By ROSS MARRINER
In order to achieve financial freedom, you need to accumulate wealth that can generate enough income to cover your living expenses once you stop working. This situation is unfortunately not achieved by many individuals. Research undertaken by Genesis Analytics found that over 90% of South African retirees could not maintain the standard of living they enjoyed before they retired.
The following are some suggestions that, if followed, may go a long way to assisting you in achieving financial freedom.
Start saving and investing as early as possible. Although it is never too late to start investing, the earlier you start, the more you will accumulate through the miracle of compounding. A good rule of thumb is to save at least 15 to 20 per cent of your monthly income and invest in a well-constructed portfolio of investments. It would help if you aimed to take advantage of as many tax breaks as possible.
Live within your means. Get into the habit of saving first and then using what is left to spend on living expenses and the occasional extravagance. It is a good idea to draw up a monthly budget to avoid unpleasant surprises at the end of the month. Avoid taking on bad debt. Some debt can be classified as good debt, such as a home loan. Debt such as store accounts and credit card debt should be avoided at all costs.
Take out insurance cover to protect yourself and your assets against unforeseen eventualities. You are your most important asset. If you cannot work and earn an income, you may have to rely on family, friends or the government to survive. It is vital to have adequate levels of life, disability, dread disease and medical cover to ensure that you can still achieve your dreams and goals should something unexpected happen to you. It is also essential to ensure that your possessions such as your home, motor vehicles and other important assets are insured if something unexpected such as a fire or theft occurs.
Try to work and earn an income for as long as possible. Ideally, you should only retire when you are financially independent. Most large employers have a set retirement age. It will usually be in your best interests (and often your employer’s best interests) if you can negotiate to continue to work past retirement age. In some circumstances, this may not be possible, but it is worth investigating whether this could be negotiated. For many, the concept of early retirement is appealing, but the financial consequences could be to your disadvantage in the long run.
Have a plan. Develop a financial roadmap to achieve financial freedom. It makes sense to work with an experienced Certified Financial Planner® to develop a plan to ensure that you and your valuable assets are correctly covered, that your savings are invested in an optimal portfolio of local and global investments, and that you know what you need to do to achieve financial freedom upon retirement.
Rands and Sense is a monthly column written by Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth. His Financial Planning Office number is 046 622 2891