FIRE in South Africa

Last updated on 4 March 2022

If you’re following any personal finance blogs and accounts, you’ve probably heard of the FIRE movement. That is, Financially Independent, Retire Early. You have probably wondered whether it’s really possible to FIRE in South Africa as the bulk of the content is US based and clearly in a different economy and financial status. So, let’s look at this.

What exactly is FIRE?

FIRE is simply an acronym for Financially Independent, Retire Early. What exactly it means though is a little different for everyone.

For some, the idea of FIRE is to have loads of money and to simply stop working at the age of say 35, and travel the world. That certainly does sound appealing.

For others though, FIRE rather means having sufficient money and income streams so that you could retire early; if you wanted to. With other words, some people focus more on the FI-part rather than the RE.

And of course, there’s the meaning one applies to “financial independence”; and the word “early” when it comes to retirement. Is retiring at age 55 considered early enough? LOL. And how much does one need to really say that you’re independent and free? And what kind of lifestyle are you dreaming of?

Common definition of FIRE

Regular FIRE – Enough to live comfortably without needing to ever work again.

Lean FIRE – Enough to retire, but living on a low budget with a frugal lifestyle.

Fat FIRE – Retire with loads of money – more than enough. Live a fantastic life!

Barista FIRE – Leave the corporate world and have enough so you only have to work a little bit, or have a low paying and easy job. No stress really.

Coast FIRE – Have enough invested early on that you don’t need to invest further, rather just let compounding do its magic until you decide to actually retire.

What is FIRE for me, here in South Africa?

I am aiming to Financial Independence Retire Early in South Africa, but what does this mean to me?

My aim is to be in a position where I know that all my needs are met. I would like to stop working at my current job and blog / side-hustle more. I certainly don’t want to stop working altogether, but I absolutely don’t want to be tied down to set hours and work that is not inspiring. That means that I need to have enough to stop relying on my salary, but I will continue working or hustling; depending how I feel.

To explain a little more. I don’t need to retire in luxury. As it is, I own a fully paid-for house and car, and I have no debt at all. I am very happy with my little house and standard of living, and don’t need to increase anything. I simply need to maintain what I have, and include a few bigger expense items such as overseas travel, a new car every 10 – 15 years, and home maintenance and improvements.

So I want to be comfortable, financially stress-free, and enjoy life. I don’t need luxury, but I do want some nice things.

Take a listen to the “What is FIRE?” podcast episode

So how much do I need to FIRE?

There are 3 elements to the equation; all linked and dependent on each other:

• Expenses
• Investments
• Stable, reliable, mostly-passive income

It’s easy to think that the more expenses you have, the harder it is to retire early. Although if you have huge investments, then they can cover the expenses. And of course, monthly income to cover expenses is almost even better. So, we need to look at all three areas.

1 – Expenses

First off, how much do you need to spend each month? I have a monthly budget which I use and track each month, so I know that it’s accurate. If I take this amount and multiply it by 12, I get my annual expenses.

An example: Monthly Expenses of R15k pm equates to R180,000 per year.

Incidentally, my monthly budget already caters for less frequent categories such as car services, weekends away, doctors visits. And I have an emergency fund, so my cash flow is pretty stable.

Now, let’s say I want to travel overseas every 3 years, and that such a trip will cost R40,000. (This is just a guess right now). That would mean that I’d need to save R13,500 per year for travel (I rounded the figure up).

What about a new R350k car every 10 years? Well, that adds another R35k per year.

So all in all, my example annual expense (and savings for future expenses) comes to R228,500.

And yes, I know what inflation is, we’ll get to that next. But looking at the above it seems obvious that the lower your expenses are, the more achievable financial independence becomes. Even if you choose not to retire or leave your job, lowering expenses can make financial freedom a reality a lot sooner than you imagine.

2 – Investments needed for FIRE

Now for the fun part, let’s see what kind of investments are needed should you wish to retire; at any age. This is almost equally applicable if you’re 30 or if you’re 65. The tricky thing of course is that we have no clue of what the future will bring, nor when our time will be up. But, statistically speaking, we’re living longer and your retirement funds need to last you many more years than that of our grandparents generation.

The Rule of 25

You may have heard of the Rule of 25. What this “rule” states (and I use that term loosely), is that you need a lumpsum investment of your ANNUAL EXPENSES x 25 in order to retire. (This is the same as taking MONTHLY EXPENSES x 300 – you may have seen that before?)

So for our example that would be a lumpsum of R5,7 million. That is a lot of money!

How does this “rule” work?

Is it feasible in South Africa?

Let’s explore.

