How to become a millionaire on an average salary

Take these steps consistently and a million could be closer than you think.

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The Office for National Statistics reveals the average salary in the UK for full-time earners runs close to £28,000 and that nets out around £22,000 for most people after deduction of taxes. Am I seriously suggesting you can become rich on that? You bet, and probably on an income a bit smaller, which would better represent the level of many people’s salaries around the UK.

Baby steps

Taking consistent ‘baby steps’ can propel average-earning people towards £1m net worth. That’s the key — keep doing the right things in a small way and your net worth can build up in a big way.

According to The Times recently, a third of the nation’s middle classes are too short of cash to pay a £500 bill. In some ways, those people are managing to spend almost every penny of their income every month, despite what might be their best initial intentions, and there’s none left over to help them build a better, perhaps work-free future.

So the first step on the way to wealth is to make a decision. If you’re serious about becoming a millionaire with an average salary you must decide to be different from those that spend all their income every month. Living below your means is an essential first ‘baby’ step along any path to a million on an average salary. I call it a baby step because it may not be as difficult as you think once you’ve cultivated the right frame of mind.

The eighth wonder of the world?

Adjustments to the domestic budget don’t have to be so drastic that you end up living a life of deprivation, as long as you save some money at the end of the month. Having done that, step two is to repeat the saving trick every month and develop a regular saving habit.

Funds will start to accumulate in the bank, which puts you in a powerful position. Now you have some capital that can earn even more money. Your mission is to seek compound interest where your money earns interest, the interest earns interest, and the interest on the interest earns interest and so on.

Albert Einstein once described compound interest as the eighth wonder of the world. He argued that those who understand it, earn it, and those that don’t understand it, pay it! With a growing pot of money in the bank, you can seek out ways of earning compound gains.

Seeking higher rates of return

Today’s low bank interest rates seem less attractive than shares on the stock market, which often pay dividends at a higher rate than bank accounts pay interest. Shares can be a good vehicle for compounding and a final step towards achieving a million on an average salary.

Shares can be the best form of investment and have been outperforming other asset classes such as cash and bonds for decades. That’s why we at The Motley Fool are so keen on them. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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