Ready. Aim. F.I.R.E: 4 Steps to Becoming a Millionaire in Your Forties

Don't worry. You won't hear the words Bitcoin, Pyramid Scheme, or any mention of cutting back on your take away coffee in this blog. If you are easily lead and subject to impulsivity - then this blog isn't for you. This is for those who are striving for change. Who are sick and tired of being sick and tired and know that life must be more than this. If you are serious about getting serious, it's time to seriously consider your steps to financial independence. 

Achieving financial independence is a goal that many people aspire to, but few actually attain. Why? Because we're human. And we are flawed. And we get waylaid. And we try to impress people. Which is crazy considering the clock is ticking and surely a life without the 9-5 is something worth prioritizing? 

Step 2: Investing in Index Trackers 

Once you have some money saved, the next step is to invest it in index trackers. An index tracker is a type of investment that tracks a specific index, such as the S&P 500. When you invest in an index tracker, you're essentially investing in the entire stock market, rather than just a few individual stocks.

Index trackers are a great investment option because they offer low fees and are highly diversified. This means that your investment is spread out across a large number of stocks, which reduces your risk. Additionally, index trackers have historically performed well over the long term.

So, how do we do it? Well in short, we're going to need a large sum of cash (duh). But it is much more than that, as I will go on to explain. And also, where do we find this elusive treasure trove? Well, hasty reader, long story short the bulk of this information will be about saving money and investing that in 'Index Trackers'. So we'll start with the basics: How can I possible earn more than I spend?

Step 1: Saving Money

The first step towards achieving financial independence is saving money. You need to have a budget and stick to it. This may mean cutting back on some expenses, such as eating out or buying new clothes, but it will be worth it in the long run. You should aim to save at least 20% of your income each month.

To make saving money easier, you can set up automatic transfers from your checking account to your savings account. This way, you won't even have to think about saving money each month; it will be done automatically.

If this feels like an impossibility for you right now, and frankly stating-the-bleeding-obvious, consider this. 

Is there anyway at all you can think of, which is likely to increase your income? We're not just reducing outgoings but we're looking for more. This can be through - primarily, pay rises. Whether in your current job or a career change: what else could you spend your time doing that you will get paid more for? Be ruthless and brutal. Every little helps and will become clearer when we talk about the magic of compounding. 

The effect of compounding is that your money grows faster over time. In the example above, if you left your money in the savings account for 10 years, you would earn a total of $628.89 in interest, bringing your total balance to $1,628.89. If the interest was simple interest (only earned on the initial $1,000 principal), you would only earn $500 in interest over the 10 years.

Compound interest is a powerful tool for building wealth over time, especially when investing for long periods. It's important to note that compound interest can work against you if you're borrowing money, as the interest you owe will also compound over time.

Step 3: Reinvesting Dividends

As you invest in index trackers, you will earn dividends. Instead of taking these dividends as cash, you should reinvest them back into the index tracker. This will compound your returns over time and help your investment grow even faster.

Compound interest is the interest that is earned not only on the initial principal amount but also on the interest earned over time. In other words, it's interest on interest.

To understand compound interest, let's look at an example. Let's say you deposit $1,000 into a savings account that earns 5% interest per year. After the first year, you would earn $50 in interest, bringing your total balance to $1,050. In the second year, you would earn 5% interest on the new balance of $1,050, which would be $52.50. Your new balance would then be $1,102.50. This process continues year after year, with interest earned on the previous year's interest as well as the initial principal amount.

Step 4: Patience and Consistency

The key to achieving financial independence through index trackers is patience and consistency. You need to be patient and stick with your investment strategy, even when the market goes through periods of volatility. Additionally, you need to be consistent with your savings and investment contributions each month.

Final Thoughts

Saving money and investing in index trackers is a powerful strategy for achieving financial independence. By following these steps and being patient and consistent, you can grow your wealth and achieve your financial goals. Remember, the earlier you start, the more time your investment has to compound and grow.