# How to Make a Million Pounds: 7 Simple Steps

When I was young, I believed that I would be rich and successful one day. I am not sure what makes some people think they are ‘special’ or destined for greatness. But I certainly had some kind of delusion of grandeur.

I am now age 40. I earn £22k per year. I am not rich. Annoyingly, my plan for greatness never worked out. I don’t have children. This actually makes my financial situation a lot better than it could be. Many people with children reach my age struggling to get by and pay bills.

Some of my friends are very well paid. Some of them are moving towards 6 figure salaries now. However, some of my best paid friends hate their jobs. They often have to work 60 hour weeks. And it feels like they are running on a never-ending treadmill.

This website is about money. Your money. The first question you have to ask yourself is ‘What do I really want to achieve, in financial terms?’ Do you want to be rich? Or do you simply want to earn enough money in order to be able to give up your job? Or do you enjoy your job and simply want to be financially comfortable?

This website is about addressing these questions head-on. In this short introduction I will attempt to show you what I want to achieve, in financial terms, and how I intend to achieve it. If your aims are similar to mine, this article should help you to think about how you are going to achieve your financial aims as well.

**Winning the lottery might not make you rich**

I once read that Lindsay Lohan was due to receive her inheritance when she was 21. However, she decided to defer the inheritance until age 25. Allegedly, she did not believe that she was responsible enough to receive such a large sum of money at such a young age.

I received a large inheritance when I was 18 years old. I spent more than half of it over the following 4 years whilst I was unemployed. I then spent the rest a few years later whist attempting to set up a music teaching agency.

I now think Lindsay was very sensible. Children just don’t have the life experience to realise how important it is to save and invest for their future.

I once read a couple of books by Robert Kiyosaki, who wrote the highly successful book *Rich Dad Poor Dad. *A lot of what he wrote was not that useful for me personally. However, I did pick up a hand-full of crucial practical pieces of advice that have sent me on the path to making money.

Robert says that his aim was to retire at the age of 55. Now this probably doesn’t sound all that glamorous. But actually I think it is very glamorous. I am 40. If I can stop working in 15 years and be financially comfortable for the rest of my life, then I will be very happy.

So this is what I aim for. But hardly anyone will achieve this aim. How do I intend to achieve this? After all, I only earn £22,000 per year.

**Compound growth will make you rich!!**

** **

Well it’s all down to compound growth. If you can take a certain amount of money and double it you will be rich beyond your wildest dreams!!

Well actually you have to double it more than once. Here’s my 7 step financial plan for making £1 million. It’s pretty simple really.

Step 1: I have to get my hands on £25,000

Step 2: I will double my money and then have £50,000

Step 3: I’ll double it again and have £100,000

Step 4: Double again – Now I have £200,000

Step 5: Twist again – I now have £400,000

Step 6: If I manage it again I have £800,000

Step 7: If I’m dealt just one more double, I have £1.6 million pounds!

See how easy it was!! Now I’m a millionaire!!!

I told my girlfriend about this 7 step plan. She responded, ‘How do you get £25,000?’ Her son was also in the next room and he had been listening to the conversation. He called from the living-room, ‘How do you double your money?’

I was amused by the fact that they both saw different elements of my plan as problematic. I’m going to deal with the second problem first. How do you double your money??

**How to double your money?**

** **

Well I 100% have to credit Robert Kiyosaki with this little gem. In one of his books, Robert suggested that the only way to sensibly invest for your retirement was to follow a careful investment strategy.

The only book he had found which explained a clear statistical and proven investment strategy was *What Works On Wall Street*, by James O’Shaughnessy.

O’Shaughnessy’s research is remarkable! And I genuinely don’t understand why more investors aren’t applying the results of his research. He believes that in many areas of life, people typically refuse to follow pre-planned strategies. And he believes that this is simply because humans always believe they know better. But his contention is that statistics always predict the future better than experts.

Following statistical criteria in order to make investment decisions is known as ‘passive investment’. I’ve spoken to a couple of corporate bankers about this. Apparently investors don’t believe it works.

I’m not sure why this is. O’Shaughnessy’s research is remarkably thorough. In future articles I will show just how thorough his work is. However, in the interests of keeping this article short, I will just say one thing for now.

**This strategy made 20% interest per year for 45 years!**

** **

There are databases that store financial information and share performance info about businesses dating back over 75 years. James O’Shaughnessy uses this historical data to test out various strategies in order to see how they would have performed in the past.

