You don’t have to win big to be a millionaire. Here’s how anyone can save a million dollars – yep, even you.
As a nation we love to dream about getting rich quick. Over half of all Australians gamble each year and 8.6 million of us buy lottery tickets.
But in the search for the fast buck, people fail to realise the winning ticket to a million dollars is sitting right under their noses (and I’m not talking about checking the Lotto numbers from last week’s draw).
It’s in earning power.
Discipline and time
The key is discipline and time. Saving little amounts, on a regular basis over an extended period of time will guarantee you save $1 million.
A $5000 deposit and an additional $300 a week will turn into $1 million after 25 years at a 6 per cent annual return.
A 21 year old on $60,000 a year who salary sacrifices an extra 9 per cent (on top of the compulsory contribution) in to a growth oriented superannuation fund ($6300 a year or $121 a week) will have a $1 million balance by age 65.
In fact, I believe anyone can achieve the lofty goal of becoming a millionaire if they start early and follow these simple tips.
Take control of your career
Forget the house, that portfolio of sure-thing-shares and any savings you might have squirrelled away. You are your biggest asset.
Your ability to work, whether it’s earning a part-time wage, a full-time salary or income from a business, is worth millions in the long run.
So treat your career as an investment, and see the income you receive as the return on that investment. That means taking control of your earning power to maximise your return.
Set some goals about what you want to achieve. That might be doubling your wage in five years, building skills to advance from your current role or making the shift to a job with a better future (and which you’ll enjoy). Whatever it is, it helps to have a plan.
And while I’m a big believer that life is all about taking advantage of opportunities that present themselves, I also think that if you’re proactive in developing skills, confidence and a personal brand, more opportunities will ‘magically’ present themselves over time.
For those who hate their current job, feel underpaid or even unloved, remember that we’re always learning and our experiences play a big part in shaping who we become.
The magic of compounding
Compound interest is an incredibly powerful wealth creator. So much so that Einstein is said to have referred to it as the ‘eighth wonder of the world’. It’s the key to stacking away a million dollars (or more) bit by bit over the years.
As with other investments, making the most out of compounding requires a long-term outlook. And as the following example shows, it’s critical to start early.
Sarah is a young investor who starts putting away $200 a month at age 20, earning an average interest rate of eight per cent compounding monthly. She stops making deposits at age 30 after popping away $24,000 and doesn’t touch her money until she retires at age 65.
Her friend Brian, on the other hand, is a late starter. He starts to save when he hits 30, but diligently saves $200 a month until he retires at 65, by which time he’s deposited a grand total of $84,000.
Who do you think will have the bigger nest egg to retire on?
If you said Brian, you’re wrong.
By the time Sarah stops investing, she will have earned $12,833 in interest on top of her $24,000 in deposits. A decent return for ten years of saving.
But over the next 35 years, that $37,033 nest egg will grow to $603,362, assuming she continues to earn the same eight per cent rate. Meanwhile, Brian’s strategy will only earn him $462,035 in the same period.
This compounding doesn’t just apply to juicy savings accounts either. The Australian sharemarket returned an average 9.4 percent per year over the last 30 years, assuming dividends are reinvested.
So ditch the Lotto ticket and get serious about building your earnings power and popping regular savings away. Discipline and time will always be the most assured ways of reaching that magic million dollars mark.