Achieving Financial Freedom in your lifetime

Thandi Ngwane, Head of investments at Standard Bank South Africa

South Africans are encouraged to understand the journey to achieving financial freedom as a personal and life-long process, not an overnight story.

On 27 April, South Africans celebrate Freedom Day, commemorating the first post-apartheid elections held on that day in 1994. Three decades into our democracy, however, South Africans are increasingly aware of just how hard freedom is to achieve in practice. Attaining, especially, financial freedom through broad based economic inclusion has proved a particularly difficult challenge for most South Africans, our institutions, and our leadership.

As a bank committed to driving Africa’s growth, by empowering ordinary Africans with the tools and insight to engage meaningfully in economic activity, Standard Bank recognises just how challenging it may be for individuals to achieve financial freedom.

Social movements like the FIRE (financial independence, retire early) movement, which gained momentum in the US in 2018, but has since spread to many other countries, including South Africa, have contributed to the rising popularity of the concept of “financial freedom”. The goal of FIRE is for individuals to achieve “financial freedom” through means outside a 9-to-5 gig and retire at an age well below what many people would consider normal, usually between 35 and 45.

While movements such as this one present an appealing prospect, Standard Bank recognises that achieving financial freedom is not an overnight process. Instead, “becoming financially free is, for most, a long hard struggle,” says Thandi Ngwane, Head of investments at Standard Bank South Africa.

“The ultimate goal of retirement in its classic form already feels quite unrealistic for many in South Africa with only 6% of South Africans being adequately prepared for retirement. And, with a high rate of inflation and price increases ongoing as an aftershock post pandemic, people are depleting their savings and borrowing money to get by,” further explains Ngwane.

The unemployment statistic of 32,7% in Q4:2022 of South Africans being unemployed, is layered by the very high levels of poverty, few high-income earners and a relatively small middle class.

For those who face these barriers in the financial system, pursuing the FIRE movement or even seeking financial freedom may feel challenging, and maybe even unattainable.

However, to help ordinary South Africans understand and develop the discipline to work towards financial freedom, Ngwane believes it is useful to understand the process as “a personal and life-long journey, starting with financial stability, then building financial independence and, finally, achieving actual financial freedom.”

Financial Stability

Financial stability speaks to one’s ability to live within their means and have enough to pay their own way without relying on others. It can be calculated to a certain amount of money, monthly or annually, that’s needed to achieve a certain level of security.

“Financial stability mostly means having enough. But enough looks different to different people and, most times, even to the same person at different stages of their lives,” Ngwane explains.

“Enough in one season could mean, as a single person, being able to meet your basic needs, like food or shelter and perhaps some entertainment, and having some money left over every month. In another season of your life it could mean, being married with two children and being able to comfortably afford the needs of your family and still find pockets of extra cash. The amount of money needed to live at each life stage may change but the feeling of security is the same.”

According to Ngwane, the first thing is to actively make the decision to take control of your finances. Thereafter, two key tools that can be used in achieving financial stability are drawing up and following a budget and being able to adequately manage one’s debt.

Financial Independence

Achieving financial independence, however, goes a little further than just affordability.

“Financial independence means you can comfortably afford your current standard of living and you have a safety net of savings for preventing mishaps or minimising their effects. At this point, you either have enough savings to step away from the job market for 6-months or you have sufficient income generated through passive investments that make your job less of an obligation,” she explains.

Financial Freedom

Financial freedom is more about lifestyle. Ngwane says when one realises financial freedom, they’re less concerned about managing regular inflation and more focused on maintaining a certain kind of lifestyle throughout their different life stages.

“Financial freedom doesn’t have to mean you live a luxurious lifestyle, but it does mean you have sufficient financial resources for the kind of lifestyle that you want to live now and, in the future, and you can continue to perpetuate the lifestyle even following big life changes,” she explains.

“It means your resources give you the freedom to choose what you want to do and when you want to do it, because you’ve accumulated enough wealth and are no longer dependant on your monthly income to live comfortably.”

Taking the first step

While achieving financial freedom may seem very difficult in the face of growing financial challenges, but—with discipline and careful planning— Ngwane says, “it is possible”.

“The journey to realising financial freedom doesn’t need to start with a large investment. It’s about finding the pockets of disposable income – start with what you can afford. The compound interest will allow invested money to earn returns today on the returns you earned yesterday, and so forth. It’s mostly about staying the course,” Ngwane encourages.

“However, the first step when embarking on this journey is consulting a financial advisor. A financial adviser can help you understand your current financial well-being and set financial goals to help you make financially smart decision about your money.”