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How do I become financially independent in a decade?

During one’s lifetime one reaches many milestones, but achieving financial independence is certainly one of the highlights worth celebrating, as very few people ever achieve it. Having sufficient personal wealth to live without having to work actively for your livelihood is worth deliberating and certainly the best gift you can ever give yourself.

How much do you need?

The first step, and easy part, is to determine what amount you need per month to pay your basic necessities or to live the lifestyle that you choose. This is done by setting a detailed budget listing all expenses that have to be met every month to pay for your chosen lifestyle. Because income tax will normally be payable on the monthly income, you need to calculate what gross amount you will require to provide the required after-tax amount to cover all your monthly expenses. As you specifically mentioned that you want to know how much you will need to substitute your gross monthly salary of R25 000, tax will be disregarded in this calculation.

The next step is to establish what time period you have to accumulate personal wealth and for how long it should last you once you have acquired it. In this instance, you have given yourself ten years to fill your wealth pot, which means you have to create enough wealth during this period to pay you R25 000 per month, in today’s terms, from your 42nd birthday for the rest of your life. This period can either be based on your life expectancy, which is 69 years (the statistic generally still used for males) or, because people tend to live longer, up to an age that you choose. In this calculation 90 years will be used to demonstrate the difference in amounts required.

You may also choose to preserve the capital to leave a legacy for your loved ones or, as most people do, select to deplete the capital by the end of the term. In the calculation below we have worked on the basis that the funds should be depleted.

To keep up with inflation, it will be necessary to ensure that the R25 000 per month increases annually, otherwise you will not be able to meet your monthly expenses in future. In the calculation below, the annual increase is 6%.

The return on your investment and costs will play a significant role over a period. The calculation below was done on the premise that you yield a 9% net investment return.


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