Hwalani Mabaso. Supplied
Financial independence may seem like a far-fetched dream for many, but it's a dream that is possible and can be achieved if guided by clear goals with a clear plan.

Setting clear goals will help you to keep track of where you have been, where you are, where you are going in terms of your financial independence journey.

What is financial independence?

Financial independence is the complete freedom to be the best, most powerful, energetic, happiest and most generous version of yourself that you can possibly be.

It’s important, first and foremost to understand the required amount of money needed from day one to reach the age of 45 and financial independence.

How much is enough?

The general rule of thumb is to strive to replace 80 percent of pre-retirement income. This is normally the target amount set to maintain the same lifestyle at retirement.

If the target is to do this at age 45, know that most retirement benchmarks are based on the traditional retirement age of 60 and above and will not be effective as some vehicles (such as retirement annuities) are only accessible at age 55. Truth is, if you are looking at financial independence at 45 you will not necessarily be looking at your pension.

Here are some tips to achieving financial independence at age 45:

Certified financial advisers can help you make sound investment decisions around early retirement.

The key to achieving financial independence is to save as much money as possible in the right places with the right asset allocation. Ultimately, it’s important to focus on saving most of the money you earn and investing for a long period to benefit from compound interest.

The ability to save is strongly influenced by the lifestyle choices that one makes. Your current living expenses before financial independence must fit your future desired lifestyle at age 45. It’s important to focus on minimalism and cutting expenses.

It's important to understand that maintaining a low debt-to-income ratio is imperative for the independence to be achieved.

Individuals aspiring to reach this goal must eliminate high-interest debt such as credit cards and personal loans. Lower debt will assist to free up income for basic needs and lifestyle expenses.

It’s vital to understand that becoming debt free before age 45 will be the ultimate goal. However one must also understand that manageable debt obligations such as bond payments for rental and investment properties are an exception if debt payments are low. A debt-to-income-ratio of 20percent should be the guideline if age 45 is the plan. If you can “avoid debt like a plague”.

Tax can erode your savings, so it’s important to invest in tax efficient ways. Consider options such as tax-free investments and investments that can grow your money tax free or with minimal tax.

Get into the habit of freeing up your money. Cancel the subscription to the magazine you never read, the gym membership if you haven't been to gym since January. Consider becoming one of the many people who run/jog/cycle and who stopped watching pay TV channels to save more.

Hwalani Mabaso is the provincial generalmanager at WIMI Distribution.

PERSONAL FINANCE