How to become an ISA millionaire

You can use your ISA allowance to boost your chances of joining the millionaire’s club.

With the ISA allowance now £20,000 you could become an ISA millionaire in as little as 22 years and five months by investing your full ISA allowance each year.

Joining the exclusive millionaire’s club is now closer than ever, thanks to the £20,000 allowance and the tax efficient nature of ISAs that enable you to build up a pot of money inside your ISA without the tax man being able to get his hands on a penny.

Here’s how to do it.

How to join the millionaire club

1.    Start now

The sooner you start, the better. It’s not rocket science, it’s just that the more time your money has to grow and benefit from the magic of compounding, the better off you’ll be.

Called the eighth wonder of the world by Albert Einstein, no less, compounding  -  a sort of snowball effect which sees your pot of money grow and grow as you generate earnings on top of previous earnings - will get you into the exclusive millionaire’s club sooner.

2.    Save as much as you can afford

Obviously, the more you can afford to save, the quicker you’ll get to that seven-digit figure. If you invested the full amount at the beginning of the last tax year and then continue to invest the full amount at the start of each tax year going forward you will, according to our calculations and based on the assumption that the ISA allowance increases by 2% a year in line with the government’s inflation expectations, be an ISA millionaire in 22 years and five months.

But if you don’t have the full sum to hand right now, don’t let that put you off.  Set up a regular savings plan, pay in what you can afford and you’ll soon see your ISA savings grow. It might take you a little longer to join the millionaire’s club, but every pound you invest is a step closer.

Investing smaller sums, but on a regular basis has other advantages too. Firstly, there’s no great sacrifice required. You set a sum aside that you know you can afford, arrange a standing order so the money goes into your savings pot automatically and you will find you can make saving effortless.

Secondly, by drip-feeding your money into the market regularly, you will benefit from a process known as pound cost averaging. This means that you buy more units when prices are low and fewer when prices are high. Buying at a variety of prices and spreading ongoing investments over time helps to cushion your portfolio from dips in the stock mark.

3.    Save without sacrifice

Talking of saving without having to make huge sacrifices, see if you can claw-back a little cash to pop into your ISA savings from your current outgoings. Rather than blowing a surprisingly hefty sum on your daily caffeine fix, ditch the trips to the coffee shop and put the money you would spend towards your potential million pound pot. While a coffee may not seem like an extravagance, all those trips to the coffee shop soon add up. Grab one every day on your way to work and you’ll easily blow more than £580 a year. Is that really a great sacrifice?

4.    Give up the ghost

The same goes for that unused gym membership and the magazine or film subscriptions that you don’t even use any more. Take a look through your regular direct debit payments and keep an eye out for ‘ghost payments’; those regular payments you set up ages ago that you’d forgotten all about - but are still paying for. Couldn’t that money be put to far better use inside your ISA? 

For more take a look at Give your ISA a £2,500 boost (without spending a penny).

5.    The world is your oyster for greater gains

Building a diversified portfolio is the key to making your money grow - whatever happens. By spreading your investments across different asset classes - from cash and bonds at the lower end of the risk spectrum, to individual shares and funds - you can help keep the gains coming in, whatever happens in the global economy or on a political level.

Whether you want to put your money into large, blue chip stalwarts, or small up-and-coming companies, whether you want to take a punt on companies in emerging markets like India and Latin America or stick to global ‘names’ from the US or Japan, whether you’re a fan of gold or like the look of property, you can build your portfolio to follow trends, back hunches and build your income.

And by investing in any of the funds in our Select 50 range of preferred funds you get to tap into the expertise of the managers running these investments, giving you one less thing to worry about.

Then, once that’s sorted, all that’s left for you to do is dream of all the fabulous things you’ll do once you hit that 'magic number'.

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It’s important to keep in mind that the value of investments can fall as well as rise, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future.