How to Become a Millionaire on a Low Income

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THINK

The greatest reward in becoming a millionaire is not the amount of money that you earn. It is the kind of person that you have to become to become a millionaire in the first place.
Jim Rohn

Most people believe millionaire status is out of reach.

Those who get there either inherit the money, become professional athletes, property investing gurus, or earn £100,000+ a year.

But that’s not the reality.

Not only can YOU become a millionaire, but it’s your responsibility to become one as a human.

Just like looking after your body, mind, and the people around you, your finances deserve to be respected and optimised.

Not only is it YOUR responsibility to become a millionaire, but you can get there on a low income.

In this newsletter, I will show you:

How to become a Millionaire on a low income
The 3 factors that influence investment returns
The ONE to focus on
How to get free money from the Government & your Employer
10 Tips to Becoming a Millionaire

3 Factors That Influence Investment Returns

There are 3 contributing factors that will help you become a millionaire.

Time
Return on Investment
Contribution

I’ll break each one down and provide tips on optimising it.

1) Time

Time has the greatest influence of the 3 factors.

When you extend your investing time horizon and allow compound interest to earn you interest on top of investment interest, it’s a wonderful thing to behold.

If you invest £500 /month, at 8% returns (low-cost global index fund), in 30 years, you’ll have the following:

£704,622

BUT… if you kept investing and waited another 5 YEARS, your investment pot would have grown to:

£1,071,811

£367,189 added to your pot. (52% growth in 5 years!) How?!

Compound interest.

That’s 30 years of earning interest on top of interest.

Note that the majority of the gains come at the end.

I’m not suggesting you wait for 70 years of investing to finally ‘Ball Out’ on your £16.9 million pot.

Like everything in life, it’s about finding balance.

Don’t Wait to Invest

The best time to start investing was 20 years ago. The second best time is NOW.

Don’t waste your time criticising yourself and wishing you’d started earlier. Put down the stick.

It’s better late than never, and you can do other things that make a difference (see below).

Get started now, and tell your friends and family about it. They’ll thank you for it in 30 years!

Don’t Interrupt Compound Interest Unnecessarily

To allow compound interest to work its magic, you must A) Get started and B) Leave it alone.

Earn extra points by adding to it every month.

Can you extend your investing timeframe by another 2-10 years?

If you can live off reduced hours at work (3 days instead of 5) or the income from a side hustle, which prevents you from interrupting compound interest for another handful of years, it can have a massive impact on your retirement pot.

I could live on my investment income now but choose not to. Two other businesses bring in more than enough for me to live on, so I continue to build my investment portfolio uninterrupted.

TIP 1: Don’t wait to start investing. Invest today!

TIP 2: Don’t interrupt compound interest unnecessarily

2) Return on Investment

Your Return on Investment (ROI) has a big impact on your Freedom Fund total, but you have no control over it, so don’t focus on it.

We previously established that if you invest £500 /month, at 8% returns (low-cost global index fund), in 30 years, you’ll have the following:

£704,622

If you were able to increase the ROI to 10% with the same assumptions, you’d end up with:

£1,032,200

Over time, a 2% improvement greatly impacts the total.

The challenge is finding it. You could:

Select your own stocks
Find fund managers that beat the market

Selecting your own stocks

99% of retail investors cannot outperform a low-cost global index fund over time (Eg. 30 years). They might do it for a year or two, but averaged out over the long term, the market wins in most cases.

Global index funds are passive. You invest and get on with your life. If you want to do individual stock selection, you must keep up with the news, global politics, read financial statements, etc. It becomes a full-time job.

In most cases, you’d be better off passively investing in a global index fund and using your free time and mental space to earn more money to invest with.

Find fund managers that beat the market

You’re more likely to succeed with this than investing yourself, but it’s still not that straightforward.

90% of fund managers underperform the market.

In 2008, Buffett issued a challenge to the hedge fund industry. He believed the exorbitant fees, costs and expenses the managers charged their clients would prevent them from beating the S&P 500.

Two hedge funds took on the $1 million challenge, and they got their arses handed to them.

From 2008 to 2016:

The S&P 500 = 85.4%
The Hedge Fund average = 22%

There are fund managers that outperform the market over time. Over ten years, you’d find 10-20%. Over twenty years it reduces to 5-10%, and over 30 years, it’s less than 5%.

