In my opinion, most people can become millionaires in four simple steps using ASX shares.
The steps that I'm going to talk about don't involve taking on huge amounts of debt. There won't be any mention of 'using equity' to buy more properties (except this one). My article is going to be all about ASX shares and the power of compounding.
Earn
Unless you inherit a large sum the only way to put money into the share market and remain debt-free is by earning it yourself. It takes money to make money after all.
There's no escaping the fact that to invest you need to make more money than just paying for your basic necessities and bills. The younger you are the more that probably means you'll need a second job/hustle to earn what's needed.
Australia is an expensive place to live. Energy costs a lot and paying for the roof over your head takes up a large percentage of household earnings. Low wage growth makes things difficult too.
Spend less than you earn
Only you know what your budget looks like. Every budget is different. Different cities, kids, pets, etc all change the numbers.
Whatever your numbers are, if you spend everything you earn there will be nothing left for you to invest. What can make things worse is a lifestyle funded by credit card debt – the interest and debt repayments makes it even harder to live a financially sustainable lifestyle.
I'm sure you've read stories over the years of sports people (who have made millions of dollars) declaring bankruptcy. If you don't pay attention to your finances, or if you have no control of your spending, then it's hard to get to the next step of becoming a millionaire.
You can spend less, earn more, or both. Whatever it takes to get your annual expenses below your annual after-tax income. You can get started with investing in shares with as little as $500.
Invest
Investing is one of those things you should just start doing and learn more as times goes on.
There are lots of different investment styles and different choices. But don't get overwhelmed!
Perhaps the simplest way to start investing is with exchange-traded funds (ETFs). The best ETFs are both low-cost and provide excellent diversification of industries and geographies. Preferably you want the ETF's underlying holdings to generate earnings from across the world. Two of the best ETFs on the ASX are iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS). Both of them could be ones that you simply buy, keep buying and hold until retirement.
Another option is listed investment companies (LIC). These are companies that just invest in other shares for your benefit, but the difference is that a fund manager (or team) have chosen which shares they think are good investments. It's only worth choosing LICs you think can beat the market, or perhaps have huge sustainable dividend yields. Three LICs I like at the right price are WAM Microcap Limited (ASX: WMI), WAM Research Limited (ASX: WAX) and Naos Emerging Opportunities Company Ltd (ASX: NCC).
The final way is to choose your own portfolio of quality shares that you think will beat the market. Some of my favourite long-term investment ideas are Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Challenger Ltd (ASX: CGF), Altium Limited (ASX: ALU), REA Group Limited (ASX: REA), Costa Group Holdings Ltd (ASX: CGC) and InvoCare Limited (ASX: IVC).
Be patient, occasionally brave and keep going
Becoming a millionaire doesn't happen in a month, it will take many years of hard work to reach your goal.
Sometimes recessions happen and share markets tank, like we saw in the GFC. That's when you need to be brave and stick with it. That's actually the best time to invest!
If you initially invest $1,000 into ASX shares and then invest $500 a month for 30 years, whilst earning the (historical) average return of 10% a year for those 30 years, you will end up a millionaire. If you can save a bit more, earn a bit more and ultimately invest a bit more than $500 a month then you can reach millionaire status much quicker.
Another way to become a millionaire quicker is create better investment returns than what is delivered by Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA) or the ASX 200.