Each strategy involves choosing certain key financial features of companies (e.g. how much profit a company made in the last year relative to its size). Once a set of criteria are chosen, James then chooses the top 50 companies each year that meet his criteria. One of James’s best strategies yields the following results.

In order to check how well his strategy has performed, James always compares his performance outcomes with the average performance of the stock market.

- Over 45 years (from 1964 through until 2009), this strategy averages over 20% interest per year.
- Over any 10 year period – beginning in
*any*year during the period, this strategy performed better than the All Stocks Average (a measure of stock market performance in the US). - In fact over any 5 year period this strategy also beat the All Stocks Average.
- Over any 3 year period, this strategy beat the All Stocks average 99% of the time.
- On average, in any year, this strategy made 10% interest above that of the All Stocks Average.

**How to double your money**

** **

So here’s the answer to the question, ‘How do I double my money?’ In theory, if you follow James’ strategy, and if you were able to obtain an average of 20% return per year, you would double your money quite quickly. In fact you would have more than doubled your money in 4 years. If you invested £1000 and obtained a 20% return per year then:

- After 1 year you would have £1200
- After 2 years you would have £1440
- After 3 years you would have £1728
- After 4 years you would have £2073

So it took 4 years to double your money!

**How long before I can quit my job?**

** **

Now in the opening section of this article, I outlined my 7 step plan to becoming a millionaire. The good news is that if I was actually able to make 20% on my investments each year, then I would not need to make £1m in order to quit my job.

Remember, I earn £22,000 per year. £4,000 of this money is paid in tax, so I actually only get to put £18,000 a year in my pocket.

So I only need to make £18,000 per year (tax free) in order to be able to replace my work income with investment income.

So how much money do I need to have invested in order to make my £18,000 per year income? Well if I make 20% per year in interest, then I would only need £100,000 invested.

- 20% of 100,000 is £20,000

So in order to quit my job, I need to grow my money to £100,000. Now let’s return to my 7 step plan to becoming a millionaire. How many ‘steps’ will it take me to obtain £100,000?

It actually will only take 3 steps. Take a look:

Step 1: I have to get my hands on £25,000

Step 2: I will double my money and then have £50,000

Step 3: I’ll double it again and have £100,000

How long will it take to get from step 1 to step 3 if I am able to make 20% interest on my money?__Next question:__

Well it takes 4 years to double my money. So that’s 4 years per step. So it will take 8 years to turn £25,000 into £100,000 and then I can quit my job, retire, and move to Spain!! Well that’s if I get there before we leave Europe.

Actually I think it would be pretty stupid for me to expect to consistently make 20% per year and live from that interest. My actual aim is to move to step 4, and make £200,000. Then I can ring fence £100,000 and live from the interest. But I can then continue to invest the remaining £100,000 and let it grow in the background. I can then draw on this whenever I have bad years and I don’t make 20% on my £100,000.

**But how do I get my hands on £25,000?**

** **

So yay, we just worked out how to achieve steps 2-7 in my 7 step plan to becoming a millionaire!! But my girlfriend still wants to know where she’s going to get her £25,000 from. This is step 1 in our plan.

Well this involves a little bit if old-fashioned saving. And actually, I think this is the strenuous part of the plan. But before I talk about how to save, let’s look at how much we need to save.

Once again, I am going to optimistically assume we follow O’Shaughnessy’s investment strategy and make an average of 20% interest per year. Let’s start by assuming we manage to save £1200 per year (£100 per month). How long will it take to get our pot up to £25,000?

Well in order to work this out, I went to http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Here’s how it works out if you invest £100 per month (assuming 20% interest per year):

- After 1 year you would have £1,339
- After 2 years you would have £2,975
- After 3 years you would have £4,973
- After 4 years you would have £7,413
- After 5 year you would have £10,394
- After 6 years you would have £14,034
- After 7 years you would have £18,480
- After 8 years you would have £23,909
- After 9 years you would have £30,541

So you’ve pretty much got your £25,000 after 8 years. Notice how between year 1 and 2 you made around £400 in interest. However, between years 8 and 9 you make around £6000 interest!

And this is how it works. Once you’ve got a reasonable sized pot, you start making a lot of money through interest alone. You don’t even need to save any more. But it’s getting the pot that is the key starting point.

Now if you have few expenses (i.e. you haven’t got any kids) and you’re income is similar to mine, then you might be able to save more than £100 per month. Let’s say you can squirrel away £4000 per year. With 20% interest per year, you will have your £25,000 in 4 years!

