Financial Freedom By Age 45

By Vanessa Papas: Many of us work our whole lives so we can save up enough money for retirement. Others, like Hollywood stars Cameron Diaz, Macaulay Culkin, Josh Saviano and Vanilla Ice took what they had and threw in the towel. Granted, at the time they had earned larger-than-life salaries. Many South Africans earning middle rate salaries question whether it’s possible to achieve financial freedom before you hit your 50s. We chat to Ben Collins of on how to do even better – obtain financial freedom by the age of 45!

Know Your Expenses: Before figuring out where you are going, check where you currently are. List your current monthly expenses, so you have a good gauge of where your money is going every month. If you have a budget, this will be easy – if not, now is a great time to put one together.


Reduce Your Expenses: There is only one way to generate wealth, and that is to spend less than you earn, and invest the difference. To maximise the amount you can invest, you need to create a ‘gap’ between your income and your expenses. The easiest way to do that is to cut some costs.  While it helps to look at small expenses like bank fees and insurance (which can score you a few hundred rand), the real dent can be made by considering things like downgrading your car or moving closer to work – this is where thousands of rands can be slashed.

Attack Debt: Short term debt is the Kryptonite of wealth. If you want to retire early, you need to make sure you are not carrying any expensive short term debt like credit cards, store accounts or personal loans. Invest any spare money you have into paying off your debt as soon as possible.

Estimate Your Retirement Expenses: Your expenses as they stand today will probably not accurately reflect your expenses at age 45. For example, you may have children who will leave the house by the time you are 45, and you will no longer need to fund a commute. On the other hand, if you retire at 45 you may want to take up some hobbies or travel. Estimate what your expenses will be once you are retired, and total them up – this number will come in handy when you calculate how much you need to retire.

Calculate your ‘Freedom Number’: How much do you need to be financially independent? A great rule of thumb which can help you answer this question Rule of 300. This rule states that in order to calculate how much you need to be financially independent, take your estimated retirement expenses and multiply it by 300. This means that someone who is planning on spending R30,000/month in retirement would need R9-million, while someone planning on spending R18,000/month would need R5.4-million.

Invest: Reducing your expenses is a double edged sword – not only does it reduce the amount of money you need for financial independence, but it allows you to get there quicker – because you are able to invest more. Make sure the money you have freed up by reducing your expenses is put into growth assets (like equities and property), which grow faster than inflation.

Keep investment fees low: If your investments are generating returns of six percent above inflation, but you are paying two percent in fees, then you are giving away 33 percent of your returns!

It is vital that you keep more of your money for yourself by not paying unnecessary fees. This means sticking with low cost index trackers known as ETFs, and avoiding Unit Trusts which struggle to perform because they carry much higher fees.

Think Outside of RAs: Financial independence at 45 is not ‘normal’, which means you should consider alternatives to the ‘normal’ RAs most financial advisers will recommend. While RA’s do offer some decent up front tax benefits, they make your money inaccessible until age 55. If you are targeting financial freedom at 45, this may not work for you. Alternatives to consider include a Tax Free Savings Account – which provides some great Tax relief while still allowing you access to your money at whenever you need it.