Financial independence – January 2019

Man looking at sunset

The goal behind writing this blog is to share my journey to financial independence with you and to hold myself accountable for the decisions I make. The fact that you are reading this blog, means I am achieving goal number one. I am really enjoying writing this and hope to create a community of like-minded people.

To achieve goal number two, I decided that I should make it measurable. The reality is that we all want to be financially independent. Financial independence does not imply quitting your job and is not a synonym for retirement. It is the freedom to ignore finances when you make life decisions. It means choosing what makes you happy.

Savings rate

I am going to discuss my financial situation and ambitions. Hopefully, it will motivate you to look at where you are and where you want to be. The first thing that I want to discuss is my savings rate. This is arguably the most important metric to analyse where you are going financially. You can read more about saving rate in my article how savings rate influences your retirement. This tells you how much of what you are earning, you get to keep. My savings rate since I started writing the blog can be seen below.

I calculate our savings rate by adding my wife and my salaries and all other income. Then I subtract all the costs of generating the additional income and our monthly expenses. I do not include debt repayments in our savings, although I know some people do.

Our savings rate for January 2019 was 29.4%, which is better than I expected. This was largely because we saved our monthly amount as soon as we received our salaries in early December. As a result, we had to spread one month’s salary over one and a half months. This made us rather frugal. In December our savings rate was the worst at 23.9%. Due largely to the fact that we went to Egypt and then to a resort with the family for Christmas. I discussed the costs for our Egypt vacation in the article Egypt vacation costs. We don’t mind spending money on travel since it is important to us and our finances reflect that.

On average our savings rate is 27.4%. To be honest, before I started writing this blog, it was not nearly that. Which is why the blog exists, to begin with. Our aim is to get the savings rate to around 40%. We both have salary increases on the way, my wife in April, and me in July. This will go a long way to increasing our savings rate if we can keep our living costs the same.

Spending for the month

Your savings rate is completely dependent on your spending habits. I will check my spending monthly to ensure that the expenses are justified and concentrated on the correct things. Since about 30% of our income went to savings, I must account for the other 70% which can be seen below.

The “other” category had large expenses including study registration costs for my wife and sister and a printer that we bought for our home. This does not concern me since it was planned and a conscious decision. The house expenses are systematically coming down with each additional payment we make. On the other hand, we can spend less on food so I will investigate that.

My wife’s car expenses are worrying me. We had to replace the brakes last month, which is just regular wear and tear. This month we need to overhaul the air-con as well for an additional R14 000. It is time to start doing the math to determine if we need to replace it. I will do a post about it later this month.

Financial independence

I also want to track my progress towards financial independence. For this, I needed to set a target. I did this using the 4% rule that I tested in the article back-testing the 4% rule. I started with a required income of R40 000 per month and worked back. That is an income of R480 000 per year, which translates to an investment target of R12 million.

The problem with a target set today is that inflation erodes your spending power. The target increases the longer you take to save it. Our target is the green line on the graph, which I have adjusted with inflation of about 5%. Based on our present savings rate of 27.4% and a 10% yearly increase in contributions, I extrapolated our net worth. The extrapolated savings is the blue line on the graph. The orange line shows our progress since September 2018, at which stage we had about R1.3 million saved.

I assumed an annual return of 12% on our investments, which could differ from year to year. As a result, our progress will be influenced by the savings rate and investment return. I think the estimate is realistic and hope to retire even earlier. Presently the math says we will retire in 2033 at which stage I will be 45. I want to bring it down even further to 40 but will definitely need the Johannesburg Stock Exchange (JSE) to start doing its part in achieving that.

The first thing that we need to do to drastically improve our savings rate is to pay off our house. We are 18 months into our mortgage and have paid down 43%. We are aiming to be mortgage free by 2021. For now, I just watched the last Silicon Valley episode, my whiskey is finished, it’s after midnight and I’m tired. Thank you for caring about my journey to financial independence. How does your savings rate compare to mine?

Be safe out there,


Quote of the week

"Retirement is not in my vocabulary. They aren't going to get rid of me that way." – Betty White Click To Tweet


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    1. Post
      Hendrik Brand

      Thank you Lian, I’m glad you enjoyed it. Budgeting is not as tedious if you actually see your spending habits change for the better.

  1. Lian

    If you don’t mind me asking, what do these entail: “Then I subtract all the costs of generating the additional income” in the paragraph post Savings chart?

    1. Post
      Hendrik Brand

      Hey Lian, in my case I travel a lot for work and claim petrol, food and inconvenience. I can’t include everything as pure income, because most of these are simply reimbursements. So what I do is total the claim and subtract maintenance, petrol and food costs. This gives me the portion of the claim that is actually income. Another example would be rental properties for additional income. Only the difference between the rental income and the cost of owning the property, is income.

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