As we celebrate our nation’s independence, the thought of financial independence comes to mind. What is financial independence? Most people think that financial independence is having more money than they can ever spend. They literally think of the highest amount of money that comes into their heads. Going by that analogy, it’s practically impossible to achieve financial independence because the chances of making such amounts of money are very low.
In actuality, financial independence is being able to live the life of your choice without having to work or depend on anyone because the income from your investments are enough to cover your lifestyle. Simply put, your passive income becomes greater than your annual expenses and you can choose to retire early.
How long will it take me to be financially independent, you might ask? Well, that is totally up to you. First of all, envision the kind of lifestyle you want to live when you retire, then calculate how much your yearly expenses will be. Multiply that amount by at least 25. Then you’ll determine how much money you need to save and invest between now and the year you plan to retire.
For instance, if your preferred lifestyle will cost you N10,000,000 every year, then you need to have at least N250,000,000 in savings and investments before you can retire. The assumption is that your investment will yield at least 4% annual returns which is equal to your total annual expenses.
Now that you know how much you need, the next step is to put in the work to achieve your goal. The first step is to create a financial plan to outline all your goals. The next step is to figure out what percentage of your yearly income you should save. If your yearly income is 20million, and you save 30% (6million) then it will take you about 40 years to reach your goal. You can reduce the number of years by earning more money and increasing your savings. You can also drastically cut down your current expenses in order to save more.
You also need to invest your money to ensure growth. It is important to diversify your investment in case of any losses. Finally, you constantly need to re-evaluate your goals to know if you’re still on track.
It is very important to note that you might never be able to attain financial independence if your lifestyle is not pegged at a certain level. If you keep elevating your lifestyle as you earn more, you won’t achieve your goal because you keep shifting the goal post. Another hindrance to achieving financial independence is an unstable economy. In Nigeria for instance, the value of the Naira has greatly depreciated. Therefore, if you peg your lifestyle at 10million, in a few years, you may not be able to afford the same lifestyle with that amount.
Be that as it may, financial independence is achievable and Crowdyvest is here to help you.