It’s a good question. How do I become a millionaire in 20 years? It’s a question which shows desire, aspiration and an ambition to reach financial freedom for the benefit of yourself and your family. Good question, dear reader! Here is a 3 step approach to help you become a millionaire in 20 years.
The problem with how most people ask the question is the suffix. They ask the question, but usually add a little word on the end:
- How do I become a millionaire FAST?
- How do I become a millionaire WITH NO WORK?
- How do I become a millionaire OVERNIGHT?
- How do I become a millionaire FREE?
- How do I become a millionaire TODAY?
- How do I become a millionaire BY 20?
Here is the problem. For 99% of millionaires, reaching that position doesn’t come easy. It takes time, work and effort. Other than lottery winners and overnight successes, the answer to how I become a millionaire is “slowly”. Even then, as some high profile cases have shown, it takes this hard work and effort to stay a millionaire once you are there.
So, How Do I Become A Millionaire In 20 Years?
The most common way is with hard work, saving, consistency and time. Oh, boring answer! I know, I know.
But, the good news is that it makes it achievable for everyone.
According to this 2009 article from the Mail Online, Britain’s average family is worth £204,000. Let’s ignore much of the “Possessions / Vehicles” and “Property” from this amount as these values won’t really contribute to your future income or pension. Therefore, let’s take a starting point of £30,000.
Let’s look at a 3 step approach to how to make this average Briton become a millionaire in 20 years.
Step 1 – Cut Your Personal Expenses (Spend Less)
If you want to be a millionaire in the long-term, you need to make some short-term sacrifices – you need to trim the fat and live a little frugally. According to this 2012 article from the Daily Telegraph, the cost per month for the average UK households is:
Commuting – £223 per month
Petrol – £222 per month
Cable TV – £55 per month
Home Insurance – £37 per month
Mobile phone – £33 per month
Utility bills – £172 per month
Mortgage payments – £376 per month
Further information taken from this report from the Joseph Rowntree Foundation:
Food – £598 per month
Alcohol – £79 per month
Tobacco – £22 per month
Leisure (inc. eating out & holidays) – £526 per month
I’m afraid that it’s time to cut back.
Commuting / Petrol – There are so many ways to save here. Drive less, walk more, cycle more, take public transport, downgrade your car, avoid car loans, etc, etc. Let’s assume we can save 10% here if we try hard enough.
Saving: £45 per month
Cable TV – Get rid. You can see most of what you want on the internet these days. And TV isn’t good for you or your family. Get outdoors guys!!
Saving: £55 per month
Home insurance / mobile phones – comparison websites are your friend. The “average household” is undoubtedly paying over the odds. Remember, modern companies don’t reward loyalty, they reward new custom. Also, get on quidco and earn some cashback to save even more. Another 10% saving is easily achievable here.
Saving: £7 per month
Utility bills – energy wastage is as bad for your wallet as it is for the environment. Step 1, change deals. You may save 3-5% per month by choosing the cheaper tariff. As per above, you can earn up to £50 cashback through quidco by changing provider. That’s equivalent to another 2.5% saving. Then, cut back on your usage. Turn your lights off, wear some jumpers, use your washing machine and dish washer less. Take a shower instead of a bath. Oh, and once again, turn off the TV and get outdoors!! You can easily reduce your costs by another 10% using these methods.
Saving: £30 per month
Mortgage payments – with super low rates currently available, remortgaging to find a cheaper product may be greatly beneficial for you. However, given that this is hard to estimate, we won’t note any saving against this.
Food – in a post I wrote over at enemyofdebt.com, I estimated based on evidence from personal finance bloggers that you can comfortably live off $425 per month. Converting this into GBP, and I would estimate that, if you shop sensibly, you can comfortably live off £265 per month. Avoid brands and shop for bargains. Let’s give ourselves a lot of leeway in this figure and assume we can live off £350 per month.
Saving: £248 per month
Alcohol – you might argue that you need a stiff drink after these cut backs! Well, you may be right. But, a bottle of wine a week should be enough (for your wallet and your health), so we will budget £40 per month
Saving: £39 per month
Tobacco – don’t smoke.
