The Shockingly Simple Way To Become A Millionaire
The simple and effective way to become a millionaire and why >90% don’t.
For most people, becoming a millionaire is a life dream that they aspire to and wish for but rarely achieve. According to a UBS Global Wealth Report, about 10% of the Australian adult population is a millionaire. The other 90% of the population may never achieve the millionaire milestone.
It is probably the reason why so many Australians pin their hopes on becoming a millionaire by buying lottery tickets. According to a 2023 Australian Institute of Health & Welfare study, 30% of Australians gamble on lottery tickets every month and about 67% gamble on lottery tickets regularly in a year. In 2021, Australians spent $7.1 billion on lotteries, which was a 65% increase on the $4.3 billion they spent in 2011.
So, it seems from the data that most Australians wish to become millionaires. The problem is they are going about it the wrong way!
Lotteries: a fool’s game
Unfortunately, for the many millions of Australians who buy lottery tickets, their chances of becoming a millionaire are ridiculously small.
The estimated odds of winning a lottery jackpot in popular lotteries are:
Lotto 1:8 million
Oz Lotto 1: 63 million
Powerball 1:134 million
(Source: The Lott website)
To give a comparison on the unlikely chance of winning a lottery jackpot, you have a 4:1 million chance of being struck by lightning. That is how remote the odds are of winning the jackpot and that’s assuming you don’t have to share with other winners.
The simple (and more surefire) way to become a millionaire
What if I told you there is a simple way to become a millionaire. That, it is possible for just about anybody to become a millionaire – not just the top 10%.
This may sound a bit controversial, but there is no reason why anybody cannot become a millionaire. The reason why most people don’t become a millionaire is that they just don’t know how to do it. Many people try by relying on lady luck to grant them their wish to become a millionaire, but this is not a sensible or reliable way that everyone can win.
The secret to becoming a millionaire is to just follow a simple mathematical approach. This simple approach does not require you to have a big income, lots of financial knowledge or spending time researching and investing. In fact, it is as simple as saving money in a bank account. If you think this sounds too good to be true, then let me show you with a simple example.
The average cost of a lottery ticket is about $50 (playing a multi-game). Let’s assume that we take the $50 we would normally spend on lottery tickets and invest in an index fund which had an average return of 10% per year. If we simply followed this weekly investment, the index fund would grow to over $1million after 37 years. In just 7 more years, the index fund would grow to over $2million. The total amount of money invested would be $96,200 ($50/week for 37 years) but the investment compound growth would be $915,371. That is, 90% of the $1 million portfolio value would come from compound growth – money you made while you were sleeping.
So, for investing (not gambling or spending) just $50 per week you can build a $1 million (or more) investment portfolio over time. For most people, finding $50 each week to invest should be achievable.
If we invested $100 per week, it would take about 30 years to reach $1million and 37 to reach $2million. If we invested $200 per week it would take less than 24 years to reach $1million and 30 years to reach $2million. The table below illustrates the estimated timeframes to reach the millionaire milestone assuming an average 10% return:
|
Weekly Amount Invested |
Time to reach $1m |
Time to reach $2m |
|
$50 |
37 years |
44 years |
|
$100 |
30 years |
37 years |
|
$200 |
24 years |
30 years |
How to retire on your investment portfolio income
Each year, the index fund continues to grow - assuming a constant investment return - due to compounding growth. Once you reach the $1 million milestone you could stop investing and the index fund would continue to grow over time as most of the growth comes from compounding on the fund balance and not your contributions. The portfolio growth can be used as a source of passive income to replace your working income. For example, once the index fund reaches $1million, if it achieves a 10% return it will generate $100,000 in growth. This $100,000 could be used to replace your working income or enable you to reduce your working hours and spend more time doing what you want to do.
You will note from the above table that by leaving the index fund to grow a few more years it will double to $2million which is a lot quicker than getting to $1million. This is the power and beauty of compounding growth. The longer you allow the investment portfolio to compound the quicker it will grow. That is, compound growth grows at an exponential rate and not a linear rate which is why the balance doubles quicker as time goes by (assuming a constant growth rate). This makes becoming a millionaire easier as compounding growth does the majority of work for you provided you give it enough time to compound.
Key Tips:
ü Always save part of what you earn – pay yourself first
ü Invest on a regular basis – ideally monthly or when you can
ü Use the power of compounding to grow your portfolio over time
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Disclaimer: This page contains general information only. It has been provided without taking into account your objectives, financial situation or needs. Please seek appropriate financial advice before taking any action.