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Financial independence needs a plan

Sep 1, 2023

While financial independence is a goal many people aspire to, it means different things to different people.

For some people, financial independence means having enough capital to provide an income that covers their expenses. This is the goal behind the FIRE (“Financially Independent Retire Early”) movement.

If you want to “retire” early, a quick way to calculate the lump-sum figure you need, is via the “4% rule”. The principle behind it is that if you draw only 4% of your capital each year, your capital should last your lifetime.

For example, R1 million would provide a sustainable income of R40 000 a year or R3 400 a month. If your expenses are R25 000 a month (R300 000 a year), you would then need R7.5 million, because 4% of R7.5 million is R300 000.

A simple way to do the calculation is the take your annual expenses and multiple that number by 25 (which is the same as dividing by 0.04).

Molefi’s route to financial independence

Molefis plan for financial independenceMolefi is 32 years old and has the goal of reaching financial independence by the age of 45.

He is fortunate that he has no debt, having settled his credit card and car finance accounts. This means he has more disposable income available to invest towards his goals, which include a house deposit fund, a lobola fund, a wedding fund, and a business venture fund.

Read more about Molefi’s financial independence plan here.

When your retirement fund is not enough

Like almost all South Africans, soon-to-be retiree Johan is behind on his retirement funding. He will be turning 65 in seven years’ time, which does not leave a lot of time to get his finances in order.

His priority is to settle his debt before he retires. This will be achieved through his debt counselling process, which will see him debt-free in five years’ time, before he retires.

Johan’s adviser Takalani Badugela conducted a thorough retirement analysis and has made recommendations to Johan on steps he can take now to boost his retirement outcome.

Read more about Johan’s plan to have enough money in retirement here.


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Maya Fisher-French author of Money Questions Answered

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