What’s does financial freedom mean to you?

Financial freedom means different things to different people. For some it might be about having no debt so that you start each month not paying for something you bought six months ago, which is really about living within your means.

For others it is enough money saved so that you know you can manage life’s unexpected events, so you can sleep well at night.

It can also be about having choices about what work you do and how you want to spend your time, and what age to retire.

But probably the ultimate financial freedom is not relying on a paycheque to cover your monthly expenses – to know that your bills are covered whether you earn an income from work or not.

To calculate the lump sum you would need to generate a monthly income to cover your expenses, take your total monthly expenses and multiply by 12. Then divide this number by 0.05 (5%) to understand what you need as a lump sum to generate that income.

For example, if your total monthly expenses are R25 000, then 25 000 x 12 = R300 000 divided by 0.05 = R6 million

Now, how much do you need to save to reach that figure?

  • If you save 20% of your expenses, then it will take you around 35 years
  • And if you save 30% then it will take you around 30 years.
  • If you save 50% it will take you approximately 22 years.

The key to reaching this goal is to keep your expenses growing at a lower rate than your salary increases so that you have more money to put towards your financial freedom, but at the same time keeping that financial freedom number as low as possible. Because remember: financial freedom is not just about how much money you have, its about how much money you spend.

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