Winning the lottery may seem like an easy route to millions and many people buy tickets. However, the chances of winning a big jackpot in any lottery are vanishingly small.
Sadly, for most people, buying lottery tickets is most likely to be a route to making themselves poorer than richer. There’s a better way to aim for a million. I’m following this simple plan…
Get out of debt
If you have debts, you’re on the wrong side of interest – instead of earning it, you’re paying it. Debts can keep you poor, and I reckon the starting place for any plan to make a million should be to ditch the debt! So, I’d aim to pay off my debts as fast as possible and avoid taking on any more borrowings.
Build a savings cushion
Before moving on to invest money in your quest to make a million it’s a good idea to build a savings cushion of easily accessible money. If you can clear your debts then save, say, between three and six months’ worth of your monthly living expenses you’ll have a solid base from which to build your fortune.
I’m a big fan of building wealth by investing in shares and share-backed investments. Over the long haul, studies have shown that the returns from shares have outperformed all other major classes of assets, such as cash savings, bonds and property.
So, I’d aim to make regular monthly payments into an investment vehicle backed by shares. In that way, my money will have a chance to compound at a higher rate than would likely be possible by saving money in a cash savings account.
There are several things you can do to help your investments work really hard for you. I reckon one of the smartest moves you can make is to put regular money into a workplace pension scheme.
The great thing about workplace pensions is that your employer will likely put more money in for you on top of what you pay in yourself – that’s free money and it can turbo-charge your investment pot. Another boost is that all the contributions you pay in and those that your employer pays in are free of tax.
These days, with a workplace pension you’re most likely to be offered participation in a defined benefit scheme. The scheme will invest the contributions made by you and your employer in a range of investments. In some schemes you’ll have a choice about how your contributions are invested.
When you retire, the benefits you’ll receive will depend on how much has been paid in, the length of time it has been invested, and how well the investments have performed. But if you can’t get into a workplace pension, you can get similar tax and investment benefits by investing in a Personal Pension, Self-Invested Personal Pension (SIPP) or a Stocks and Shares ISA. And that’s the route I’d take to make a million, even though those vehicles won’t get extra contributions from an employer.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2019