Achieving financial freedom or in more trendy terms the acronym FIRE (which stands for Financial Independence, Retire Early), need not be an unachievable goal. Like every other activity, one undertakes, be it education, a career, or even a hobby, all of these require dedication, persistence, and consistency. To achieve your goal of financial freedom one first needs to be aware of the obstacles that could come your way.
Cognizance of what could happen if you give into the above financial misconducts can help you easily overcome these hurdles and set you well on your way to achieving your goals. Similar to mentors on your path to educational or career success one should seek to learn from smart investors too who have already achieved their success in financial terms.
Here are some traits of smart investors that you could inculcate to ease the hurdles on your financial journey.
They are eager learners:
Investing successfully and tactfully requires some amount of prudence, commitment, and knowledge of the financial markets. Understanding and deciphering your investment strategy takes time and effort and is a continuous process. Smart investors understand the nitty-gritty involved and either invest the necessary time to learn about the markets or invest in a financial advisor whom they trust. Either way, they are eager learners and spend time to follow up on their portfolios periodically; this equips them to make apt and quicker decisions for better gains in the future.
They always have a plan:
You may have heard this line before,
‘A goal without a plan is nothing but a wish’
This holds true, especially in the investment world. Quantifying your goals and creating a financial roadmap to achieve them is an absolute requisite, failing which any investment made en route will be purposeless and a recipe for disaster. Planning helps gives direction to your investments with a purpose and a timeline in place. This helps you better choose the right instruments for the right goal. It saves you from last-minute investing goof ups like tax saving schemes, etc.
They are early starters:
The basis of gains in an investment lies in its compounding effect over time. Smart investors understand the immense benefits that compounding and time have on investments and hence begin their investment journey at an early stage. Through consistency and discipline in investments, they can reap the benefits from their original capital through interest and in addition allows the gains received to participate in their future earnings. This snowball effect has the ability to make even a small initial investment lead to substantial growth in your portfolio leading to higher wealth accumulation.
They automate their savings:
To best way to avoid major money pitfalls of debt, superfluous lifestyle expenses, and unexpected medical or even emergency expenditure is to automate your investments and savings. Carefully set aside your corpus that is to be saved or invested at the beginning of each month or when your income arrives. For those investors who do not have a great relationship with money and often tend to overspend:
- Cut down on unnecessary lifestyle expenses, this pandemic has already taught us the benefits of minimalism.
- Avoid unnecessary loans or debt; reduce your expenditures on credit and pay off any outstanding debt before you begin your investment journey.
- Start your investment journey by building an emergency fund first.
Through standing orders or direct debits, you can be sure your money is set aside automatically before it reaches your wallet and gets spent. Push your limits on savings but keep in mind your risk appetite before investing in any instrument.
They don’t mix emotions with investing:
Research proves that there are over 100 behavioural biases that affect effective investment decision making. Emotions play a huge role in investment decisions. It is the unemotional investor that has the capability to clock gains far greater than investors who let their emotions and biases get the better of them. The ability to manage money without letting loses and gains affect you adversely that’s when you have assimilated the mindset of a smart investor. You then gain the ability to cut through all the noise that distracts you and focus solely on your set financial plan.
They are committed:
Whether it is cutting down on unnecessary expenses, paying off debt, or finding new sources of income, smart investors are committed to doing what needs to be done for a future independent of financial woes. Automating their savings, living within their means, and choosing to invest in riskier assets for better gains (although keeping in mind their risk appetite) are some of the efforts smart investors willingly put in.
Nothing comes easy, especially financial gain. Dedication, persistency, and consistency will reap their benefits if investors are prudent in their investments and effectively handle their behaviour towards money.
Where have you reached on your journey towards financial freedom?
Do you have the traits to be a smart investor?