our financial strategy to generate wealth in the future – there are very few reasons why you won’t end up a millionaire before you retire at age 65.
The problem unfortunately with most choices is that we commonly wait too long to save regularly towards those bigger financial goals, whether that is £1m in the bank or a retirement fund to allow us to live comfortably when we choose to stop working all together.
For most people as well as we get towards our late thirties when we consider such luxuries and ideals, and often we are considering paying off our debts (Such as mortgages or even consumer debt) as the priority when really we should be building wealth AND paying off debt at the same time.
So if right now your goal is to become a millionaire within 10 year then the rate of return will be the major factor here that changes how much we need to save each month to hit the target.
If you look to invest in bonds for example with returns closer to 2-3% then you would need to save £7150 approximately every month to have £1 million saved in 10 years.
If you were to invest in stocks and shares giving you perhaps closer to 10% return (depending on what you selected as your funds of course), then you would need approximately £4880 saved every month for 10 years and left untouched to compound every year.
How to RETIRE a millionaire- regardless of your age!
So we can see that the speed we want to achieve this goal affects how much we need to save, but if we flip this around and say we simply want to retire a millionaire – what would that involve?
Well, let’s assume that you wish to retire as early as possible drawing a private pension or savings pot to use.
Pensions and Investments work to give you an “income” via the growth generated on your total savings pot via the investments they have purchased.
You can find out more information about Pensions here in one of my latest videos as a background to more information:
If we wished to have that £1 million Pension or Investment pot total (in an Investment ISA for example) to spend and use to draw an income (or spend as we see fit), here is roughly the amounts you would need to commit to every month to retire at age 65:
- Starting at age 18 years – 5% Return on investment yearly would need roughly £450 saved every month; invest closer to 9.8% YoY Growth (S&P500 index fund past performance as an example) then you would need £90 a month instead.
- Starting at age 25 years – 5% return yearly on investment needs roughly £650 saved a month for the next 40 years; invest at 9.8% or above average and then it drops to £200 a month approximately saved and invested.
- Starting at age 35 years – 5% return yearly on investment needs roughly £1300 saved a month for the next 30 years; invest at 9.8% or above average and then it drops to £500 a month approximately saved and invested.
- Starting at age 45 years – 5% return yearly on investment needs roughly £2400 saved a month for the next 20 years; invest at 9.8% or above average and then it drops to £1500 a month approximately saved and invested.
Lump sums saved early also allow you to gain that £1 million target
Interesting fact too that as time and rate of interest growth being the key indicators for our success at this goal – if at age 18 years you were given or worked hard to save £13,000 and placed it into an Investment portfolio giving close to that 9.8% YoY growth, at age 65 years you would also have that £1 million total WITHOUT ADDING A PENNY MORE to it from age 18 years.
Compound interest is a wonderful thing that concludes starting as early as you can with investing really works in your favour to produce the results of wealth and growth.
Save £26,000 by age 25 years and leave it till retirement untouched compounding with interest and growth of 9.8% YoY also gets you that £1 million pot.
It really is all about the math and working backwards to achieve that goal!
Everyone can achieve a million with a little effort and dedication!
As you can see, it really is just a numbers game to make that first million if you are dedicated and trust in the process of investing and working towards a goal.
An interesting point to close with though is really that million pound target and life you believe it can create might not be the total focus for you – and that is where setting your own individual goal amount for your retirement or early financial freedom is completely up to you.
Think of the life you want, figure out what you need to make that happen and then set your budget and goals towards it!
Make money your master, and enjoy the process of outsmarting it to work for you every year towards your goals without too much effort and stress!
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