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7 Steps To Become a Millionaire in 5 years (OR Less)

 
If you’re earning an income or have a little cash squirreled away, let these tips motivate you towards your first million– and send us a bottle of something deliciously bubbly when you get there.

1. NAME THE GOAL

Without a real reason to save, the chances of sticking to a savings plan in the long term dwindles slowly. The reality is that you need a cause or a solid reason to get behind a plan and to keep motivated. The money then becomes the means to an end, not end in itself. Wanting a million for the sake of having a million is probably not enough. You have to decide why you need the money.

2. BE REALISTIC 

Knowing what you want is an important first step but not enough. Your next step should be a long, hard look in the mirror and to face up to your reality of your current financial situation. You need to look at what you have at your disposal, what changes you are prepared to make in order to achieve your desired goal and what risks you are prepared to take. If you aren't currently earning an income , odds are that you probably wont be able to reach your goal of R1m in five years. If you are putting three kids through school, you might not be able to save as aggressively and would have to delay the one million celebration by a few years. A sustainable and achievable plan requires clarity and honesty. Only once you face up to the reality of your situation can you pick an action plan that best suit you. 

3. DO THE MATHS

The word ‘million’ might scare you, but understanding how much you have to pay in current happiness in favour of future happiness is very basic mathematics. The goal is to accumulate R1m in five years.

Break this long-term goal down into smaller objectives. R1m in five years becomes R200 000 ($200 000) per annum, which becomes R17 000 ($17 000) per month. This strategy is the ‘no growth’ savings plan. Whether you put R17 000 ($17 000) in the bank or under your mattress, you’ll be a millionaire by the end of five years. Luckily that’s not your only option. You can also choose the capital and growth plan, where you invest a lump sum for five years, , or a combination of savings and capital investment to get you there.

THE CAPITAL AND GROWTH PLAN 

  1. TERM: 60 months 
  2. CAPITAL INVESTMENT: R600 000  ($600 000)
  3. INVESTMENT RETURN: 10% 

THE COMBINATION 

  1. TERM: 60 months 
  2. CAPITAL INVESTMENT: R250 000 ($250 000)
  3. MONTHLY CONTRIBUTION: R6000 ($6000) increasing by 10% pa 
  4. INVESTMENT RETURN: 10% pa. with dividends reinvested.

THE MONTHLY COMMITMENT

  1. TERM: 60 months 
  2. MONTHLY CONTRIBUTIONS: R12 200 ($12 200)
  3. INVESTMENT RETURN: 10% pa on dividends reinvested.

 PS : These numbers are a generic example. Deciding which option is right for you will require a fair amount of time and research. To make the process easier, don't hesitate to engage with a financial planner who will help you determine your risk appetite and investment options.

4. THE DANGER OF INFLATION

The consumer price index (CPI) is the measure that we use to determine how much inflation eats away at what we can buy with our money. This means that your money is worth a little less every year. 

Even if you’ve invested your money, the fees you pay for that service chips away your wealth. Make sure you understand all the fees and inflation because these factors erode the true value of our R1m investment outcome over a five year period. For example, if inflation is 6% and you’re paying 2% in fees, your money needs to grow at a minimum of 8% in order to achieve our goal of R1m in real terms. In other words, in five years you’ll need R1.2m to buy what R1m could buy today.

 5. KEEP TO THE STRATEGY

 Be patient and do not lose sight of your goals once you’ve identified your strategy.

6. MOVE IT

It sounds simple, but its not the end of it, you have to keep reminding yourself to keep saving, stop wasting money and stay invested for the full five years, even if the investment doesn't perform in the short term. You have to stick to the strategy.

7. BE YOUR OWN WORST CRITIC

Critical to the success and failure of your investment is the ongoing measurement of your progress. This process should entail revisiting the main objective to ensure that it is still relevant. Checking your progress or ensure that you are on track. Lastly, if any changes need to be made to the objective or the strategy, make the relevant adjustments sooner rather than later.

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