The proven way to become a millionaire

• How do people become millionaires?
• Saving and investing is the simplest and most reliable of the routes.
• How does compound interest work? Give it time.
• An example of how you could have become a dollar millionaire. Or still could.

The United States has 22 million millionaires, on 2021 figures. According to research by Tom Corley, there are four main routes to a seven-figure net worth among people who built it themselves rather than inheriting it. Corley followed 233 wealthy people over five years — a slice of the self-made rather than a national statistic.

• Saving and investing — 22% of the millionaires
• Chasing a dream (actors, authors, musicians) — 28%
• Climbers, who built careers inside successful companies — 31%
• Virtuosos, the well-known doctors and lawyers — 19%

This route is chosen less often than the others: 22% against 31% for the climbers. It is also the most available one.

Why? Because saving depends on your own behaviour and discipline. That is something you control. The other recipes lean heavily on things you do not: luck, talent, connections.

How do you save up a million dollars?

You do not. For most of us that is out of reach.

But there is a mechanism that will turn a couple of tens of thousands into a million on its own. It asks nothing of you. Compound interest does the work.

How it works

Compound interest behaves like a snowball, adding to your capital with every turn — every month, every year. An example:

Put $25,000 in at 10% a year. After a year you have $2,500 in interest and $25,000 + $2,500 = $27,500 in the account. The next year the interest is $2,750, which is $250 more than the year before. After ten years the $25,000 has become $64,844; in year fifteen it passes $100,000; and in year fifty it stands at $2,934,771.

Here is the same thing as a chart. Slowly at first: over the first fifteen years the line barely lifts off zero. After that the same rate adds more and more in cash terms, and by year thirty the growth is visible at a glance.

How to speed it up

There is a way to make the growth considerably faster. Add money to the account every month. At $500 a month — $6,000 a year — the account passes its first $100,000 within seven years, and reaches almost $512,000 by year twenty. Millions come after that.

The link below lets you try your own starting sum and monthly or yearly contributions, and see how long your own target takes.

The compound interest calculator — starting amount, contributions, years and a target. It uses the same model as the table and the charts above.

In short

Compound interest and time turn $25,000 into several million dollars over a few decades with nothing further required from you.

Those millions have to be counted with inflation in mind. With prices rising 3% a year, $2.93m in fifty years is about $670,000 in today's money, and $512,000 in twenty years is around $283,000. The mechanism still works; the figures on a half-century horizon simply look larger than what they will buy.

Wealth on that timeline belongs to your children more than to you — the wait is long.

If you want to enjoy financial freedom yourself, add money to your investment account regularly. It speeds the growth up considerably.

The sooner you start, the sooner you get there.

An important caveat

Everything above demonstrates the mechanics of compound interest on round numbers. It is not investment advice. We know nothing about your age, your income, your obligations, or how long you can genuinely set money aside for.

Ten per cent a year is the long-run average of the US stock market, and nobody guarantees it. Individual years lose money, and several bad ones in a row change the outcome more than a smooth curve on a chart suggests.

A bank deposit works differently. Its rate is fixed for the term, changes with the central bank rate on renewal, and is usually well below stock market returns — more so in dollars. No deposit pays a level ten per cent for half a century.

Where to put money and for how long is for you to decide, on your own or with a licensed adviser.