A popular daydream for anyone with access to a compound interest calculator is working out how much interest you’d earn on a million pounds. But how do you make a million pounds in the first place?
You could marry a millionaire, but if you’re the sort of person looking to do that then you’re too busy at the gym or on the ski slopes to read Monevator.
You could win the lottery. Good luck! Mathematically it’s illogical to even try, but £2 a week won’t hurt. Or you could buy a few Premium Bonds.
You could start a business, but beware that’s very risky. (On that score, don’t blog to get rich. You’ll starve).
Some people make by developing property. However once you get beyond owning your own home this is really another form of business.
That leaves saving your surplus income and investing it to make your million.
How realistic is it to become a millionaire this way?
Make a million pounds by saving and investing
Saving and investing your way to a million pounds may seem a daunting task.
For most of us, it is. But it is far from impossible.
How you make your million by investing depends on three factors:
- The amount you save every month
- The rate of growth of your investments
- The length of time your money has to grow
Let’s ignore another factor here, which is tax and pensions. If you’re a taxpayer, the Government gives you tax breaks which effectively increase the size of your monthly savings without you having to save any more money. You’ll reach a million quicker, all things equal. But the downside is your money is locked away in a pension. You’ll be taxed on the income when you withdraw it, too.
Everyone’s tax situation is different, so in articles like this it’s best to ignore tax. But you shouldn’t when doing your own sums!
What will you earn on your portfolio?
The rate of growth in your investments (also known as the return) will depend on where you put your money – and how lucky you are!
There are no guarantees and much swearing and death threats discussion about what is likely. But just to give you a ballpark idea of long-term expected returns:
- Cash and government bonds could earn 2-4% a year
- Corporate bonds could early 4-6% a year
- Commercial property might earn 6-8% a year
- Equities (shares) could earn 8-10% a year
- Riskier equities like small caps or emerging markets might hit 10-12% or more
These returns are inclusive of inflation, which will reduce the spending power of your money over time.
The important point is cash is the least-risky asset, but it offers the lowest prospective returns. Each successive asset is riskier but a better bet for the long-term.
Put your money into small cap stocks for example and you’ll have to stomach some daunting volatility along the way. However you might be more likely to get to a million before you get a bus pass.
Can you beat these returns by share trading? If you’re an amazing share picker or Warren Buffett you might make as much as 15-20% a year. But very, very few people can do that for long. If you’re one of them, you’ll probably already know it.
Note that most people generally invest in a range of assets for portfolio diversification purposes. This reduces the volatility, but it can be expected to reduce overall returns, too.
It’s also worth knowing that the longer you hold your assets, the more likely you’ll enjoy their average historical return.
Share prices, for instance, jump around all over the place in the short-term.
But as your holding period increases from months to years to decades, your returns tend towards the average.
How much must you save a month to make a million?
The following table tells you how much you need to save every month to make a million within different time periods, and with different rates of growth.
Cross-reference the growth rate in the top row with the length of time you can endure it until you’ve got your million pounds.
Where time and growth intersects is the monthly amount you’ll need to save:
| 4% | 6% | 8% | 10% | 12% | 15% | |
| 5 years | £15,061 | £14,322 | £13,621 | £12,958 | £12,330 | £11,449 |
| 10 years | £6,795 | £6,125 | £5,516 | £4,964 | £4,464 | £3,802 |
| 20 years | £2,739 | £2,195 | £1,746 | £1,381 | £1,087 | £754 |
| 30 years | £1,455 | £1,021 | £705 | £481 | £325 | £178 |
What about inflation? I’ve ignored it here, because this article is about making a million pounds in nominal terms. In reality a million pounds will buy far less in 20 or 30 years. A shortcut is to read the column to the left of your expected returns. So if you expect to make 8% a year, read the column for 6%. This allows a couple of percent for inflation.
Have a play around with different rates, time periods and monthly savings amounts using our calculator.
A million pounds is certainly not what it used to be. However you’ll soon discover it is still very hard for the average person to make a million pounds quickly through investing.
A million pounds is also an arbitrary number. You’re better off working out your own sustainable plan to reach your financial goals – one that you can stick with for the long haul!
Try our millionaire calculator or see the interest on a million pounds.
“You’ll soon discover it is indeed very hard for most of us to make a million pounds, except through pensions and three decades of saving.”
Surely this is a worthy goal for most people and whilst a million pounds might be an arbitrary target it is the one goal most people dream about and can therefore visualise the prize.
Although being a millionaire isn’t what it once was, it would provide a comfortable lifestyle for the majority of people.
After funding my own commercial Pilot training which has been MASSIVELY expensive! i`m new to saving as I pay off my debts. The advice on this site has been very informative and has opened my eyes to long term saving, Start small think big seems to fit. Many thanks.
Great advice.
We all think of becoming wealthy but staying wealthy is a skill in itself. Thanks for the great advice.
I believe that i will one day be that person who is laughing on my way to several banks to collect my compound interest and what a day it will be.
