The American dream can sometimes seem a bit elusive, but a few smart financial decisions can go a long way toward ensuring your financial independence.
1. Keep your eyes on the prize
Nothing can derail investors more quickly from their goals than reacting emotionally to the market's relentless whims and whispers.
It's been proven time and time again that investors who stay focused on the long term outperform those who jump in and out of the market. That means financial freedom comes more easily when you take a long-term view of your investments.
Instead of considering whether the latest rumor will cause a short-term dip, spend your time thinking about where a company, or the economy, might be five or 10 years from now. That mind-set will keep you from selling great companies that are likely to remain great investments.
2. Stay in your wheelhouse
There's never a shortage of investment ideas, but too many come from sources you shouldn't trust or are based on faulty assumptions. So, instead of taking tips and chasing penny stocks, stick to what you know.
Investors with a lot of experience in retail have valuable insight into which retailer is likely to do best. Techies might find wildly successful opportunities in software or electronics companies. And energy aficionados can apply their knowledge to make savvy investments in oil and gas producers or energy service plays.
Regardless of your background, avoid getting invested in companies or industries that you don't understand. If you do, you'll be unprepared to weather the market's inevitable give-and-take.
3. Plan ahead
Whether investing in stocks, bonds, mutual funds, or ETFs, those with a game plan will find it easier to reach their goal.
That means knowing both your financial situation today and where you'd like to see yourself in the future. This old saying applies perfectly to achieving financial flexibility: "You need to know your destination if you want to get there."
Consider this point: Historically, investors have made more money by starting early and investing consistently over time. At a 7% average annual return, someone with $20,000 currently invested would end up with $55,000 in 15 years. But if that same investor also added $300 every month to his or her investment it would grow to nearly $150,000.
Will that be enough? Maybe not. But you get the idea. Take the time up front to know where you're going, so you can take the action necessary to get there.
4. Think like Buffett
Warren Buffett is arguably America's most brilliant investor, yet he made his fortune by living an undeniably un-Wall Street like lifestyle.
As a value investor, Buffett is more inclined to question whether spending money on something is "worth it." That approach is probably why Buffett has shunned some of the flashier expenses embraced by others
Taking a cost-savvy approach to your budget could uncover plenty of surprising savings, and those savings can be stretched even more by investing in less-expensive index funds, in low-cost actively managed mutual funds, or directly in companies through direct investment plans, which are programs offered by some companies that allow shareholders to buy shares without paying a high-priced broker.
5. Keep your eyes open
They don't happen often, but when new, rule-breaking companies come on the scene they can have a powerful impact on investor's financial future.
Only a few recognized the long-term potential of Amazon.com (AMZN 2.49%), Starbucks (SBUX 1.26%), or priceline.com (BKNG 0.12%) early on, and even fewer had the foresight to stick with those game-changing companies through thick and thin, but those who did have been handsomely rewarded. For example, Motley Fool co-founder David Gardner celebrated his first 100-bagger return last year thanks to Amazon, a company that has had plenty of fits and starts over the past 16 years.
To uncover other gems like Amazon, investors must remain engaged with the markets, global news, industry trends, and trade journals, all while keeping a sharp eye out for disruptive companies that might be worth owning for decades, rather than days, weeks, or months.