I reckon these five steps forward are among the most important you can take to accelerate your journey to £1m.
Step 1 – cultivate a strong work ethic
Becoming a millionaire starts with a mindset, which manifests as determination and effort. I don’t believe in get-rich-quick schemes — many of which could end up making you poorer — but I do reckon it’s necessary to cultivate a strong work ethic.
If you have the ambition to become rich, my guess is that you’re already prepared to work hard to achieve your goal. However, hard work alone isn’t enough, and in some cases can get in the way of building a fortune. To really get on your way, you need to take step two.
Step 2 – scalability and planning
You need to plan to become rich and map out the route you’ll take to get there. One idea that could help is scalability.
I would argue that you can really take off on the road to your fortune if your income becomes scalable and not linked to the time you spend working. Too much hard work can end up getting in the way of making big money. If you’re paid by the hours you work, your income is capped by the number of hours you work.
Many businesses and professions generate scalable income by charging fees and commissions not directly linked to hours worked. Think of actors, writers, musicians, estate agents, accountants and solicitors, for example.
Simple hard work isn’t enough. You need to ‘box clever’. No matter how you earn a living, you can introduce the benefits of scalability into your finances by taking advantage of compounding. Steps 3 and 4 present some ideas on how to do that.
Step 3 – become a super-saver
This is an old message with a twist. Live below your means, yes. Save all you can and regularly, yes. Most people who’ve accumulated a fortune have done those things. However, if you view the process of saving as a way to make your income scalable the power of saving as a wealth driver really shines.
Saving money and accumulating interest puts you on the road to compounding, where your saved money earns interest, the interest earns interest, the interest on the interest earns interest and so on. Your money is earning for you without you working — that’s scalability, and it will propel you towards your goal of millionaire status.
Step 4 – invest for the long term
Think of investing as a way to compound your money. You can invest in many things, such as property and bonds, but shares on the stock market have the best long-term record of returns.
Saving money is good for compounding, but investing can be even better if you stick with defensive, growing companies and avoid the perils outlined in step 5.
Step 5 – don’t take crazy investment risks
One of the most ruinous philosophies around is that the young can afford to take on more investment risk because they have time for their funds to recover if things go wrong.
The laws of compounding mean that losses early on in your investing career can cost you dearly in later life. A pound you own today can compound into many hundreds of pounds down the line. But a pound you lose is gone, along with all the hundreds of pounds it might have later become.
