Wed, May 22

Four steps toward financial independence

Mary Millar

Mary Millar

It's almost the Fourth of July -- time for fireworks, picnics and a reflection on all the liberties we possess in this country.

If you're going to enjoy the freedom to do the things you want, especially during your retirement years, you'll want to take the steps necessary to achieve your own "Financial Independence Day."

Here are suggestions for reaching that goal:

Liberate yourself from debt. For most of us, a certain amount of debt is unavoidable. However, the greater control you can gain over your debts, the better off you will be, because any dollars not spent on paying debts can be used to save and invest for your future.

Look for ways to trim your spending and consider postponing some purchases until you can pay for them in cash.

By putting this "found money" to work immediately in quality investments, you can motivate yourself to keep a lid on your debt level.

Unlock the power of time. Albert Einstein once said, "The most powerful force in the universe is compound interest."

Einstein, who knew a thing or two about the nature of time, clearly recognized its importance in investing. As an investor, time may be your greatest ally.

The more years in which you invest, the more dollars you'll put in and the longer you'll have for your investments to potentially grow.

Even if you're just starting out in your career and can only invest a small amount each month, it will be a start to accumulating the amount you'll eventually need to enjoy the retirement lifestyle you've envision.

Release your investments' growth potential. To attain financial freedom during your retirement years, invest for growth.

It's that simple. Include an appropriate amount of growth-oriented vehicles in your overall investment mix. Ultimately, this mix should be based on your risk tolerance, time horizon and specific long-term goals.

Free your investments from "clustering." In the investment world, as in many other arenas of life, you can have "too much of a good thing."

For example, if you own a particular investment, such as a stock that has done well, you might think that it's a good idea to own more of the same type of stock.

When investing, however, duplication can be dangerous. If a market downturn affects one asset class particularly hard and much of your portfolio is tied up in that asset class, you could take a big hit.

Instead of "clustering" your dollars around a single asset or two, diversify your holdings by owning a mix of stocks, bonds, government securities and other vehicles.

While diversification can potentially help you reduce the impact of volatility on your holdings, a diversified portfolio can't guarantee a profit or protect you from loss.

Achieving any type of freedom in any kind of endeavor takes time and effort. That's certainly the case with financial freedom.

You will need to consistently make the right moves over a period of many years before you can finally declare your fiscal independence. But once you reach that point, you will likely conclude that your diligence and dedication were well worth it.