This use to be a question I received… a lot.
Not so much now, but certainly in my mid-twenties I had this same conversation a number of times with people, often in a bar, when I was meeting someone new. The conversation often went like this:
Other person: “So what do you do for a living?”
Me: “I’m a financial adviser.”
Other person: “How do I become a millionaire?”
The response was never one they liked.
The reality is most of us could become a millionaire due to the 8th wonder of the world (more on that later), but the discipline to get there is significantly harder.
First thing we need to do is to save.
Second thing is to cut our spending.
Why? This enables us to do more saving.
Do you hit a Starbucks on your way to work each morning?
Let’s say that costs £3 per time.
That’s £15 per week.
That’s £780 per year.
That’s £31,200 over a 40 year period.
Yes, £31k is far from being a million but we’ve not come back to this 8th Wonder of the World I teased you about.
The 8th Wonder of the World
Albert Einstein once attributed the title of the 8th Wonder of the World to compound interest! In simple terms, this means earning interest on your interest.
If we go back to that daily Starbucks. If you took that £3 per day and put it to one side, if it made on average 5% annually, after 40 years it would grow to £104,594!
That’s an increase of 3.4 times from the £31,200 you have actually saved.
Yes, this is a far cry from being a millionaire, but my first point is you need to save substantially.
If you could save 10x the amount mentioned ie £7800 per year this would grow to be £1.04m over 40 years!
Of course, if we returned a higher rate, of say 7% you would hit the £1m mark in 32 years.
Or you could make the £1m mark in 40 years and only have to save £5k per year to do so.
In conclusion, it’s not easy getting to £1m. But it’s not unimaginable either.
If you would like to talk about your savings plans and how you can achieve the benefits of compound interest, then please contact me on 01536 639 007 or via email: firstname.lastname@example.org
The content of this article is for information purposes only
No individual or company should act on this information before seeking appropriate independent professional advice first
The value of investments can go down as well as up and so you may get back less than you originally invested