Finding someone who has previously beaten the market over 10-30 years is no promise that they’ll continue to do so.

But we’re not going to roll over on this one…

There are a few ways to increase your ROI.

1) Tax Efficient accounts

2) Lower Platform fees

3) Lower Fund fees

Tax Efficient Accounts

Make sure you’re maximising your country’s tax-advantaged accounts.

Here in the UK, we have Stocks and Shares ISAs. You don’t pay any income or capital gains tax from money invested within them. You can contribute £20,000 /year, which is about to be increased by an extra £5,000 with the new ‘British ISA’.

You can access your ISA (capital and income) at any time.

If you contributed £20,000 /year for 20 years, at 8% returns, it would bring you within touching distance of becoming a millionaire:

£988,458.43

You could withdraw the whole sum tax-free or draw down 3-4% (£30,000-£40,000) for the rest of your life, again tax-free.

An ISA will save you 20-28% on capital gains and 20-45% on income.

Lower Platform Fees

At the time of writing, Hargreaves & Lansdown charge 0.45% /year as a platform fee for holding funds in your account up to £250,000.

Vanguard UK charges 0.15% /year as a platform fee up to the same amount.

The 0.3% difference might seem miniscule, but when you have a £250k portfolio, it’s £750 /year for holding the exact same thing.

Put another way, if you were to invest £500 /month for 30 years and you paid an additional 0.3% in platform fees, here’s the impact it would have on your total after 30 years:

8% = £704,622
7.7% = £666,111

£38,511 less (over 5%) for the same investment.

Don’t needlessly throw money away when you don’t have to.

Online platforms like H&L and Vanguard have pricing tiers.

H&L:

£0 to £250,000 – 0.45%
£250,000 to £1m – 0.25%
£1m to £2m – 0.1%
Over £2m – No charge

Vanguard:

0.15% per year
Capped at £375 per year for accounts over £250,000

Make yourself aware of the tiers on all the online platforms and switch between them to stay on the lowest rates.

Lower Fund fees

We just explored the impact 0.3% can have on returns over time. The same argument holds for fund fees.

Hedge Funds charge around 2% /year, plus 20% on any profits.
Mutual Funds will charge anywhere from 0.5% to 1.5% /year.
Low-cost global index funds will cost you anything from 0.1% to 0.25% /year.

Index funds will save you between 2x and 10x in charges versus a standard mutual fund.

If it costs 2-10 times more to invest in the same companies, you can see why over 90% of fund managers cannot beat index funds.

TIP 3: Invest within tax-efficient wrappers like ISAs (UK) and Roth IRAs (US) to reduce/eliminate your tax liability upon withdrawal.

TIP 4: Find reputable online brokers (like Vanguard UK) with low platform fees (less than 0.3% /year) to invest in to maximise your ROI. Be open to transferring your holdings to another platform to benefit from the reduced rates for larger portfolios.

TIP 5: Increase your ROI by investing in global index funds with low annual ongoing charges (less than 0.25% /year).

3) Contribution

The money you invest has the smallest impact on your final investment pot – Boo! 😔👎

But it’s the factor you can influence the most – Yea! 😁👍

Contribution is where I encourage you to focus your efforts, not TIME or ROI.

TIME:

There are 2 factors you control within TIME.

1) When you start investing

2) When you stop investing

Once you’ve started, the only thing left in your control is to leave it alone until you’re ready to use it.

Time’s influence is HUGE, but there’s very little you can do about it once you’ve started.

So start…. and move on.

ROI:

Adding 1-3% on top of your returns will have a BIG impact on your Freedom Fund:

If you invest £6,000 /year, at 8% returns, in 30 years, you’d end up with:

£704,622

If you invest £6,000 /year, at 11% returns, in 30 years, you’d end up with:

£1,254,329

But here’s the problem…

Where will you get an extra 3% year on year for 30 years?

You don’t control the ROI on any fund.

Investing in a mutual fund that has outperformed a low-cost global index fund over the last ten years does not guarantee the same future results.

The stoics teach us to focus on what we can control.

