A recipe for your financial freedom

Saving for retirement can feel daunting, but it isn't rocket science. This free website summarizes the most tried and tested financial advice on a single page, tailored for the typical working professional South African in 2022.

Read on to learn how you can manage your own finances, save, invest, and grow your wealth so that you can achieve financial freedom and have the retirement you deserve.

Last updated: 5 February 2022

1. Minimize your cost of living

  1. Avoid unnecessary debt (car loans, phone contracts, credit cards, etc). It's usually more cost effective to buy things once-off when you have the money (and preferably second-hand).
  2. Reduce your monthly spending to the bare essentials (rent, food, electricity, etc) because money not spent can earn interest and help you retire sooner.
  3. Pay off all your existing debt as quickly as possible. You'll save tons on interest.
  4. Keep up these habits and you'll be retiring in no time.

2. Save and invest as much as possible

  1. Try to increase your income (by up-skilling, career progression, side hustles, etc).
  2. Save up an emergency fund (at least 2 months cost of living) with easy access.
  3. Get a Tax Free Investment and try to max it out every year (R36k per tax year with a lifetime limit of R500k).
    1. EasyEquities or Sygnia are both good low-fee options.
    2. If you don't know what to invest in, just buy the Satrix MSCI World ETF. It offers well diversified offshore exposure.
    3. Dollar Cost Averaging reduces your risk and allows you budget monthly (eg. R36k / 12 = R3k per month).
    4. You don't pay Capital Gains Tax when you sell your Tax Free Investments at retirement which makes them very suitable for aggressive, long-term investments. Just buy each year and hold until you retire.
  4. Markets are volatile but have a good track record of excellent long term returns. You should be investing for the long run (10 years or more) while you are still working.
  5. Try to avoid Retirement Annuities. They lock your money up, decide where to invest it, and expose your savings to government meddling. Often they also come with ridiculously high fees.
  6. Invest the majority of your savings into equities and ETFs over and above your Tax Free Investment.
    1. EasyEquities is the best platform for this.
    2. Diversify (spread out) your investments to reduce overall volatility.
      1. Diversify across locations (eg. 50% of your net worth outside South Africa).
      2. Diversify across business sectors (eg. tech, retail, finance, mining, etc).
    3. Most people are terrible traders and stock-pickers so index funds (such as MSCI World, S&P 500, SA Top 40) are fantastic because they're already diversified and they follow the top performing equities.
  7. Consider adding small amounts (up to 5% of your net worth) of other asset types to your portfolio, such as cryptocurrencies and precious metals. Perhaps up to 20% in the property sector.
  8. As you approach your retirement you may want to move more and more into low risk investments like Bonds, Cash, and Income Funds. Long term returns will be lower but it will help stabilize your wealth and protect you from market crashes.

3. Plan your retirement

  1. Keep your costs low and keep saving and investing until you reach your retirement figure. It's hard to calculate precisely, but the 4% rule can give you a ball-park figure.
    1. It's important to recognize that the 4% rule only gives you a rough target and you need to keep adjusting for your unique circumstance.
    2. The 4% rule says to simply multiply your monthly cost of living by 300 and that's your retirement figure (eg. R15k x 300 = R4.5m).
    3. So if you had R4.5m invested today it should be enough to let you withdraw 4% (R180k) and pay yourself R15k per month, increasing with inflation each year, until you die.
    4. This formula already accounts for Inflation and Capital Gains Tax, but doesn't account for your unique needs and all the surprizes of life.
    5. Keep in mind that inflation will increase your cost of living as well as your retirement figure, and your needs may change so it's a moving target and you need to recalculate your retirement figure to keep up with your cost of living.
  2. Buying a home is big investment which often turns into costly mistake. If you do buy a home make sure it fits into your long term plan and also have a backup plan.
Disclaimer:

We're not financial advisors and this is not financial advice. We just think this is pretty good guidance which will help people. If you know better or you have a financial advisor who knows better then feel free to modify the advice on this website to suit your situation. Everyone's situation is different and this website should only be used as a guideline. We have no sponsors or affiliations with any brands or products mentioned.

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