How can I be financially independent?

A Moneyweb reader asks: I’m 32 and want to become financially independent. My goal is to be able to yield a monthly investment return equal to my gross monthly salary (R25 000) within the next decade. What sort of capital investment and monthly contribution would be realistic in achieving this goal in my desired time-frame?

Angélique Visser, a Baraza Wealth director, answers:

Having sufficient personal wealth to live on without having to work actively for your livelihood is worth deliberating and the best gift you can give yourself. First, set a detailed budget. As income tax is normally payable on the monthly income, you will need to calculate what gross amount you’ll need to provide the required after tax amount of money to cover all your monthly expenses.

You’ve given yourself 10 years to fill your wealth pot: you have to create enough wealth in a decade to pay you R25 000 a month, in today’s terms, for the rest of your life. We’ll use your life expectancy, 69 years, and 90 years due to longevity trends.

You may choose to preserve the capital to leave a legacy for loved ones or, as most people do, select to deplete the capital by the end of the term. We’ve worked on the second option.

To keep up with inflation, it’ll be necessary to ensure the R25 000 a month increases annually. In the calculation, the annual increase is 6%.

The return on your investment and costs will play a significant role over a period. The calculation was done on the premise you yield a 9% net investment return. How do you achieve it?

It sometimes requires sacrifices, eg. not being able to drive your dream car or own the latest smartphone, but it’ll yield longterm rewards.

Small tips to yield big results in the long run Pay off high-interest debt as soon as possible. Find out if you’re on the most cost-effective package at your bank. Review your short-term insurance and health plan: it’s possible you’re paying too much. Determine what fees you’re paying on your investments: a saving in fees could make a huge difference long term. Cancel loyalty cards where you pay a fee and don’t receive benefits. Consider a cellphone package where you don’t pay for an expensive phone with functions you don’t need.