Therefore, rather than worrying about how you can squeeze extra percentage points from investing in different funds, focus on compressing the percentage points you can control…

1) Invest within tax-efficient wrappers (ie. ISAs and Roth IRAs)

2) Use low-cost online platforms (ie. Vanguard)

3) Invest in low-cost Global index funds (ie. less than 0.25% ongoing fee)

Then, switch your attention to the factor you have the most influence over.

CONTRIBUTION:

Let’s continue to use the same example. If you invest £6,000 /year, at 8% returns, in 30 years, you’d end up with:

£704,622

If you doubled your contribution to £12,000 /year, with the same assumptions, you’d end up with double the pot:

£1,409,243

Granted, it isn’t easy to double your contributions, but it’s possible, and it’s something you control.

A 100% increase might appear too much right now. That’s OK.

I have some suggestions on how to boost your contributions with minimal effort.

Boost Your Contributions Effortlessly

Here are some ways to increase your contributions, starting from the easiest to the hardest:

Employer Contributions
Government Contributions
Windfalls
Living on less
Earning more

Employer Contributions

Many employers offer workplace pensions, where they contribute money to your retirement fund.

This is free money!

Are you taking it?

When I was employed, I contributed 2% of my pre-tax salary into my workplace pension, and my employer contributed 5%.

They put in 150% more than I put into the pot.

Huw = £200
Employer = £500

Most schemes offer 100% matches up to 5% of your salary. You might be fortunate to get an even better deal.

The easiest way to double your contributions is to take advantage of these generous workplace pension schemes. Speak to HR to find out what they offer and how you can get involved.

If you leave the company, you can consolidate your pension into one pot later. Don’t worry about having multiple pensions.

Take the free money if it’s available.

TIP 6: Maximise your employer contributions within your workplace pensions. There are few opportunities to double your contributions like this.

No Employer Pension Scheme?

If your employer doesn’t offer a pension scheme, they might be open to contributing to your personal pension (SIPP in the UK).

Employer contributions are usually made pre-tax through a method called ‘Salary Sacrifice’. It essentially reduces the business’s payroll tax and national insurance contributions, which they can share or pass onto you via pension contributions.

Not all companies offer it, but many do. Ask your HR department about ‘Salary Sacrifice’.

Own a Limited Company?

If you’re a Director of a limited company, your business can pay directly into your personal pension (SIPP in the UK).

The contributions can be written off as a business expense, saving the company up to 25% in corporation tax, whilst you build your Freedom Fund.

Government Contributions

In the UK, SIPPs offer Government tax relief of 20% for basic-rate taxpayers, with higher-rate taxpayers able to claim another 20% and additional-rate taxpayers able to claim an extra 25% via self-assessment.

I find these headline numbers misleading because the end result is even more impressive. Let me show you…

Basic rate taxpayers (<£50,270)

SIPP Contribution = £8,000

Tax Relief = £2,000

(25% of personal contribution)

SIPP TOTAL = £10,000

Higher rate taxpayers (£50,271 to £125,140)

SIPP Contribution = £6,000

Tax Relief = £4,000

(67% of personal contribution)

SIPP TOTAL = £10,000

Additional rate taxpayers (>£125,140)

SIPP Contribution = £5,500

Tax Relief = £4,500

(82% of personal contribution)

SIPP TOTAL = £10,000

More free money!

You can put 100% of your income into a SIPP each tax year up to the maximum of £60,000, which includes personal contributions, employer contributions and tax relief.

You can carry forward any unused allowance from the previous three tax years:

21/22 = £40,000
22/23 = £40,000
23/24 = £60,000
TOTAL = £140,000

From 6th April 2024, the 24/25 allowance will be £60,000 again, so the three-year carryforward total will increase to £160,000.

Depending on your taxpayer’s band, the Government will help you with at least 25-82% of the contribution.

Are you taking it?

You can withdraw up to 25% of your SIPP tax-free when you’re over the age of 55, which is set to rise to 57 from 6 April 2028.

In the UK, we have some of the world’s most generous government tax relief benefits.

We don’t know how long it will stay this way, so pay into your SIPP while you can and let the Government help you become a Millionaire.

TIP 7: Maximise Government contributions within your SIPP (or equivalent) by adding to it every year. Do what you can. The higher your tax band, the more money you’re leaving on the table.

Windfalls

Christmas, Birthdays…

“Huw, I’m not 12 any more.”

