Is it possible to become a millionaire on an average SA salary?

There’s a saying among the rich that making the first million is the hardest. It gets easier after that.

The actual quote is attributed to British retail entrepreneur Theo Paphitis: “Making the first million is hard; making the next 100 million is easy.”

That’s because the power of compounding starts to kick in once savings hit the million mark. Getting to R1 million is the challenge, given the difficulties of making ends meet on an average South African salary.

South Africans are notoriously poor (or incapable) of saving, living from pay cheque to pay cheque.

National Treasury estimates that just 6% of the population will retire comfortably, so it’s clear that the remaining 94% will have to lower their living standards in their retirement years or continue working.

We decided to put this to the test and see whether the average salary earner could become a millionaire and over what time period.

The theory

It’s by no means impossible to do.

Author David Parker, in his book Income and Wealth, explains how it’s possible to become a millionaire on a McDonald’s worker’s salary. It’s a radical idea that requires saving as much as 50% of what you earn in the early years – even if it means staying with your parents to save costs and then building up sufficient savings as a down payment for a property.

Read: Is it possible to become financially independent on a McDonalds’ worker wage?

It takes about 10 years to get there, but the next 10 years are when your property portfolio, using bank loans and savings, starts to build. Parker did it on a teacher’s salary and became a multi-millionaire in the process.

The how

To bring the exercise back to South Africa, we made the assumption that 10% of the average salary is saved each month and invested once a year in either the JSE or bitcoin. No allowance is made for tax, which will vary widely depending on circumstances and investment choices (such as tax-free savings accounts), so bear that in mind.

Stats SA puts the average SA salary at just below R27 000 per month in 2024, a figure that has grown at about 6% a year since 2018. So we will assume the average salary will continue to grow by 6% a year into the future.

If you religiously saved 10% of your salary beginning in 2018 and placed 10% into a savings account, you’ll hit R1 million in savings by 2031 (again, no allowance is made for tax on interest or income).

It’s slow freight, but you get there in 13 years.

Now let’s put it in the JSE and reinvest dividends, which we assume will average 3.5% a year. Assuming the JSE continues to grow at its historical average of 6.5% a year and reinvest dividends, we’ll also hit R1 million by 2031.

That may be unfair to the JSE, which is already up nearly 10% so far this year, in large part due to the new government of national unity.

If we extrapolate a 10% annual average growth in the JSE All Share Index into the future, we hit the R1 million mark a year earlier – in 2030.

Fast-tracking with crypto

Now let’s get reckless and put all our savings into bitcoin. The results are shown in the graph below.

At current growth rates, we’ll hit the R1 million mark by 2025, or seven years.

Obviously, this is not advisable for most, given bitcoin’s volatility, but it’s an interesting exercise nonetheless.

Source: Stats SA, Moneyweb

We asked actuary Harry Scherzer, CEO of Future Forex, to throw another option into the mix – crypto arbitrage.

This is lower risk than bitcoin and involves buying and selling cryptos on overseas exchanges and selling them locally. The market risks are hedged out, so profits are locked in at the start of the trade (which is usually closed out on the same day).

Read: What happens when you pump 10% of your salary into bitcoin

The remaining risks are third-party risks, meaning the possibility of banks and other intermediaries involved in the trade going bust while the trade is underway.

You need a minimum of R100 000 to participate in crypto arbitrage, which means you will only start trading in 2022.

Here’s what the results look like.

Source: Stats SA, Moneyweb, Future Forex. *Assumes that you only start investing in arbitrage in 2022. Also assumes you utilise your full foreign allowances of R11 million in the year that you invest in arbitrage, based on average crypto arbitrage returns over that year. Note this ignores tax.

The chart above assumes that you accumulate savings in either the JSE or bitcoin until reaching R100 000 and then switch to arbitrage trading.

Arbitrage achieves roughly the same result as a direct investment in bitcoin, getting you to the R1 million mark by 2025, but without its volatility.

There are many other options that could be thrown into the mix, but the point of the exercise is to show that reaching millionaire status is within reach for the average salary earner.

Read: Become a millionaire. It’s easier than you think

The main point is to start saving and aim for 10% a month as a good start. If you adopt Parker’s methodology and manage to save 50%, you’ll get there much quicker.

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