**Has it worked for me?**

** **

Now if you’ve got to this point in this article, you are probably feeling extremely sceptical! The question you are probably asking yourself is, ‘If this is so easy – have you managed to do all this Phil?’ Good question.

Well let’s deal with step 1 first. Step 1 involves saving £100 per month for 8 years.

I’m 40 now. And I’m self-employed (I’m a private music teacher). I started teaching when I was around 23. As soon as I was making a good income from teaching I think I started putting money into a personal pension. I started putting in around £75 per month. Then I upped that to £125 per month.

I then started a business, and eventually needed all my money to support my living. So around age 30 I stopped putting money into my pension. But by then I had around £15,000 in my pension. This was a good start towards £25,000.

So let’s turn now to gaining 20% interest per year. I dedicated several months to studying O’Shaughnessy’s book. Sometime after this, I tried applying his principles. I chose 8 companies that I felt met his criteria. I didn’t invest into these companies – I just recorded the share prices.

I then forgot about these companies. I came back a year and a half later and looked at how much the share prices had increased. These were the results. I’ve put how much each company’s share price had gone up after the name of each company.

Prime Focus -84%

Tandem Group -5%

Mission Marketing Group 21%

Molins 38%

All Leisure 38%

AGA Rangemaster 109%

Communisis 168%

Dart Group 275%

I originally chose these companies on 21^{st} June 2012. I then checked their share prices on 13^{th} February 2014. That’s 1 year and 8 months. Let’s assume I put an equal amount of money in each company at the start of this period. This gives an overall return over the whole period of 70%. 70% over 1 year and 8 months works out a lot better than 20% over a year. (I should mention that I actually accidentally adapted O’Shaughnessy’s strategy and did not follow it exactly).

Now when I chose those 8 companies, I knew NOTHING about them other than their statistics. Since that time I have started investing with real money. But now I take a number of hours reading the financial reports of companies I am considering. As a result I usually only invest in around one out of every 5 companies that meet my statistical criteria. So now I’m adding much more in-depth knowledge to my investment decisions.

I’ve started investing my pension myself now. I’ve been doing it seriously for 2 years now. Over 1 year I invested around 12,000 and made £5000. I did for a couple of months invest a bit more than £12,00 (bear in mind I had £15,000 in my pension pot). However if we assumed I invested the whole £15,000 (which I didn’t – I invested less), then I made over 30% return during that year.

I’ve since been actively investing for another 8 months. I began the 8 months with £20,000. So far I’ve made £3500. So I currently have over £23,500 in my pension pot. This is close to my £25,000 target for step 1 🙂

**You can make money too!**

** **

So what will I be writing about on this website? Well I want to encourage people to invest for their future. Most people spend all of their income. When I ask friends about saving, they generally say that the only saving they do takes the form of paying for a mortgage. That is a fab investment, and I can’t argue with that. Bricks and mortar are a very stable asset to own!

But 99% of young people in London do not earn enough to afford a mortgage now. And those who already have a house should also think about investing into a pension or investing for some kind of income.

Do you have a pension? Do you have any idea how much of an income you are likely to get from that pension when you retire? I suggest you find out. You might be surprised by how little it will be.

And what about your state pension? Well the government is going to get into serious trouble in the next 10 years or so because life expectancy is increasing. This means that the ratio of working people to people taking a pension is decreasing. So pension costs are getting out of control.

And some countries in Europe are in a lot more trouble than the UK. I seriously suggest you don’t just rely on your state pension.

So this website will be dedicated to thinking about investing for your future. If, like most people, you enjoy spending all of your money on eating, drinking, clothes, holidays etc. you can look forward to retiring when you are old and possibly being quite poor.

I want to encourage you to take your future into your own hands, instead of sleepwalking into the dark. And this is what this website is about.

I also care about the world I live in. How is business affecting the world we live in? How is it affecting the environment? How is it helping the poor in this world? Since I am going to be talking about investing into business, this website will also be dedicated to understanding how business and money effects the development of the world around us.

**Sign up if you want to invest into your future**

** **

So if you want to invest into your future, and if you want to try to ensure that you retire with a comfortable income, this website is for you. Every now and then I will write a new article in which I will share with you what I am learning about investing and about how money effects the world around us. Sign up for my email updates if you want to learn more about investing into your future.

- Posted by Phil Warren
- Posted in About, Invest
- Feb, 19, 2017
- 1 Comment.

[…] in his seminal work What Works on Wall Street). I explain this process in full in my article How to Make a Million Pounds. Between 21st June 2012 and 13th Feb 2014, my virtual investment grew 70% (more than this if you […]