1092: How To Become Financially Independent: Step 3 - Invest What You Save by Chris Reining on Becoming F.I.R.E.
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My name is Dan and I'm here every single day reading to you from some of the best personal finance blogs on the planet and as this is a Friday. I'm going to keep the INTRO. Nice and short for you. So let's get right to our post as we start optimizing your life how to become financially independent. Step three invest. What you save by Chris? Rining of Chris Rining DOT COM in the two previous posts. We covered spending less and saving more by employing. The lifestyle changes in those posts. We can begin to pay off our short-term debt build our six month emergency fund and then if we are choosing financial independence as our goal we can begin. Investing investing is a complex topic with no one-size-fits-all approach depending on your risk tolerance and willingness to learn about investing. You may wisely choose to invest fairly effortlessly by using vanguard funds or you may choose to pick individual stocks. Whatever you choose make sure to invest as early as possible to take advantage of compounding invest. Your money slowly and with caution and I think you'll come to find out that building wealth comes easily as long as we're continuing to live with our lives designed to spend less and save more then. Here is what we need to do to get started. Investing one get a brokerage account. If you don't already have a brokerage account I use and recommend fidelity they consistently come out on top in brokerage ratings and have low transaction fees. I also can recommend vanguard to pay yourself first use the adage of pay myself first. This means that before anyone else gets our money. We get our money automatically on the first day of the month. Have a certain amount of money withdrawn from where your paychecks go and deposited directly into your brokerage account three decide who is going to invest your money either. Let someone do it for us or do it ourselves. I like the ladder if you're just getting started investing perhaps you're more comfortable having a professional manage your money before deciding to branch out on your own for decide what you want to invest in if we're letting someone else invest for us. We won't have to do anything except answer some questions from our financial planner. If we're investing ourselves. We might think about using popular funds like vanguard or even individual stocks like the latter. Ironically I choose to invest in consumer companies particularly the retail restaurant and technology sectors one of Warren Buffett's famous quotes is invest in. What you know. And for that reason my holdings include companies like Apple Amazon japodlay coach. Google Netflix priceline. Pinera whole foods and starbucks. I chose these companies because I use and familiar with their products. I own an apple laptop. I shop at Amazon. I Chow Down Burritos at AAA. I get hotel rooms from priceline and I shop at whole foods. Five decide how many stocks or funds to own we may only need a few funds to be well diversified. If we're investing in individual stocks we probably want to hold positions in about fifteen to twenty companies. It takes time to follow that many companies around two to four hours a week. If it's something you think you'll enjoy doing. You'll make the time for it if it's not you're probably better off with funds six be patient. Warren Buffett has said only by something that you'd be perfectly happy to hold if the market shut down for ten years the markets will go up and down. Our portfolio will go up and down invest in solid funds and or solid companies and. Don't sweat the normal market gyrations. Your job at this point is to invest regularly through those ups and downs. Most of us have been through a recession. Now two thousand eight to two thousand nine so we should understand when and when not to be fearful in two thousand eight. My portfolio hit a peak on September. Twenty second and dropped to its lowest point on November twenty fourth my portfolio lost forty percent of its value. In those two months. I was fine with that. Okay mostly fine with that. But what I learned was that it was an excellent time to invest money in the market because everything was on sale. Seven understand your timeframe. We don't invest money that we might need tomorrow next month or even within a year or two eight creed an investment policy and investing journal in the book your money and your Brain Jason Zweig suggests writing an investment policy which is much like a corporate policy. This is an excellent idea because it takes the emotion out of investing a dangerous trait I have written and use an investment policy and I- revise it as needed at least once a year the other beneficial habit is to keep an investment journal. My Journal consists of an entry for each stock in my portfolio. Where I write down the date I purchased shares. How many shares I purchased and at what price along with the PE ratio and the cash flow yield. I also note the reasons why purchase the shares and how I felt about the company as an investment. At that time this has been really useful in order to look back at previous purchases and reflect on the decision to invest at that point and to learn from investing mistakes. Nine read and learn about investing. There are an overwhelming number of resources on investing. I stick to rather than the talking heads on. Cnbc which both tend to be short sighted and fear inducing and ten have fun. Meeting Financial Goals. Watching wealth build is exciting. I we might have a few thousand dollars and we will never get anywhere time passes and those few thousand dollars turn into tens of thousands. Then we think. Wow that was awesome. We've never had that much money before as time goes by we pass the six figure amount then we may pass the two hundred thousand mark three hundred thousand mark and maybe even reached five hundred thousand. We realize anyone can do this for some amount of five hundred thousand may be enough to cover living expenses for the rest of their lives for others. They might be shooting for a million. What we realize is that it takes time to build wealth hence number six being patient. There will be setbacks and recessions and unexpected expenses and the normal bumps along the road but if we keep spending less saving more and investing we will be rewarded. You just listened to the post titled how to Become Financially Independent. Step three invest. What you save by Chris? Rining of Chris Rining DOT COM and a real quick thanks to anchor for hosting this. Podcast anchor is the easiest way to make a podcast. They'll distribute your podcast for you. So it can be heard everywhere spotify apple podcast Google podcasts. And many more you can easily make money from your podcast to with no minimum listenership anchor gives you everything you need in one place for free which you can use right from your phone or computer creation tools. Allow you to record and edit your podcast so it sounds great. Download the anchor APP or go to anchor DOT FM to get started and that's another episode of optimal financed daily in the books. I thank you as always for your support and for being here with me each and every day it is all thanks to you and our great authors for Helping. Us get here so hope. You're having a good weekend. I'll be back with you tomorrow with another post. And that's where your optimal life awaits.