Many people reading this may have a goal of becoming a millionaire, if that wealth level hasn't already been reached. It may be a lot easier for someone to reach $1 million if someone earns $250,000 per year compared to someone earning $60,000.
In fact, the person earning $60,000 per year may feel that becoming a millionaire is too much of a financial stretch.
For multiple reasons, I believe it's within reach for many people. I'll explain why.
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Compounding
One of the most powerful things that most people have on their side is time.
Compounding is a powerful force where interest earns interest. The more years that money can compound, the more it can grow itself, rather than needing major financial contributions from ourselves.
In my view, the share market is a wonderful place to build wealth given the strong long-term returns. The fact that it pays dividends and allows us to steadily add small investments as the months and years go by makes it very effective.
Becoming a millionaire is certainly a big goal to aim for and there's no get-rich-quick scheme.
Every household budget is different, so it's hard to say exactly how much each Australian has to regularly invest. Some Aussies may not feel there's any room in their budget to invest – how can they ever reach $1 million?
Thankfully, Australia's mandatory retirement savings can play a big role.
Superannuation
Currently, the superannuation rate on employee earnings is 12%. On a $60,000 salary, that implies $7,200 would be contributed to superannuation on an annualised basis. Removing the 15% tax on that contributions still leaves around $6,100 to invest each year.
Personally, I'd prefer to utilise a super fund's 'high growth' option or invest in international shares because I'm expecting stronger longer-term returns from those ideas. Alternatively, Australians can pick individual investments if they sign up for a particular type of superannuation.
If someone invests $6,000 per year and it returns an average of 9% per year, it would become $1.08 million in less than 33 years.
Therefore, just with superannuation alone, a 25 year old Australian on a $60,000 salary could reach $1 million before 60-years-old.
Regular savings
But, we don't need to rely on superannuation for all of the investing. Reaching millionaire status could be achieved using a combination of both superannuation and non-superannuation wealth.
Investing outside of superannuation could mean putting something like $500 per month into shares that can help build wealth.
Perhaps capital growth is the goal. Therefore, an exchange-traded fund (ETF) like VanEck MSCI International Quality ETF (ASX: QUAL), VanEck Morningstar Wide Moat ETF (ASX: MOAT) or Vanguard MSCI Index International Shares ETF (ASX: VGS) could be a compelling option.
Investors may be looking for passive income, which is why a name like MFF Capital Investments Ltd (ASX: MFF), Centuria Industrial REIT (ASX: CIP), Rural Funds Group (ASX: RFF) and WCM Global Growth Ltd (ASX: WQG) could be top picks.
Or perhaps a mixture of capital growth and dividend income is most compelling. This is why Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) appeals to me so much.
