Becoming a millionaire is a big milestone that many of us aim to reach. Having said that, there are a lot of people that perceive it to be an insurmountable goal that is only reserved for the lucky few. The reality, however, is that through investing a small amount every month over a long period (such as 25 to 35 years) anyone can become a millionaire.
Let’s do the millionaire maths
If you invest an initial amount of $1,000 and then add $750 to your investment portfolio at an average annual return of 10%, you will have over $1,000,000 in 25 years time.
Now you make ask: “Where did you come up with the 10% annual rate of return?” Well, the annualized return of the S&P500 with dividend reinvestment over the last 25 years is 9.44%, so I rounded it up to 10% for this illustrative example.
Of course, historical returns do not dictate future returns but the main goal of this post is to encourage you to put an amount you feel comfortable with aside each month into an investment portfolio that you hold for 20 years+ so that when it comes time to buy a large house for your family, pay for your kids college education or to retire you will have more than enough money.
I personally follow the advice in this post. I have set up a monthly direct debit that transfers money into my MoneyFarm investment portfolio so that I can benefit from the power of compound interest as I receive interest on the initial amount I have invested as well as each amount I add each month over a long period of time. I fully intend to hold my portfolio for 20 to 30 years as that is how you actually grow your wealth.
If you want to play around with the numbers to see how much wealth you would generate for the amount of money you are currently able to put aside each month use the Savings Calculator in the Financial Tools section of the blog.
Furthermore, if you want to set up a low-cost investment portfolio that you pay into each month I would recommend signing up to Betterment (if you are in the US) or MoneyFarm (if you are in the UK or Europe). They are both online wealth management platforms that invest your money into diversified low-cost ETF-based portfolios and are very user-friendly, especially for beginners.