I think this is a very interesting point about saving and investing. I’ve got to say your saving your way to a million table is very useful!
I currently have a blog through which I’m seeing if it’s possible to amass a million simply through the kindness of others, as well as buying and selling products along the way!
I will definitely be using some of the things mentioned in this article!!
.-= Gary on: If I Was a Millionaire I Would Buy =-.
You are an inspiration. I am going to try this!
Watch me make big.
xoxoxox <3
I think the important thing for people to realise is that this is doable. It takes time, and sort of sneaks up on you, but if you save consistently you get there.
In 2001, I left the corporate world and started my own business, since then I have amassed savings of near three-quarters of a million. If I add in the 20x equivalent of a DB pension I accumulated by spending a couple of years in a Government agency in the 2010s, where they allowed me to transfer in the SIPP I had built into their pension scheme (long and slightly bizarre story), then I am over the £1 million mark.
It wasn’t particularly painful, and did not require any massive strokes of luck, apart from being able to buy into the DB pension. It just sort of happened. And guided by Monevator and other commentators, I was passive all the way.
This is not to boast in anyway, just to support The Investor’s point. Time achieves a lot.
Thanks for sharing, wish I’d read this article (and found this website) 15 years ago when I left uni, rather than 5 years ago!
Possible typo alert/amendment for you — “Corporate bonds could early 4-6% a year”
Thanks again for all the work you do – literally life changing for me.
I used to make half that of a lot of my peers, but through studious saving and more importantly investing, I’ve increased my wealth. Meanwhile many of them have spent their disposable income, and aren’t much better off than they were 2 decades ago (apart from a small amount of housing equity)
“If I add in the 20x equivalent of a DB pension I accumulated by spending a couple of years in a Government agency in the 2010s, where they allowed me to transfer in the SIPP I had built into their pension scheme (long and slightly bizarre story), then I am over the £1 million mark.”
@old_eyes: We’re all ears…
As someone who is on the slopes right now, I have to say that this is a great post and helps reiterate that boring old earning, saving, investing is the right way to go.
My algorithm outcome gives me worst – loads of ads for property development, bizbro wizdom, BTL, crypto – I can’t stand it.
But they pay for advertising or boosting, so they pop up on my feed.
If their business was so good, why share the secrets?
Sadly, the best way to get rich is to get rich slowly, keep fees low and never go to a f**king property seminar or even think about dropshipping or MLM.
An alternative point to mention is that career progression, change and we’ll thought out gambles might make a huge difference in getting to FIRE.
I could quite easily end up with a million in my portfolio. How-ever, I would have to start with 1.2 million at the current rate of decline.
Replying to @Anonymose ““If I add in the 20x equivalent of a DB pension I accumulated by spending a couple of years in a Government agency in the 2010s, where they allowed me to transfer in the SIPP I had built into their pension scheme (long and slightly bizarre story), then I am over the £1 million mark.”
@old_eyes: We’re all ears…”
My apologies, I thought I replied earlier, but either I forgot to press Submit, or the Monevator team didn’t like what I wrote. I’d go with finger rouble.
So, in 2001 I left the corporate world to start my own consulting business. Some years later, a government agency (non-departmental public body) became a client during their set up phase. They gradually became a major client, and then a dominant client. When this happened, I pointed out that it did not necessarily make sense to be paying me a daily rate, and perhaps we should come to some other arrangement. The answer was always “no, we probably won’t need you next month and we prefer the flexibility”.
Then in 2012 the government had one of its regular spasms when it realises how many consultants and contractors it employs. This is always targeted at the smaller consultants, not McKinsey and the like (‘proper’ consultants). They may charge ridiculous fees for teams of new graduates with clipboards and pre-canned answers, but they give better parties and have boxes at Wimbledon.
So the word came down from on high, get rid of all consultants and contractors (except the proper ones of course). So I got an ultimatum, join us full time or go away. I thought the project I was working on was important and I wanted to see a good outcome. I also foresaw a couple of years work ahead before my contribution would be over. So I took the government’s shilling. This was not a career, but a gig.
Just a side note, all these government departments went back to hiring contractors and consultants within 12 months of the clear out, because that is how the public sector works in the UK.
When I signed my full-time contract, I also joined the civil service defined benefit pension scheme (I was not a civil servant, but the agency used the same scheme). So I asked if I could transfer my SIPP into the DB scheme? Yes, they said, but we are recalculating the transfer rates at the moment. After about six months they made me an offer, my jaw dropped, and I rushed to complete the paperwork before they changed their mind.
In 2016 there was a corporate reorganisation, I had done about as much as I felt I could usefully do, and there was nothing else tempting on offer. So I took early retirement, returned to my consultancy practice, and went away with a nice little DB pension.
A ‘back of the fag packet’ calculation says I could not have bought as good an annuity with the money I transferred in, my contributions during those four years, and the employer contributions. So I lucked out there.
Nor moral, no teaching just “events, dear boy, events”.