4 things you can do in 2018 to achieve financial independence earlier
The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.
Given that financial independence is such a common goal among investors, it’s only natural that some of us are determined to get there in the shortest time possible.
Sound familiar? Here are four things you can do to speed your progress.
1. Pay off debt
Choosing to invest while simultaneously weighed down by debt isn’t an optimum strategy. With the exception of a mortgage, it’s usually a better to pay off anything you owe (credit cards or personal loans) before putting money to good use in the stock market. The interest you’re already paying is likely to be greater than any returns you can expect from the latter.
This is particularly important for those on a mission to achieve financial freedom early. Not only is it easier to recover (financially and psychologically) from mistakes and bad fortune when investing with money you can afford to lose, a lack of debt also puts you in an ideal position to take advantage of general market wobbles as and when they occur.
2. Make investing a priority
Becoming debt-free is just the start, of course. Having got your finances in order, it’s vital to continue cutting back on needless spending and channelling what you’ve saved into a tax-efficient stocks and shares account (i.e. ISA) at regular intervals.
The most convenient way of doing this is to set up a direct debit that transfers an amount of cash from your current account every month. Importantly, doing this at the start rather than the end of the month also reduces the temptation to spend this money on non-essentials later on.
If you want to grow your wealth quickly, learn to pay yourself first.
3. Invest increasing amounts
Getting into the habit of investing on a monthly basis is arguably preferable to throwing a lump sum at the market. With the latter, there’s always a possibility that a correction or crash might be around the corner.
Pound cost averaging — drip-feeding your capital into the market regularly — is a great idea. In addition to buying fewer shares when prices are rising and more when they are falling (thus smoothing out volatility), taking advantage of regular investing plans from brokers helps keep commission fees as low as possible — an easily-forgotten aspect of growing your wealth quickly.
Since investing is now a priority (see above), those wanting to speed up their pursuit of financial freedom may want to set themselves the challenge of continually increasing their contributions by a small amount each month. Just as those who lift progressively heavier weights see better results than those who lift the same weight every time, those who increase their contributions see their wealth grow faster.
4. Be willing to embrace risk
The fourth and final step is arguably that hardest and one that many — perhaps rightly — won’t feel comfortable doing.
Put simply, it’s hard to obtain financial security without serious outperformance. A pre-requisite for this is usually a willingness to take on greater capital risk by investing in companies lower down the market spectrum or buying what others hate. As US entrepreneur Robert Arnott puts it: “What’s comfortable is rarely profitable“.
Those interested in taking this step are therefore urged to consider not only their own risk-tolerance beforehand but also the importance of building a thoroughly diversified portfolio.
Is this little-known company the next ‘Monster’ IPO?
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Click here to see how you can get a copy of this report for yourself today
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.