It seems that everyone is keen to get a slice of ISA millionaire pie! However, the most popular way to achieve this seven-figure goal is to make maximum contributions to an ISA every single year. This would require savers to stash away £20,000 each year – which is more than the majority of minimum wage salaries! So, is it possible to become an ISA millionaire on minimum wage?
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3 alternatives to maxing out your ISA allowance
If you earn minimum wage, it’s likely to be hard to max out your ISA allowance each year. The National Living Wage (the minimum amount that can be paid) for workers aged 23 and above is currently £9.50 an hour. As a result, those working a typical 40 hour week will earn roughly £18,000 per year. This is considerably less than the £20,000 ISA allowance!
Luckily, there are a number of other ways to save £1 million into your ISA over time. Here are three alternatives to maxing out your allowance that could help you become an ISA millionaire on minimum wage.
1. Make the most of dividend stocks
Those who can’t max out their ISA contributions should take advantage of re-investing any money that is earned. Some ISA stocks will pay dividends to shareholders. These can be placed into your bank account or reinvested into the market to build your investments. By choosing to reinvest, you can essentially increase the contributions that you are able to make.
If you want to become an ISA millionaire on minimum wage, try to build your portfolio around dividend stocks and reinvest your earnings into your ISA. As you add more dividend stocks to your portfolio, your earnings (and therefore your contribution potential) will increase! This is an excellent way to maximise the amount that you can invest.
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2. Consider taking greater risks
When you open a stocks and shares ISA, you will be able to decide the level of risk you are willing to accept for a certain reward. Typically, higher risk levels can lead to higher rewards. However, they can also make your money vulnerable to bigger losses!
If you are only able to make small contributions each year, you may want to choose a higher level of risk. Of course, it is important that you keep a level head and conduct thorough research into an ISA before considering a higher risk level.
A good idea is to look at previous rates of return to determine whether an ISA is likely to be profitable in the long run. That said, it’s important to remember that past performance is not a guarantee of future returns.
Whilst this approach may present larger return potential, it puts your money at risk and should not be rushed into!
3. Start early
When it comes to achieving ISA millionaire status, it’s never too early to start! In fact, those who are earning minimum wage should start saving as early as possible. This is because ISAs increase in value over time. As a result, the longer you hold your ISA, the more chance you will have of becoming a millionaire!
Therefore, if you want to become a millionaire by retirement age, you should consider opening a stocks and shares ISA as soon as possible. The longer you are able to hold your ISA, the smaller your monthly contributions will need to be in order to achieve seven figures. You can open a stocks and shares ISA in the UK from the age of 18.
A final thought
If you are willing to take risks, adopt smart investment strategies and hold your ISA for a long time, it is possible to become an ISA millionaire on minimum wage. However, all readers should be aware that investing your money in a stocks and shares ISA leaves your capital vulnerable. Market movement can never be determined and any type of investment comes with its risks. Never rush an investment decision!
If you’re sure this investing strategy is right for you, our list of top-rated Stocks and Shares ISAs is a good place to start.
The post Is it possible to become an ISA millionaire on minimum wage? appeared first on The Motley Fool UK.
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