Starting your journey to becoming a millionaire
So, I want to show you how someone, at the age of 22 just starting out, can become a millionaire before they are 60 years old.
So we take an example of someone graduating from university or finishing an apprenticeship, as they settle into a new career at age 22 they are able to regularly save £100 into the stock market every month. If you are unsure if you can afford to save that amount take a look at our Guide to Managing your Money in your 20s and 30s. For this example I have assumed that as someone’s salary increases they choose to spend some of that money on increasing their savings contributions so every 5 years this person increases their regular monthly contributions to the stock market by £100.
Next, I needed to assume an average annual growth rate for the chosen investment. Now, your average annual growth rate will largely depend on how much risk you’re willing to take with your investment money. It is also important to know that the stock market doesn’t just go up in a straight line over time, there will be volatility along the way and there will be good years and bad years. However, we can take all those good years and bad years together, to get the annualised average growth rate, and we can use past data for this. Let’s assume that this person invested in the S&P 500, which is a collection of the 500 largest publicly-listed companies in the US. From 1957, when all 500 companies were incorporated into this index, to December 31st, 2022, the average annualised return in the S&P 500 was 10.13%. This assumes that all dividends received were reinvested. Whilst past performance can’t accurately predict what will happen in the future, I have used this average annualised growth rate of 10.13% in my calculation.
That is the really geeky bit so if you are feeling lost stick with me, I just like to explain how I came about my calculations. So now for the interesting part, this would leave that person with £1,080,956.94 invested by the time they turn age 59. The best part is that person only would have invested £187,200 in total. Compound growth did the rest of the work!
Now your journey will be unique, you might be in your 30s and 40s, you might have built up some wealth, you might not have anything at all. This is just an example to inspire young people to save more and realise they can control their destiny to some extent. But this is where tailored financial advice can become your secret weapon. This is what I love and am so passionate about, taking someone and all their ideas and dreams and turning it in to a reality with a solid well-thought through plan that can adapt and mould around life’s difficulties and trials and tribulations. So, if you are older, don’t be put off, it is never too late to get started, you might just have to work a bit harder, but you know what you won’t have to work as hard as someone who does nothing at all.