Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Did you know that if you maxed out your £20,000 tax-free contribution and had an annual growth rate of 6%, you’d be an ISA millionaire within 20 years?
As humans, we’re obsessed with the £1million mark, and it has this magical weight that when we get there, we’ve made it, foot off the gas and pina colada in hand.
When we speak to friends and family, the consensus is that ISAs are these mythical creatures that only people in suits understand. That couldn’t be farther from the truth, as ISAs are pretty straightforward products.
Only 2.2million people in the country own a Stocks and Shares ISA, and that’s just 3.5% of the population. This number rises to 12 million for Cash ISAs, but even then, that’s just over 10%.
The crazy thing is that only 18-24% (depending on the year) of those people max out their ISA contributions.Â
I understand this is because only some can afford to max it out, but the numbers show that we’re not making the most of them, even for those who can.
We need more for us all to become millionaires!
Table of Contents
What makes an ISA millionaire?
Simply put, it’s someone with a million pounds in their ISA. With a max of £20,000 allowed to be put in per year, an ISA millionaire is someone who has maxed out their contributions and picked great investments along the way.
An ISA millionaire is someone that’s disciplined to save and invest their money regularly. There are many strategies to make a million pounds from your ISA, but most will require a Stocks and Shares ISA and a winning investment strategy.
Essentially there are two types of strategy, slow and steady or hard and aggressive. The aggressive strategy will also require a lot of luck, so a balanced approach is often safer and more effective.
So, What is an ISA?
An ISA or Individual Savings Account is a tax-free way to save or invest your money. The returns you receive via yearly interest or profits from selling stocks are not subject to capital gains tax.
Initially introduced in 1999, the UK government started ISAs to help people fund their retirements. The amount you can contribute to an ISA has slowly increased over the years, starting at £7,000 and now is at a whopping £20,000 a year.
There are four main types of ISAs: Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs and Junior ISAs. You may have also heard of Help to Buy ISAs and Innovative Finance ISAs.
The ISA allowance for the year is £20,000 in total. If you own more than one ISA, your total contribution can only be £20k across them.
How to become an ISA millionaire? 5 Top Tips...
Below we outline the steps you need to take to become an ISA millionaire. These five tried and tested techniques are used by millions worldwide in their own formats (ISAs are unique to the UK).
Nail these, and you’ll stand a great chance of getting there.
1. Create a budget
It all starts with a budget. If you’re going to make regular contributions and, most importantly, get even close to the £1,666 a month contribution required to max out your ISA allowance, you will need a damn good budget.
There are many different ways to create a budget. The most popular budgeting tools include printables, excel sheets, notes on your phone, or money-saving apps.
If you’re like me, I prefer to have something I can edit quickly, which is why I built our smart money budget sheet, which you can grab a copy of right now if you like.
To get good at budgeting, you need to know what’s coming in and going out. Once you have this, you must find ways to save and cut down on your expenses.
You’ll no doubt find small efficiencies and be inspired to renegotiate your bills. Then the money you save is put towards your ISA contribution. Don’t suddenly go wild on ASOS!
2. Maximise your contributions
That £20,000 mark is the goal, but for most of us, it’s unrealistic. The average person working full-time earns roughly £38,000 a year before tax, so to make a £20k investment each year means we’d need to live in a tent eating cold beans. Not likely.
That being said, if you have nailed a budget, you’ll have identified ways to contribute to your ISA. Putting as much as possible without severely denting your lifestyle will pay off and shorten the ISA millionaire journey.
Starting your contributions as early as you can also help. When I started, I was putting just £25 a month into my ISA as I was clearing debt, but once I saw the value of this increase through my investments, I doubled down and started increasing this each month.
3. Utilise your Stocks and Shares ISA
This is key to becoming an ISA millionaire. If you only contribute to a Cash ISA, it will be tough to become a millionaire. Simply put, the returns are not anywhere near the same over the longer term.
That’s why having a Stocks, and Shares ISA is essential. The value of your investments over time, if you pick well, should be between 7-9% a year on average, whereas in a Cash ISA, you’d be lucky to get over 4%.
If you’re worried about what stocks to pick or how to even invest in, consult a financial advisor or the in-house team at one of the larger companies such as Vanguard, Hargreaves Lansdown or Fidelity.
View the full list of the best Stocks and Shares ISAs right here. Capital is at risk.
4. Pick a winning strategy
It’s totally up to you what you put inside your Stocks and Shares ISA, so it’s essential to pick well. Firstly, I suggest you understand your tolerance to risk, as this will guide your selections.
Playing it safe for the first 12-24 months is probably wise, and you can do this by picking blue chip stocks, ETFs or tracker funds like the S&P500 or FTSE 250.
Utilising dividend stocks is also a great way to build up your balance over time. Some companies pay 5-6% in dividends yearly on top of whatever the stock price does, giving you a balanced income that you can reinvest.
If you’re new to this, I would first look at reading some top investing books and some financial freedom books to get the right mentality. If learning isn’t for you, consider investment brands that take care of everything for you, which we’ll list below.
5. Be Patient
Being patient is one of the most underrated and vital tips; as you can see, even after 20+ years, there are only so many ISA millionaires. You need one thing, and that’s time.
Becoming an ISA millionaire is possible, but you must be patient (and lucky!). The number of ISA millionaires will grow hugely over the next few years as many are just on the cusp of the million.
What do I have to do to become an ISA millionaire?
- Budget like a pro
- Find savings and efficiencies in your budgetÂ
- Start contributing even if it’s small and increase it over time
- Open a stocks and shares ISA and consult a financial advisor to help build an investment strategy
- Work towards maxing out your contributionsÂ
- Stick to it for ten years or more (most of the time, you’ll need at least 20 years)
- Wahooooo, you’re a millionaire!
How many ISA millionaires are there in the UK?
There are close to 1900 ISA millionaires in the UK. This number may seem small, but due to the restrictive contribution amounts, it’ll take roughly 20 years or more to reach a million with an ISA.
There are over 2.4 millionaires in the UK, so that you can see the difference here. Essentially ISAs are designed for the working class and middle class to build up wealth over time to set you up for later life.
Becoming a millionaire is the challenging part but once you’re there you can use your money to make money very easily!
Now I'm an ISA millionaire, then what?
Once you’ve become an ISA millionaire, preserving your wealth is crucial. You don’t just suddenly want to flick a switch and start blowing it.
Living off the interest of a million is more than doable if you’re averaging 5% in interest per year. That’s £50,000 tax-free.
Conclusion
The road to becoming an ISA millionaire is long, but tax-free returns are something we all should consider. We pay enough in income tax, so why give up more?
The most important thing is to get started, even if it’s just £25 a month. Save, invest, be patient, and you could become financially free from your ISA contributions.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
