Saving £1m might seem like an impossible task at first for most people, but it shouldn't be. If you put in a little effort, pay attention to your spending, saving and investing, and look to the long term, making a million is entirely possible.
Tip one: Budget
The first stage on the quest to a million is to make a budget. If you want to save you've got to be spending less than you earn: it is that simple.
So, to get started you need to make a note of your income and expenditure. Think about what you're spending and what you really need to spend. Do you need all those subscriptions to magazines or online services? Could you cut costs by taking a lunch to work rather than buying something out?
Also think about what you can cut out, where you can make savings or improve efficiency. Price comparison sites could help you cut down on costs such as water and electricity and possibly extra savings through multi-buy insurance policies.
These tiny steps might not seem like much, but they add up.
Tip two: Save
Cutting costs is all well and good, but if you're not saving it, the whole process is a waste of time. Putting away the money you save into a separate account is vital if you want to grow your wealth.
Let's say you've decided to cut out your morning Costa coffee saving £2.50 a day. Over one working week, you'll save £12.50. Over a four week month, you will have put away £50. Over the space of a year, if you invest this money in a regular savings account (rates of up to 5% are on offer) at the end of year one, your savings will be worth £616.13 -- from coffee alone.
This example shows just how easy it is to grow your savings by making only a few simple changes. If you save an extra £10 a month by switching utility providers and another £10 by switching internet providers, you could put away £862.58 (including interest) at the end of year one.
Tip three: Invest
Budgeting and saving are just the starting points on the road to a million. To reach this key goal, you have to make sure your money is working as hard as possible for you.
The best way to do this is to invest with a long-term outlook. Over the past 31 years, the FTSE 250 has produced an annualised return of 9.4% excluding dividends. If you invested £1,000 in the index (via a low-cost tracker fund) at the beginning of 1987, you'd have £16,200 today (assuming dividends cover fees and inflation).
If you'd invested your monthly savings of £862.58 into the index over this period, assuming deposits grow in line with inflation of 2.5%, you'd have built a savings pot of just under £194,000, that's just from saving £70 a month.
To hit the landmark £1m figure, using the same numbers above, you'd have to put away £400 a month. Although, if you're able to save for 45 years, you only need to save £100 a month.
Making a million is easy if you know how.
Follow these three key rules
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.