how to make yourself a millionaire

8/3/2019 How to Make Yourself a Millionaire

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How to make yourself a millionaire

Philip Scott, This is Money23 May 2008Reader comments (7) |Vote | Quiz | Calculate

By using your tax breaks sagaciously and saving diligently both you and your spousecould be joint millionaires within 20 years, or possibly even sooner.

It could be you: Save diligently, use

your tax breaks and you will reap the

benefits

WANT TO KNOW MORE?

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And while becoming a millionaire will set you back a fair bit, it could cost less than youthink - with each partner needing to squirrel away just over 1,000 a month to hit themagic number.

With inflation back on the rampage, it makes sense to ensure your life savings are at thevery least keeping pace.

But by taking advantage of just three basic savings schemes - individual savingsaccounts (Isas), pensions and National Savings & Investments (NS&I) certificates, acouple can build up a million pounds before they retire, or even earlier if they really upthe ante.
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Laith Khalaf of Hargreaves Lansdown, an independent financial adviser says: 'Toreach the million pound mark you need to save smart as well as hard.

'That means making the most of your annual tax-free savings allowances and taking upany pension contributions offered by your employer.'

If you and your spouse each put away 12,200 a year over twenty years you could have1m to share between you after 20 years.

Although not everyone will be able to put away such a large sum of money on an annualbasis it still makes good financial sense to put away as much as you can - the taxbreaks available to you, coupled with compounded investment growth can substantiallystack up over the long term.

Isas

Since April 6, all UK adults can save a maximum of 7,200 in a stocks andshares Isa every year where the income and capital growth are tax free. Expertstypically recommend that savers put their cash into an equities Isa because over thelong term, they tend to achieve substantially higher returns than either cash or bonds.

If you and your other half each invest the maximum amount of 7,200 every year after20 years, assuming an annual average growth of 6%, after charges, you would be sittingon an Isa savings account worth some 281,000 each or 562,000 between you. Andbear in mind that if you put the same amount into a bank account earning 5%gross, ifyou were higher rate tax payers you would have only built up 199,000 each over the 20years.

Amanda Davidson of Baigie Davies, another adviser, recommends Jupiter Income forinvestors seeking steady returns. She says: 'It is run by a very experienced manager,Anthony Nutt, who over the long term has been able to consistently deliver.' Over the

past five years the fund has delivered 90% to investors against a sector average of 78%.

Help with picking the best funds

Read our comprehensive tips and guides to funds to make sure you choose the right onefor you...

Fundwatch reveals share tips from star managers Top-selling funds Fund tips for novice and experienced investors Unit and investment trust guides Visit our supermarket to buy funds at a discount Put a question to the investment experts Read answers from investment experts Calculate how long to make 1m
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Davidson also recommends Credit Suisse European Frontiers for those willing and able tohandle a little more volatility with their investments. The fund which invests in theemerging economies of Europe has returned a massive 343% against a 103% sectormean over the past five years.

For an ethical play, Davidson likes Jupiter Ecology. Its investment policy is to seek out

companies which demonstrate a positive commitment to the long-term protection of theenvironment. Over five years it is up 136% against a peer average return of 80%.

Remember the key to beating inflation is getting good investment performance, so makesure you review your investments regularly to make sure they are up to the job. For acomplete overview of funds our experts recommend for both experienced and noviceinvestors, read our fund tips.

Total Isa value between two: 562,000

Pensions

Pensions are one of the best ways to keep cash away from the taxman's claws. TheGovernment gives 20% tax relief to basic rate taxpayers so for every 80p you saveAlistair Darling will essentially top it up with another 20p. Higher rate taxpayers alsoreceive 20% relief but get a 20% rebate as well, meaning that for every 60p they save,the Government contributes another 40p.

You can invest your whole salary if you so wish or a maximum of 235,000 this taxyear. This will rise by 10,000 a year until at least 2010-11, so next year's limit is245,000. For the purposes of this article though let's say you and your partner eachsave 4,000 a year into your respective pension plans - again assuming annual averagegrowth of 6% net of charges, after two decades your joint pension would have a value of390,000 or 195,000 each.

Everything you need to boost your pension

Pensions news and advice Pensions guides and tips Pension experts: Ask a question Pension blogs: Personal tips from writers

Annuity rate tables Pension message boards Pension pot calculator Pension protection fund calculator Cheapest Sipps Advice on women's pensions

Low cost stakeholder pensions are available from Scottish Widows and Axa and expertsrate these two schemes as they have total annual management charges of some 1% and
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each offers a decent range of investment funds. But if you want to go solo and manageyour own investments - low cost self-invested personal pensions (Sipps) are availablefrom firms such as Hargreaves Lansdown, and AJ Bell.

Total pension value between two: 390,000

National Savings & Investments

Almost 150 years ago, in 1861 the Government set up the 'Post Office Savings Bank'.Aimed at encouraging ordinary wage earners to save for the future, the scheme servedtwo purposes: to help people build up their savings securely and to provide funds for theTreasury.

Now NS&I - it is the most secure place to save and to this end it offers a wide range ofaccounts and bonds that guarantee investors get their money back no matter whathappens. NS&I index-linked savings certificates are tax free and protect against inflationby offering a guaranteed rate of interest above the Retail Prices Index over three orfive years.

Presently they are offering a fixed rate of 0.7%, on top of RPI, which is currently 4.2%.Typically the Government launches two issues a year and you can invest up to 15,000per person. So, say you and your other half put away just 1,000 a year each for the twodecade term after the time is up each of your investments should be worth some30,000.

Total NS&I certificate value between two: 60,000.

Therefore based on the amounts discussed here you and your spouse could be sitting ona fortune worth more than 1m after 20 years.

Isa savings: 562,000Pension savings: 390,000NS&I Savings: 60,000

Total: 1,012,000

...What else could you do?

Another way you could boost your savings is by investing in a venture capital trust (VCT) the rewards can be high but so are the risks that come with it. VCTs are funds that takelong-term stakes in small but up and coming firms. The VCT will work with managementto grow the business and then aim to reap the rewards when the company is sold on orfloats.

If you invest, you get an immediate 30% income tax refund on the cash you put into aVCT but you must hold the shares for five years, otherwise you will have to repay therefund. In addition, dividends are free from income tax and any profit made from sellingshares is free from capital gains tax. Experienced VCT managers include Matrix, Provenand Close.

There are also a number of tactics you can utilise to make your children millionaires,check them out at How to make your child a million.
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