The simple maths behind becoming a millionaire
Written and accurate as at: Jun 13, 2025 Current Stats & Facts
Becoming a millionaire might seem like something solely reserved for lottery winners, CEOs and celebrities. But the truth is many Australians with net worths in the seven figures are ordinary people who built their fortunes the slow and steady way.
Sure, it’s not quite as glamorous, but it’s much more attainable than most people believe. And the good news is that when you get down to it, there’s some pretty simple maths at its core.
Compound interest
Compound interest is one of the most celebrated concepts in finance, and for good reason. This is the interest calculated on both your principal and the interest it’s already earned. Over a long enough period (and working jointly with some good savings habits), it can really accelerate your returns.
To illustrate, let’s say you invest $500 a month at a 7% rate of return. In the first year, you’ll earn $196 in interest — a modest amount. But the next year, the interest will be calculated on the principal plus that interest, and the same goes for the next year and the year after that.
Like a snowball rapidly getting bigger as it rolls downhill, your overall balance will be growing exponentially. After ten years, your savings will have topped $86,000, and by year 25 you’ll be sitting on around $405,000. Of that amount, a staggering $255,000 will be all thanks to compound interest.
If your income goes up or you have room in your budget to invest more, that million dollar goal might be reached even sooner.
Your rate of savings
Another little bit of maths that makes a big difference is how much money you’re saving as a percentage of how much you earn. You might be in the top income bracket, but if you’re burning through most of your paycheck each month then there’s a good chance long-term wealth will elude you.
If, on the other hand, you’re able to grow your income while keeping your expenses to a minimum, you free up more money to invest.
The key here is being more intentional with your spending. You don’t have to give up all the things that make life fun, you just have to be mindful of where your money is going. Looking for cheaper deals, identifying budget leaks, and cutting back on unnecessary luxuries can make a big difference here.
Time in the market
There’s an important financial concept known as the time value of money, which holds that a dollar you receive today is worth more than a dollar received in the future. That’s because the money you have now can be put to work earning you interest.
This is one way to help counteract inflation, which has an annoying habit of eroding your money’s value if it’s left idle underneath your mattress. But it’s also a reminder that the sooner you get serious about investing, the more you stand to gain.
Let’s compare two people, both hoping to accumulate $1 million by the time they turn 65. The first person begins investing at age 25 while the second waits until age 35. Assuming a 7% rate of return, the first person would only have to invest $385 each month to hit their target. But the second person would have to invest $820 – more than double the first investor.
Here, those ten extra years the first investor had gives them a serious advantage. And while the second investor was able to catch up in the end, they had to work a lot harder to do so.
Return on investments
We can’t control how our investments perform, but we do have a say in which investments we buy in the first place. And looking at market performance over long enough periods, we can see some types of investments tend to do better than others.
Of course, past performance isn’t exactly an accurate predictor of future performance, but it can provide useful context. If you can put together a portfolio that has solid fundamentals, aligns with your goals and risk tolerance, and is sufficiently diversified, it can help set you up for long-term success.
All this isn’t to say that reaching the fabled seven figure mark is easy. There are plenty of variables at play, and we shouldn’t discount the role of luck and circumstances in particular. But if you plan to grow your net worth and live comfortably in retirement, it can be comforting to know that there is some easy to grasp maths on your side.