Who wants to be a millionaire?
By Khaya Dondolo
Creating wealth, like being lucky, requires work. When the question “who wants to be a millionaire?” is posed the answer is a no-brainer – but what are the chances of being that lucky?
We worked with Victoria Reuvers, Director and senior portfolio manager at Morningstar Investment Management SA to show you that it is indeed possible to become a millionaire through making your money work for you.
Firstly, you will need to adopt these challenging but painless habits:
1. Pay yourself first, before anything that you may be committed to paying at the end of the month, that bond, clothing accounts, or vehicle finance – adopt the habit of rewarding yourself and put that money aside.
That is how easy paying yourself first is. Financial institutions will allow you to create an automatic transfer from one account to another which makes paying yourself easy and painless and convenient.
2. You need to be patient – this attribute goes a long way when you are on a journey to making your money work for you.
“The pain of discipline is measured in ounces, whereas the pain of regret is measured in tons.” -Jim Rohn
Morningstar did some research looking at the amount of time it would take your investment to grow to
R1 million. Their work is based on two factors.
First is the amount of money you contribute towards your savings each month, starting from R200 to R10 000 per month. Second are the returns generated from your portfolio.
A well performing portfolio will make the difference in your journey to wealth creation. Many investments offer higher returns in a short period but the best return you can get in a bank account is 17 percent per annum.
The table below will show you how long it would take you to reach your first million if the two factors are taken into consideration – the amount you contribute and the annual returns. Note, the table does not consider inflation and assumes the returns and contributions were constant.
(Table: Morningstar Investment)
Performance is important, particularly when monthly contributions are small, but what this table shows is that, consistent contribution is more important than performance. Yes R10 000 per month is a lot of money to invest, but even if you scale down to R1 000 per month, the goal of your money making a million for you ranges from 17 to 33 years.
It is both possible and plausible to generate R1-million in savings by changing behaviour It starts with the decision to save on a monthly basis with no immediate gain in sight. Then practice the discipline of delayed gratification. Waiting. Patiently. Moreover, letting the eighth wonder of the world, compound interest, work its magic.