How to become an ISA millionaire 💸

It might sound unachievable, but it’s certainly not impossible! I want to show you exactly how you can get closer to building a million pound pot.

🚀 Utilise a stocks and shares ISA

In the UK this is the best tax advantaged account to build wealth with. Unfortunately, only about 6% of us currently use this incredible tool due to lack of education about investing.

Unlike pensions, any interest or dividends within an ISA won’t be taxed when you come round to withdraw it. You can contribute up to £20k per tax year and if you maxed out your ISA each year, you could be a millionaire in less than 18 years (assuming 10% return).

Of course it wouldn’t be easy to put away £1,667 every month, but you can start with smaller amounts and build up from there.

⏱️ Understand compound interest effect

Most people don’t truly understand how compounding works over a longer period of time. Maybe this is one of the biggest reasons we don’t invest?

Even small percentages can add up and compound lots given enough time.

Albert Einstein even called it the eighth wonder of the world and for a very good reason.

To illustrate this point, let’s say I put away £300 a month into a global index fund within an ISA returning 10%. I don’t increase the amount at all or change anything.

In 30 years, this is what the graph could look like.

Potential future balance: £678,146

Total interest earned: £570,146

Total contributions: £108,000

Whilst I only contributed £108k, the interest was more than 5 times that! This is the true power of compounding.

While this is not quite the magic 1 million, the earlier you start investing, the better chance you would have at reaching it.

📈 Invest in low fee index funds

For most investors this is the best strategy in building long term wealth. It’s simple - you don’t need to do any tracking of how particular companies are doing or worry about buying and selling individual stocks.

Index funds are usually much cheaper, so you can keep more of your money too. Remember that higher fees or even paying an advisor a 1% fee over a long time can reduce your returns by up to 28%.

💷 Contribute regularly

Not only it will help you build wealth quicker, but you can also benefit from what’s called ‘dollar cost averaging’. When you invest regularly, the price of stocks will balance out and you won’t be investing all your money when the markets dip.

🧑‍💼 Increase your income

Easy to say, hard to do? Well, there is only so much you can save, but no ceiling to what you can make!

Could you look to increase your salary or get a promotion at work? Moving jobs, location or careers could also help with increasing your pay.

Perhaps you could also do a side hustle - renting out your spare room, selling digital products, dog walking or doing some consulting? Turning a hobby into a bit of extra income could allow you to invest more.

My weekly recommendation

I’ve been really enjoying reading Simran Kaur’s book ‘Girls that Invest’. Simply written, it covers all things investing in an engaging way. If you are just starting out and want to learn more about investing and stocks, this book is for you.