Thanks to the magic of compounding, the stock market represents the best option for those wanting to become rich.
As an example of its wealth-generating power, imagine investing 100 every month for the next 40 years. Based on a 7% average annual return, youd have a little under 240,000 at the end thanks just the simple practice of earning interest on interest.
Of course, if 40 years sounds like too long to wait, youll need to save more.Increasing that 100 by another 100 a month will give you almost 227,000 at the same rate of return. Importantly, however, this will be achieved in 30 rather than 40 years.
With this in mind, here are three things that could help get you to financial freedom earlier.
1. Pay yourself first
This first move is simple but powerful. Rather than cross your fingers and wait to see how much money youve left at the end of the month, get into the habit of transferring money into your Stocks and Shares ISA on payday.
Better still, set up a direct debit to automate the process, thus ensuring youre not tempted to go back on your decision to save and instead splurge the money on things you dont need.
Viewing saving as a typical monthly outgoing in the same way that you would a council tax or phone bill may be hard at first.After a few months, you wont even question it.
2. Create multiple income streams
Having multiple income streams is a great idea, particularly if your main source of income lacks long-term security.
Unless you earn the salary of a professional footballer, its also essential if youre to quit the rat race earlier than everyone else.
These streams can be anything from renting out a spare room, selling stuff on eBay (Etsy if youre of an artistic bent) or tutoring someone, perhaps in a subject youre passionate about or studied at college or university. The point is to start small and save everything you earn to invest. And once youve got a second income stream, find a third.
While this process will inevitably involve sacrificing time away from other pursuits, it will also help you realise whereyou might be wasting your waking hours. Binge-watching yet another (very average) box set on Netflix wont get you rich, after all.
Remember the more money you can squirrel away sooner, the quicker youll reach your financial goals. Speaking of which
3. Get a grip on your goals
Investing even a little is clearly better than not investing at all. But investing with absolutely no plan means youll never know when youve got enough.
I want to become financially independent,you cry! Well, thats fine. But what exactly does financial independence look like to you?
If we assume its the sort of freedom that allows you to quit work completely, youll need to have an idea of how much your new lifestyle will cost and whether the income you receive through your investments in the form of dividends will be sufficient to pay for it.
So, grab a pen and some paper and spend a while thinking about what you want to do, and when and how much money youll need to do it.
While a few goals will naturally change over time, its far more motivating to have some in mind than none at all.
Who doesnt want to achieve financial independence?
To never need to work again Even if youre like me, and you love what you do, financial independence is a goal most people would love to achieve. FREEDOM to work on whatever projects you like or not to work at all! Download your free copy of The Foolish Guide To Financial Independence And Retiring Early to discover how you and your family could achieve greater financial security and a better quality of life. Click here to start now.
