How to become a millionaire on a $70,000 salary

Many full-time working Australians have a great opportunity to become wealthier than some may think possible. Becoming a millionaire is not easy, but compounding should never be underestimated.

By regularly saving and putting money to work, investors can end up with a much larger pot of money compared to how much they put in.

Just having money in a high interest savings account can make a big difference.

Putting $100 per month under the mattress for ten years would be $12,000. According to the Moneysmart compound interest calculator, if the money earned a 5% interest rate, it’d be just over $15,000 – an extra $3,000, or an extra 25% in percentage terms!

That’s just putting the money into a bank account.

What about if the money had been invested in the share market and achieved the ultra-long-term return of 10% per year? That same $100 per month for 10 years would turn into $19,125.

That’s not $1 million though.

How someone on a $70,000 salary can become a millionaire

The cost of living certainly makes it harder to save when the essentials are more expensive. I won’t suggest that someone earning $70,000 will have significant room to invest each month, though that’s certainly possible for someone in a dual income household.

What if we assume that someone could save $1,000 per month and it earned an average of 10% per year over the long-term. Remember, there could be a decline in some years – that’s why it’s an average return.

In that scenario, an investor would have $191,000 after 10 years, $687,000 after 20 years and $1.06 million after 24 years. The last few years see significant progress because of compounding – if $900,000 grows by 10% that’s a $90,000 increase.

But, perhaps most importantly towards wealth-building is superannuation. The tax-efficient, mandatory system for retirement savings. Someone on an annual salary would contribute just under $5,000 (after the tax on the contributions) to their superannuation fund.

Adding in the superannuation would help shave a few years off reaching millionaire status.

If that Australian were just relying on mandatory superannuation contributions alone, and assuming they invest in an investment option (such as shares) that could return an average of around 10% per year, they’d get there in 32 years. Investment returns (after tax) will play an important role in how quickly that grows.

In my view, the future looks very bright for Aussies who regularly contribute money towards their wealth and invest in long-term, compounding options. Ideas like VanEck MSCI International Quality ETF (ASX: QUAL), Vanguard MSCI Index International Shares ETF (ASX: VGS) and excellent ASX growth shares are some of the names I look at to invest in for long-term returns.

The post How to become a millionaire on a $70,000 salary appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in VanEck Msci International Quality ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.