Ten Steps on the Road to Financial Independence: How Do I Get Started?

You’re young or maybe you’re middle aged or maybe you’re not so young. But whatever your age you are haunted by a persistent question: When and how do I get started getting control of my financial life and how do I find good investments?

Here is a series of financial tips. None of them is a silver bullet. None of them will make you rich overnight. But follow these steps and you will help yourself as well as probably helping others around you who depend on you.

*Be In for the Long Term.
Looking for a quick rich scheme? Look elsewhere. GregoryBresiger.com doesn’t have the quick answer and neither do most people who claim they can make you a millionaire overnight. They’re scamming you. Most people who accumulate substantial assets do it slowly over the long term. They live through bull and bear markets. They prosper in good and bad times.

*Be Patient.
If you just started investing in 1987 or 2008, terrible years in the market, the temptation was to stop and start buying lottery tickets. But the investor who achieves financial independence is someone who is investing for 10, 20 or 30 years. Warren Buffett says he buys stocks and holds them for a lifetime. One doesn’t have to be that radical. But one should make a commitment to investing in the long run. Why? It reduces risk. In the short term, the stock market is dangerous. Over the long term, especially if you continually buy over many years, the market is much less risky.

*Invest Regularly, Especially in Bad Times.
Make a commitment to invest this month, next month and every month, no matter how the market is doing in the short term. When times are tough, when the stock market is going down, you’ll get more shares because you’re buying when prices are depressed. Later, when markets recover, your cheap shares will become great bargains.

*Be a Demanding Investor.
Look for investments that cost little; ones in which the investor has a good chance of becoming wealthy instead of the broker or the investment company. That means funds with very low expense ratios. That means brokerage accounts in which there is not a lot of trading, something that generally benefits the broker and his employer, but isn’t good for the investor.

*Seek Reasonable Investment Products and Services.
Generally, buy index funds. They charge much less than the average fund. That’s because they trade very little, running up very small bills. And remember trading bills, small or large, are passed on to the investor as a cost.

*How About Your Adviser/Fund Manager?
Does your adviser charge you a lot? Does he or she charge you commissions every time there is a trade and does the adviser trade a lot? Then you’re probably paying too much. How should your adviser charge you? Fee-based is likely a better way of charging the customer. But the fee should be based on how much your account grows. Let’s say he or she charges one percent of your portfolio. Then, if the portfolio grows in the course of a year, the adviser gets more for the right reason: He or she expanded your wealth.

*Is the Manager in the Same Boat?
Does the manager of your fund have a significant stake in the fund? It is usually a good thing when the manger is eating his or her own cooking. If the fund has a good year, then you have a good year and so does the manager. If the manager doesn’t have a piece of the fund, then if the fund has a bad year, you’re the only one hurt. That’s not a good practice.

*Match, Match and Match Some More.
Not all employers match on their 401(k) plans. Not all taxpayers qualify for good size tax deduction by contributing to their IRAs. So why not take advantage of these matches when they’re available? They won’t go on forever. I once worked for a company that had a great 401(k) match. For 10 years I contributed the maximum amount and they matched. Then the company went through hard times. They stopped matching. I still contributed but I could never get any matching contributions. I knew of employees who—when the company was matching—didn’t contribute a cent to the 401(k) plan. They could never go back and get those company matches. Ditto with IRA contributions. Each year you qualify, you can contribute up to a limit and often obtain a tax break. But, if you let years go by without contributing, you can never go back. You lost the contribution and tax break opportunities.

*More Years Are Better.
Just as the stock market is less dangerous the more years you are in it—-and I advocate putting money in over a long period, then taking money out slowly over a long period in order to get exposure to the greatest potential number of bull markets—so you will accumulate bigger final balances by starting as early as possible.

*The Magic of Compounding.
Say you go along with my advice of starting early. You begin at age 25 and put $300 a month into an investment earning at average of nine percent. You do it for 40 years. Nine percent is roughly the long term average of the stock market. After 40 years you have some $1.4 million. However, let’s say another person waits until age 35 and put $300 a month over 30 years at the same rate of return. What do you have? You have a lot less. In fact, it is almost $1 million less. You have some 550,000.

Those ten years were expensive!

Get going now. Get going when you’re young and have your prime earning years ahead of you. If you’re middle aged and can do it, keep contributing for an extra 11 years past age 59.5 to age 70.5. Either way, by being disciplined and consistent you will be able to achieve your goal of financial independence although it won’t be overnight, next week or next year.

It will take some time as does almost any task of great importance. But the sooner you start, the easier it will ultimately be.

Let’s get started.