The Rule of 25 works with 3 main assumptions; an annual withdrawal of 4% of your investments, annual inflation at the same 4%, and an annual growth of 7%. This is not science and definitely not an exact rule. Some people suggest that one should really multiply ones annual expenses by 30 due to the current economic outlook. But I’ve included a little spreadsheet which you can download and play around with.

Assuming you have an investment of R 5,712,000 and you withdraw 4%, that would equal R228,500 (your annual expenses). And now if inflation is 4% per year and your investments grow at 7%, you will never run out of money.

If we play devils advocate and assume a 6% inflation and 6% growth, your money will run out after 25 years. That’s fairly long, but probably not long enough. So, don’t completely rely on this. Rather use it as a guide.

Also note that the lower your expenses are, the less lumpsum investment you need. And of course, if you win the lotto and have a huge amount of investments, then you can retire sooner and spend more.

3 – Stable, reliable, mostly-passive income

And now, for the deal clencher. If you want to FIRE in South Africa, you probably need some sort of passive income, I call it stable, reliable, and mostly passive as you can only count on money that you reliably receive every year. This is not some affiliate link where you earn a commission once in a blue moon (but affiliate marketing can be really good!). Rather, this is some sort of stable income stream. I also call it semi-passive as it’s really hard to create truly passive income where you literally do nothing. There’s always some amount of work or admin needed in order to maintain the income.

There are many ways to create a side-hsutle and an income stream, but it is not as easy as people make it out to be. You can buy a book for $25 ebook that promises to show you how to make $1,000’s per week or month. And yes, people are earning that, but it is not easy and not that viable in South Africa. Well, not in just a few months.

Also, being an influencer is great for those who make it, but don’t quit your studies to become the next TikTok millionaire. Rather study whilst building your following, and then see where it takes you. Many people get lucky, some work hard and make it, and others work immensely hard and never make it. There’s more to the picture than what we see.

However, back to a stable, reliable, mostly-passive income.

Let’s say I rent out my spare room for R3,500 per month. I can do that and it would be stable, reliable and mostly passive. That would be R42,000 per year.

So taking my original example of R228,500 annual expenses, I can subtract my passive income of R42,000, which leaves me with R186,500.

This multiplied by 25 is R4,6 million – a whole million less than what I originally calculated. And, it is more achievable now.

So, by growing your stable, reliable income stream, you reduce the amount of investments required. In fact, if you had sufficient passive income to cover your expenses, you could retire with little to no lumpsum investments.

What’s the catch with the FIRE calculations?

There must be a catch! There’s always a catch. LOL

Well, there is a catch with FIRE calculations. Thing is, life changes! Your circumstances forever change. Your family life changes, your expenses change, your investments hopefully grow (but maybe not), your side hustle income changes, and that stable passive income you thought you had? Well, that can also disappear.

The catch is that you can’t rely on last years calculations.

Do you FIRE calculations regularly

Planning to become financially independent is an ongoing process, and planning to retire early needs to be done with considerable thought. In my own calculations I can see that I can retire within the next 3 years, But, I probably won’t.

Firstly, I don’t know what will happen to my income next year. I don’t expect anything bad to happen but I just don’t know. Also, the money I make from my side hustle (this blog), should hopefully increase, but what if it doesn’t?

And secondly, even though I am planning for FIRE in South Africa using the Rule of 25; I need an extra buffer. I don’t want to get caught out 10 years from now with skyrocketing inflation and poor performing investments. Imagine trying to find a job after 10 years of not working?

So really, do your calculations regularly. Chat to an independent financial planner about your calculations, dreams, and ideas. Be realistic and don’t be afraid to change your plan when circumstances change.

Here’s a good post I wrote about planning for retirement in uncertain times. It’s all about having a plan, knowing the outcome, understanding that things change, reassessing often, and making adjustments along the way.

FIRE in South Africa is possible

FIRE in South Africa is definitely possible, but it’s not as easy as some folk make it out to be. It really helps if you’re in a high-earning job and are able to cut expenses such that you can invest 50% or more of your salary. And of course, you need to have a side-hustle and really be working on creating income streams.

I personally place more emphasis on creating income streams than I do on buying stuff. I want to create a system that makes money for me.

I’m on my way to FIRE in South Africa. As a mid-40 year old though, I am very realistic about what I need and what the financial consequences are. Also, I will probably retire at 50 which isn’t that young. It will be awesome though if I can swop my cooperate job for that of a blogger.

I have so many creative ideas which I just don’t have time to do right now.

Are you joining the FIRE movement South Africa?

Retirement is having the time to work on what matters to me!

Said me – lol