Most people would love to be a millionaire. However for many, reaching this goal seems like an unachievable task. But it doesn't have to be.
Getting to the magical £1m figure isn't as difficult as many believe it to be. In fact, to become a millionaire all you need is a regular savings plan and time. There's really not much else to it.
Unfortunately, most people struggle to build a small savings pot for a rainy day, let alone save £1m. Savers struggle because they break the three key golden rules of saving. These three simple rules are easy to follow, but if you deviate from them you can quickly jeopardise your long-term savings goals.
The mistakes to avoid
The first mistake to avoid making if you are trying to build a million-pound fortune is seeking to get rich quick.
Warren Buffett, who's considered to be the world's greatest investor, believes the first rule of wealth creation is to make sure you don't lose money. More often than not, get-rich-quick schemes will end up costing you money. In most cases, the returns these schemes offer don't adequately compensate you for the risk taken on. What's more, by putting all of your eggs in one basket you're severely limiting your options.
This rule applies to stocks as well. There's no easy way to make money in the stock market. Successful professional investing takes years of experience to learn and even then you can still make mistakes. Putting 100% of your investment portfolio into an AIM stock, which has been touted as being the next Apple will almost certainly end in tears.
If you're going to dive in, at least choose a basket of 30 stocks or more so you're well diversified.
Dipping into your savings
The second mistake to avoid is dipping into your savings. A regular savings plan can really pay off over time, but all your hard work can be undone in an instant if you dip into your pot to splurge on one big purchase.
If you're the type of person who struggles to save, it may be wise to open several savings accounts. With multiple accounts, you can prioritise those holding long-term savings and those holding money for that special one-off purchase or unforeseen expense. Hopefully, this will improve your relationship with your money.
You're not better than everyone else
The third mistake wannabe millionaires make is thinking that they're better than everyone else.
Multi-billionaire famous investors such as Warren Buffett are one-of-a-kind, and most people don't have what it takes to be able to beat the market consecutively or to start the next Facebook.
The best way to grow your wealth is to think 'boring but predictable'. A regular savings plan or investment in the stock market via an index tracker will generate steady returns over time while protecting your hard earned savings. With the market doing the hard work for you, all you need to do is concentrate on putting the money away.
Make money, not mistakes
A recent study conducted by financial research firm DALBAR found that the average investor realised an annual return of only 3.7% a year over the past three decades, underperforming the wider market by around 5.3% annually thanks to poor investment decisions.
To help you streamline your investment process, realise and understand the most common investor mis-steps, the Motley Fool has put together this new free report entitled The Worst Mistakes Investors Make.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple and Facebook. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.