Fair one…

Employer bonuses, commission, overtime, lottery wins, inheritance, selling stuff around the house, etc.

These are all great opportunities to increase your contributions.

It’s up to you to decide how much you want to invest from your cash windfall.

A good place to start is 50%. If you got a £1,000 bonus from work:

£500 = Have fun
£500 = Invest

Adjust accordingly based on your goals and circumstances.

TIP 8: Use a percentage of your windfalls to invest with and boost your contributions. 50% is a good starting point.

Living on Less

You’ll be surprised to see this one here. 🤣

The reason it’s here is because it’s the easiest and fastest way to increase disposable income.

So many people throw money away because they…

Don’t change providers every year.
Stay on SVR mortgages instead of remortgaging to lower rates.
Have 4-5 figures of consumer debt, which they pay the minimum amount on.
Own two or three cars when they only need one.
Buy takeaway food and coffee daily when they can make their own.

If you rarely switch providers, negotiate your rates or eliminate expenses, you have the most potential.

I usually save clients around £500-£1,000 a month by doing this.

Splitting the difference (£750 /month) and investing the full sum, at 8% returns, for 30 years will get you:

£1,056,932.36

Simply being more intentional about how you spend money and investing the difference can help you become a millionaire.

TIP 9: Analyse your expenses and create a budget to extract additional disposable income. Invest all of the savings you make to boost your contributions.

Earning More

You may have been following me for a while, purchased the ‘Financial Freedom Planner‘ and reduced your expenses to the point of diminishing returns.

Great work! 👏

You’re not done. The next step is to earn more money.

Employed:

Can you work extra hours?
Earn extra commission or bonuses?
Can you apply for a promotion or work towards one?
Could you ask for a raise?
Have you considered working for a competitor and getting paid more for doing the same job?

Part-Time Work:

Work evenings, weekends, a couple of times a month, one-off tasks or even seasonal.

Sell Stuff:

Sell unwanted items around your house to generate £100s and even £1,000s to increase contributions and declutter.

Start a Side Hustle:

Start a passion project on the side at your convenience to generate some extra income.
Invest all of your business profits to increase your investment contributions significantly.
Guide – Find the Perfect Side Hustle (6 Steps)

TIP 10: Maximise your earning opportunities with employment, get a part-time job, sell unwanted items around your house, and start a side hustle to boost your income. Invest all of the additional income to boost your contributions.

Summary

We’ve covered multiple opportunities to get you to millionaire status.

Some won’t be available to you. Some will appear overwhelming or confusing.

But there’s an area you’re not utilising right now.

Focus on that and what you can do for now.

Work on what you don’t understand over time.

The truth is, you don’t need to become a Millionaire to be Financially Free or happy. It helps, but it’s not necessary.

If you use these Tips and increase your Freedom Fund by £250,000 to £750,000, it’ll change your life.

Best of luck!

Reflect and share this with someone.

ASK

“Which Tip, if acted upon, would have the greatest on your wealth?”

“What step can you take today to act on that?”

Write down what comes to mind.

TRY

We covered a lot today. (Phew!)

Here’s a consolidated list of the 10 Tips to Become a Millionaire on a Low Income:

TIP 1: Don’t wait to start investing. Invest today!

TIP 2: Don’t interrupt compound interest unnecessarily

TIP 3: Invest within tax-efficient wrappers like ISAs (UK) and Roth IRAs (US) to reduce/eliminate your tax liability upon withdrawal.

TIP 5: Increase your ROI by investing in global index funds with low annual ongoing charges (less than 0.25% /year).

TIP 6: Maximise your employer contributions within your workplace pensions. There are few opportunities to double your contributions like this.

TIP 7: Maximise Government contributions within your SIPP (or equivalent) by adding to it every year. Do what you can. The higher your tax band, the more money you’re leaving on the table.

TIP 8: Use a percentage of your windfalls to invest with and boost your contributions. 50% is a good starting point.

TIP 9: Analyse your expenses and create a budget to extract additional disposable income. Invest all of the savings you make to boost your contributions.

Which Tip holds the greatest potential for you to become a Millionaire?

HIT REPLY and tell me which Tip you’re going to work on, or go one step further and share your entire plan to a Million.

I read and reply to every email, and remember, I’m rooting for you!

Remember: Little by little, a little becomes a lot.

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