There are currently around 2,000 ISA millionaires living in the UK. As a result, a rising number of Brits are planning to start their own ISA investments in the hope of following in the millionaires’ footsteps. But how exactly do you become an ISA millionaire? Here’s how I personally plan on reaching this goal.
My ISA millionaire plan of action
Like many Brits, I was intrigued to find out that 2,000 people in the UK have become millionaires due to ISA investments. As someone who is passionate about building wealth for the future, this seemed like an excellent challenge for me. Becoming an ISA millionaire is about gradually building wealth by making smart decisions and choosing the right investments. Here’s how I plan to do it.
1. Calculate my goal
My first step towards becoming an ISA millionaire was calculating my plan by using a savings calculator. This is the best way to figure out exactly how to reach a goal.
For example, by using a savings calculator I worked out that, with a deposit of £10,000, I would need to make monthly contributions of £500 for 40 years with an annual interest rate of 6% in order to reach my goal.
You can tailor your plan to suit your needs. Typically, late savers will need to make larger monthly contributions and secure a higher interest rate to achieve ISA millionaire status.
2. Choose the right ISA
If your goal (like mine) is to become an ISA millionaire, it is vital that you choose the right ISA to invest in. Luckily, you can have more than one type of ISA at once, which means that you can spread your savings across several accounts and benefit from a variety of types.
I personally have two ISA accounts. My lifetime ISA rewards me with a government bonus of 25% on top of whatever I save. The government will give you a bonus worth 25% of the amount, up to a limit of £1,000 every tax year. Currently, you can contribute £4,000 to your Lifetime ISA every tax year.
I also have a stocks and shares ISA. These are excellent options for people who are happy to risk their money for slightly higher interest rates.
High interest rates are the key to becoming an ISA millionaire due to the fact that annual contributions are limited. I am aiming for an annual interest of 6%, which is achievable through a stocks and shares ISA.
However, it is worth noting that if you invest in a stocks and shares ISA, you put your capital at risk. Whilst they offer the potential for higher returns, the stock market could dip at any time.
If you are able to make higher contributions and can accept a lower interest rate, it may be safer to invest in a fixed-rate cash ISA.
3. Automate savings
To ensure that I stick to my plan, I will automate my monthly contributions. As a result, I will not forget to pay into my ISA or be tempted to spend the money that I plan on saving. This is a great idea for anyone who struggles to make regular savings contributions. If you automate your funds, you won’t have to make the conscious decision to save every month.
However, it is important that you consider your automated savings when planning your monthly budget. Make sure that you have enough money left over to pay your expenses each month.
4. Invest with passive income
£500 is a large amount of money to save every month. Therefore, I plan on building up a source of passive income that I can invest in my ISAs. Passive income is money that can be generated in your sleep. Therefore, it is a great way to increase your monthly earnings and have room to invest more into your ISA.
Anyone can start earning passive income. If you’re stuck for ideas, here are some excellent passive income opportunities for 2022. By earning extra cash, it will be easier to make regular contributions and become an ISA millionaire!