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Tip: Three steps to retiring early

Working because you want to and not because you have to; or getting involved in work that gives you happiness, whether it be charitable work, your own business or a hobby – that is the eventual goal.

South Africans today are struggling to retire. With inflation eating away at our wealth and the lack of financial knowledge, too many people are forced to work into their late 60s and 70s or alternatively, live their retirement years struggling financially. We all want to retire as soon as possible. And by retire, I don’t mean resign from work and sit at home. Let’s face it; that just leads to boredom. But working because you want to and not because you have to; or getting involved in work that gives you happiness, whether it be charitable work, your own business or a hobby – That is the eventual goal.

In achieving this goal, in making it all possible, there is one common denominator – You need to be financially free, i.e. have a source of PASSIVE income that is sufficient for your day-to- day needs.

Unless you are a poker star, born into a wealthy family or possess Warren Buffett’s investment expertise, there is no short-cut in achieving this passive income. However with discipline, commitment and a few sacrifices, the three steps below can help you achieve this.

1) LEVERAGE

Leverage the bank’s money and buy a property. Since the price range of property is so wide, this strategy can fit anyone’s budget. Property provides capital growth as well as passive monthly income. And the fact that you can use the bank’s money to acquire this asset makes it even more attractive. In 20 years when you have paid off the bond using mostly rental income from your tenants, you will have a significant asset to your name as well as a source of passive income.

However, investing in property isn’t as easy as it sounds. It is undeniably a huge financial commitment that could backfire and cost you dearly. So do your homework! If done properly, this strategy can be very beneficial. Something I found useful before investing in property – Call rental agents (as many as you can) and get information about tenants’ preferences in that area. It will give you an idea of the property you should be looking out for.

2) RETIREMENT ANNUITY

Invest in a retirement annuity; But only up to the maximum tax deduction allowed. The retirement annuity is an amazing way to grow your wealth and it probably is easier and less scary than investing in property. The reason a retirement annuity is so rewarding is because of the tax benefits. The benefits are so lucrative that if you add up the ‘tax savings’ to the actual investment returns, it is close to impossible to find a better way to grow your wealth. The only downside is that it requires a long-term commitment – No access to your money until you are 55 years of age. Quite a commitment; but hey, take a moment and visualise yourself retired and wealthy. It will probably be the first time in your life where you have money AND time. Now that’s something to look forward to.

3) EDUCATION

Invest in educating yourself. If you are already highly qualified then this step may not apply to you. For the majority though, there is always more you can study to improve your own skills and therefore increase your income. Determine the exact skills required by the company in order to get your promotion or your raise and then decide on what to study. Go to the extent of speaking to your manager or your HR department. More often than not, if you do the numbers, education offers the best ‘return’ on your ‘investment’.

Hope you found the above useful.
If you have any questions or need some financial advice, always glad to assist so feel free to contact me.

Munaf Mukadam
Certified Financial Planner munaf.mukadam@liblink.co.za / 074 589 6489

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