Most people can put their hands on a pound.
If you can do that, you are just twenty short arithmetical steps away from turning that £1 coin into a million pounds.
I think one of the best methods to achieve a million is investing on the stock market — for example, by ‘harvesting’ and re-investing dividends from high yielding shares. But if you are starting from scratch, you may need to take a few other steps before doing that.
Here are some ideas about how to grow your wealth. And, for motivation, I show how easy it is to calculate to a million by simply doubling repeatedly from the starting point of one pound.
The first ten steps
Arithmetically, we can take twenty steps to a million from a starting point of one by doubling the figure 20 times like this:
| Step | Calculation | Result |
| 1 | £1 X 2 | £2 |
| 2 | £2 X 2 | £4 |
| 3 | £4 X 2 | £8 |
| 4 | £8 X 2 | £16 |
| 5 | £16 X 2 | £32 |
| 6 | £32 X 2 | £64 |
| 7 | £64 X 2 | £128 |
| 8 | £128 X 2 | £256 |
| 9 | £256 X 2 | £512 |
| 10 | £512 X 2 | £1,024 |
Ok, simply doubling a number several times might be easy, but I find it encouraging that those twenty little arithmetical steps could be straightforward to achieve with real money, too.
If you can accumulate £1,024 in real life, you’ve already taken half of the twenty arithmetical steps needed to turn £1 into £1 million. You might achieve that sum in reality from income. Most people have an income of some sort, yet the costs of living can be high, so actually saving any of that income may be difficult.
Let’s look at how it can be done. We often receive income in monthly instalments. This is how much you need to put aside to save £1,024 over various periods:
| Time period | Amount to save per month |
| 12 months | £85.33 |
| 24 months | £42.66 |
| 36 months | £28.44 |
If your living costs are too high for you to save these figures every month perhaps it’s time to forego some of life’s luxuries. If you can do that, the money-saving discipline may help provide capital for stock market investing later on, as you push for that magic million.
What can go? Your morning barista-prepared coffee? Your lunch bill? Your spending on eating out, drinks and smokes? Your subscription TV service? Your phone contract?
I’m not suggesting that you should live a life of complete abstinence, but maybe a little downsizing could free up enough spare capital to save modest monthly figures that will propel you ten steps towards being a millionaire.
Steps 11 to 15
Here’s some more motivation! The next five arithmetical steps look like this:
| Step | Calculation | Result |
| 11 | £1,024 X 2 | £2,048 |
| 12 | £2,048 X 2 | £4,096 |
| 13 | £4,096 X 2 | £8,192 |
| 14 | £8,192 X 2 | £16,384 |
| 15 | £16, 384 X 2 | £32,768 |
In reality, you might move from £1,024 to £32,768 with several tactics. The most important, I’d argue, is to continue to spend less than your income and keep saving what’s left over — living below your means.
Once you’ve established a saving habit, it’s important to make the saved money earn as much interest as possible. Small increases in the interest rate you earn can make big differences to how fast the money grows because of compounding — where the interest itself earns interest. Some of the best interest rates around today are with high-interest current accounts and savings accounts that tie up your money for a set period, typically a few years.
It might also help to find ways to increase your income — perhaps by going for promotion at work, or working extra hours — while keeping your living expenses down.
I reckon shooting for £32,768 is within the ability of most people within a reasonable timescale. If you do it, you are three-quarters of the way to my theoretical and arithmetical million with just five steps to go.
Steps 16 to 20
My final bit of motivation looks like this:
| Step | Calculation | Result |
| 16 | £32,768 X 2 | £65,536 |
| 17 | £65,536 X 2 | £131,072 |
| 18 | £131,072 X 2 | £262,144 |
| 19 | £262,144 X 2 | £524,288 |
| 20 | £524,288 X 2 | £1,048,576 |
For the final push in real life, and in real pound coins, it’s important to keep doing the things that got you through steps one to 15, such as increasing your income, keeping your living expenses down, saving, and making compound interest work hard for you by continually shopping for the best saving interest rates. All of that discipline is what can help provide you with the capital to invest in shares and other assets, which can be great wealth multipliers over time.
With a few thousand pounds to your account, you can earn even more from your savings by investing in assets, such as property, bonds and shares. For many people, the purchase of a home can be a great wealth accumulator over time, and even more so if you can time a property purchase to coincide with depressed house prices. When property ownership clicks, the financial gearing provided by a mortgage could turbo charge your net wealth as property prices rise over the years.
However, I’m a big fan of stock market investing. Over the last 30 years or so, shares in aggregate outperformed bonds and property. Key to achieving a good result with shares is to reinvest returns from dividends and capital gains and not to be tempted to draw money out.
Overall, shares can be the best form of investment and that’s why The Motley Fool is so keen on them.
