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Here’s how you can join the 13% of British households with millionaire status

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According to the Office for National Statistics there were a little over 27m households in Britain in 2016 of which 3.6m could consider themselves to be millionaires, a figure that was up 29% over just two years.

You may already be in one of these latter households — after all, the figure is rising rapidly. But if you’re not, it could be a good idea to aim for millionaire status as soon as you are able.

Cry freedom!

A comfortable amount of money, such as a million, won’t bring you happiness by itself, but it will allow you to have more choice in your life. One of the biggest choices you’ll be able to make will be whether or not to give up the daily grind of work.

You really don’t have to wait until conventional retirement age to change your lifestyle by moving into retirement. A friend of mine recently retired with her partner when both were in their forties. They both seem youthful, happy, unstressed and very pleased with their decision to retire. They remain very busy and active, of course, but it’s all on their own terms. From the outside, it looks like they are living their lives to the full.

My guess is that if you retire with a million or so in funds to back you up you will likely enjoy a positive experience. But you have the choice. You can keep working in a career you love if you want to, or you can even upgrade your lifestyle and spend more money on bigger and better things and experiences. However, to me, the richest lives are the ones most in balance. And being rich in time is one of the biggest motivators for me.

I think the idea of financial independence and retiring early has a lot going for it. So, how could you get there? I reckon these five steps forward are among the most important you can take to accelerate your journey to a million.

Step 1 — determination

Becoming a millionaire starts with a particular, determined mindset, which manifests in action and effort, I reckon. Part of that means a strong work ethic will probably serve you well in your quest to achieve millionaire status. But I’d caution against allowing your life to become out of balance with too much work in it. Working long hours isn’t necessary to build a fortune.

Indeed, excessive working hours can get in the way of becoming rich and leave you trapped in the woods and unable to see the trees. If you have the ambition to become rich, my guess is that you are already prepared to work hard to achieve your goal, but that’s not enough in itself. You’ve got to play smart as well, just like how the Scrabble player targeting the bonus squares often beats the player with the largest internal dictionary — it’s the strategy that counts.

Step 2 — planning and scalability

Don’t leave things to chance so make sure you have a good plan. Mapping out the route you will take to achieve your fortune is a good way to keep you on the right track through difficult times. One idea that could help, if you build it into your plan, is the concept of scalability.

If your income becomes scalable and not linked to the time you spend working, you can really get going along the path to your fortune. If you’re paid by the hours you work, your income is capped by the number of hours you complete and, as mentioned, too much hard work can end up getting in the way of making big money. That’s why many businesses and professions generate scalable income by charging fees and commissions that are not directly linked to hours worked. Think of actors, writers, musicians, estate agents, accountants and solicitors, and for that matter those involved in sales, or making finished goods that can be sold for a premium.

Step 3 — super-saving

If you can’t avoid being paid by the hour, or working for a fixed salary, you can still harness the benefits of scalability by saving money on a regular basis… and making your funds work hard for you with the process of compounding. Regular saving and compounding should form part of every retirement saving plan because the principle of compounding is a powerful method to help you achieve financial independence, and an early retirement. Compounding allows your wealth to expand without you having to labour for even more hours. Your money works hard for you by earning interest, and interest on the interest, and so on.

Step 4 — invest for the long term

Saving money and earning interest on it is a good way of compounding. But investing in shares is even better and could get you to millionaire status faster. Shares have the best long-term record of returns than most other asset classes and there are so many ways you can do it these days that the process need not be complicated. I’d recommend regular saving by investing in index tracker funds that mimic returns from the FTSE100, FTSE250 and other indices. Over time, such straightforward and low-cost investments should serve you well and propel you along your path to a fortune.

Step 5 — avoid risky get-rich-quick schemes 

Many ‘fast’ ways of getting rich could end up making you poorer and there’s no need to take the risk anyway because saving, investing and compounding will likely get you to your goal. I reckon that one of the most ruinous philosophies you can adopt is that younger people can afford to take on more financial risk because they have time to recover if things don’t work out well. Wrong! Wrong! Wrong!

The ‘magic’ ingredient of compounding is time, and losses early on in your investing or earning career can cost you dearly in later life because a pound you own today can compound into many pounds down the line. However, a pound you lose is gone, along with all the many pounds it might have later become. Because of compounding, early losses are even worse than losses later on, so it pays to remain cautious with your investment decisions.

Good luck on your journey to millionaire status. I’m sure you can do it!  

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.