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Tuesday, May 24, 2022

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Financial freedom: You can get there if you try



Published Aug 2, 2021


Rands and Sense

By Nirdev Desai

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A wise person once said, “Take care of your pennies and the dollars will take care of themselves”. However, saving and investing seems increasingly difficult in the current post-pandemic environment. Recently it was announced that the chief executive of Amazon, Jeff Bezos, will retire with a fortune of US$197 billion, some 740 000 times the median American’s retirement wealth.

Unlike Bezos, who recently achieved his lifelong ambition of travelling to space, many cannot afford to follow their dreams during their golden years.

This extraordinary retirement venture prompts an important question – how does a “normal” person go about achieving real wealth, and are the only alternatives either to inherit wealth or to become a business mogul? For many of us, neither of those are realistic options.

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Many would argue that becoming a dollar millionaire provides a good measure of being truly financially well-off, and this may seem like a steep target. According to the World Wealth Report, only 1 in 380 people reach this position. However, what is really interesting is how these people became millionaires. Here the evidence often runs contrary to what we would expect.

Many people don’t realise that most dollar millionaires are not of the likes of Bezos, Musk and other successful entrepreneurs. Nor have they earned their place on the list through an inheritance. Almost nine-tenths (88%) of dollar millionaires are self-made, and are, on average, 61 years old, according to the US investment firm Fidelity Investments.

Author Thomas Corley has argued that much of the success of self-made millionaires is due to what he called “rich habits”, providing important evidence that being wealthy is also a behavioural choice. Corley’s research shows millionaires can be evenly split into two groups:

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[blob] Saver-investors, who he describes as a typical employee who diligently saves (typically around 20% of gross income) over their whole working career, and investing these savings for the long term.

[blob] Dreamer entrepreneurs, who build wealth through taking on substantial risk themselves, and the majority of them have failed at least once.

What seems clear, however, is that building wealth is not only a matter of means, but also a matter of mindset. Healthy saving habits are key to achieving success. For the average person, this only happens after four decades of a career, and many who get there don’t wish to retire. Rather than call it “retirement”, they call it “financial freedom”. However, what seems clear is that building wealth is not an overnight, nor accidental journey, nor just a matter of luck.

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Savings Month provides an important reminder that accumulating real wealth starts with a conscious decision to change our approach to our finances. Saving with purpose should be the starting point for anyone wanting to change their financial outcomes, and ultimately achieve financial freedom. Engaging with a trusted financial planner can help you clarify your goals and put a plan in place to help you get there. Most importantly, it’s time we realise successful saving and investing is a multi-decade journey that starts by making daily choices.

Nirdev Desai is the Head of Sales at PSG Wealth


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