Saving: £22 per month
Leisure – this may be slightly controversial, but life is for enjoying. Make sure you are spending your money on experiences which you enjoy and remember. Don’t spend it on expensive clothes, but do feel free to spend it enjoying your time with your friends and family in ways that truly make you happy. That said, £400 per month is surely enough to do this in relative style!
Saving: £126 per month
Let’s add them all up. Total savings are £572 per month. If I had said, you can save £572 per month by cutting back, I wouldn’t have believed me! However, we can see from the above that, for the “average Briton”, it is definitely achievable.
Also, signing up for a cashback and rewards credit card can reduce your spending even further.
Step 2 – Earn More Income (Earn More)
The other way to increase your monthly position is to earn more money. This may seem hard at first, but once you start trying, you will realize it’s not as hard as you thought. Just have a browse through some of these options to get you thinking and see which methods suit your lifestyle:
- Sell products on ebay
- Enter online competitions
- Advertise on your car
- Rent out a parking space
- Write articles online
- Use swagbucks when online
- Complete online surveys
- Rent a room in your house
Earning: £100 per month
Step 3 – Save, And Invest, More Of Your Income (Save/Invest More)
Great – we have managed to save £572 per month and earn extra income of £100 per month. If we put this £672 per month aside, it will take 1488 months or 124 years to reach £1 million. Damn!
However, this doesn’t consider our saving and investing options.
Firstly, before anything else, take advantage of your employer’s matched contribution scheme on your pension. These will vary in amounts, but according to a recent report, the average FTSE 100 employer currently offers 10% in matched contribution.
Let’s assume the employer of the “average Briton” matches 6%. For this person, earning £24,640 per year, this equates to £123.20 per month if you contribute the same.
Save your income
On top of the above, it is advised that you save 10% of your after-tax income for your long-term future. Let’s assume you can do this (as I believe that the average Briton can if they focus their attention on saving). This provides an additional £154 per month.
Here comes the exciting bit – compound interest! Woo!
For simplicity, let’s assume we invest an ETF which tracks the FTSE 250. This, based on historically prices, has increased by 8.9% per year since 1985. Include the current dividend yield of around 2.3%, giving a total annual return of 11.2%.
However, we will assume after fees that the return we can obtain is 10% per annum.
Now for the math
Savings (£572) + Earnings (£100) + Pensions (£246) + 10% Saving (£154) = £1,072 per month
Investing this each month at 10% per annum returns, in 20 years time, we will have:
£1,072 * ((1.120 -1) / 0.1) = £810,464
From the introduction, the average Briton also has £30,000 in investible wealth today. Add this to the figure above:
£30,000 * 1.120 = £201,825
Therefore, in 20 years time, the average Briton has £1,012,289. We have made the average Briton a millionaire!
Could I Do It Even Quicker?
You certainly can.
The eagle-eyed amongst you may have realized that all my spending figures above are based on a average 2 parent, 2 child household. On the other hand, the earnings are based on the average income of an employed individual in the UK.
Therefore, if you are a two-income family, and you work hard towards your goals, you may be able to put more than 10% towards your savings each month and knock a couple of years off!
How Do I Become A Millionaire In 20 Years?
For the majority of us, it’s not by creating the new facebook or twitter. It’s through spending less, earning more, saving more and investing wisely and benefiting from the power of compound interest and time.
How inspirationally boring!!
Want To Keep Yourself Accountable?
For those of you who aim to reach this goal, why not hold yourself accountable and join the millionaire’s club over at budgetsaresexy.com.
And, it’s in dollars. So, for all my UK readers, you only have to reach a total of about £625k to get there!
I’ve already joined up, so why not come and join me?!
Better still, you could join the Moneystepper Savings Challenge. There’s plenty of people in there who share your goal whether they are currently in debt, or whether they are a long way down the road to become a million in 20 years!
If this article helped you answer how to become a millionaire in 20 years, then I would be very grateful if you would share via social media.