Most people would love to be a millionaire. However for many, reaching this goal seems like an unachievable task. But it doesnt have to be.
Getting to the magical 1mfigure isnt as difficult as many believe it to be. In fact, to become a millionaire all you need is a regular savings plan and time. Theres 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 themyou 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, whos considered to be the worlds greatest investor, believes the first rule of wealth creation is to make sure you dont lose money. More often than not, get-rich-quick schemes will end up costing you money. In most cases, the returns these schemes offer dont adequately compensate you for the risk taken on. Whats more, by putting all of your eggs in one basket youre severely limiting your options.
This rule applies to stocks as well. Theres no easy way to make money in the stock market. Successful professional investing takes years of experience to learnand 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 youre going to dive in,at least choose a basket of 30 stocks or more so youre 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 potto splurge on one big purchase.
If youre the type of person whostruggles 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 moneyfor that special one-off purchase or unforeseen expense. Hopefully, this will improve your relationship with your money.
Youre not better than everyone else
The third mistake wannabemillionaires make is thinking that theyre better than everyone else.
Multi-billionaire famous investors such as Warren Buffett are one-of-a-kind, and most people dont 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
Arecent study conducted by financial research firm DALBAR found that the average investor realised an annual return of only 3.7% ayearover 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 entitledThe Worst Mistakes Investors Make.
The reportis a collection of Foolish wisdom, which should help you avoid needlessly losing too many more profits.Click hereto download your copytoday.
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.