For many people, the dream of becoming a millionaire will remain just that. We consider that something of a shame at the Fool, particularly as building up a seven-figure savings pot is actually very doable over the long term.
To bring in the New Year, here are a few tips on how you can get your journey going.
Save where you can
It may sound obvious but becoming a millionaire only becomes possible when you’ve actually got funds to put to work. That’s why it’s vitally important to accumulate as much cash as possible, particularly from a young age.
One way of doing this is to ensure that you save cash at the time you’re paid rather than waiting until the end of the month and saving what’s left over.
In addition to diverting some of your salary away at the start of every month, you should also try to get the best deal on all the necessities in life: car insurance, electricity and broadband, for example. Be sure to visit comparison sites on a regular basis and don’t simply renew with your existing provider.
If you’re unable to work more hours, it might be possible to add to savings in other ways, such as selling unwanted items on sites such as eBay.
But saving will only go so far, of course. To accrue the maximum amount you can, you also need to refrain from spending.
I’m not advocating living a monk-life existence here — just the need to distinguish between buying things that will improve the quality of your life from reckless splurging on items that you really don’t need.
And if you are going to use a credit card, make sure your provider offers a 0% rate of interest on purchases and pay off in full by the end of the set period. A card that also includes cash-back is a bonus.
And now the best bit…
What should you do with this spare cash? Personally, I’d put it in the one place that has been shown to grow your wealth the most over decades: the stock market.
Your chosen approach to investing will depend on many things but, in a nutshell, it all comes down to what your financial goals are, what amount of risk you’re prepared to take and for how long you can stay invested.
Depending on the above, you might want to invest in a group of dividend-generating stocks (the payouts from which can then be reinvested) or promising high growth companies. You may prefer small businesses over FTSE 100 giants like Lloyds Bank or BP. Or you may prefer a hands-off approach by using cheap index trackers. Regardless of your approach, it’s perfectly possible to save a million over the long term, particularly if you buy stock regularly. £150 per month invested for a little over 50 years at a 7% return (including dividends) gets you there.
But successful investing is as much about monitoring your own behaviour as it is buying shares in quality businesses. It’s about cultivating a willingness to stay the course and not meddle with your portfolio when times get tough. To be clear, making a million by retirement is as much about being patient and zigging while others zag as it is about anything else.
Wishing all Fools a very Happy New Year.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned 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.