A year into financial freedom
By Lizelle Steyn
7 December 2023
It's nearly a year since I quit my job and left behind 29 years in Financial Services at age 50. I wasn't quite financially free at the time - that only happened a few months later with a sudden run in the stock market. But one knows when it's the end of the line in a job. Too many parts of me were dying and stepping out was the only way to save some of them. It took nearly 20 years to save up 25 times my annual basic expenses, which is how much you need for financial freedom if you use the 4% rule. In June 2019, when I started this blog, I was only about half-way on my journey to financial freedom – having enough in investments to keep a roof over my head and food on the table for life. Once you're over the half-way mark, compound interest does most of the work of taking you over the finishing line. I just had to keep the momentum of maxing out my contribution to my TFSA and retirement fund every year, and guard against lifestyle creep and ballooning expenses - or else financial freedom would have become an ever moving goalpost.
You can control neither the markets and how your investments perform, nor the amount of years it will take to reach financial freedom. The only thing you can control is your expenses. Keeping expenses low helps in 3 ways: 1) it means more money left to invest in the years that you're working towards financial freedom; 2) a lower and more easily achievable financial freedom target (25 x annual expenses); and 3) a lower tax bracket once you've reached financial freedom. Expenses are therefore the most important part of my annual financial review and the figures I look at first.
My top 12 expenses in 2023 (average per month)
- Food and groceries: +/- R3 000
- Medical: +/- R2 600
- Home, art & garden stuff: +/- R2 000
- Municipal account: +/- R1 400
- Petrol & car: +/- R1 250
- Weekends away: +/- R1 000
- Ex-cleaner's pension: R900
- Short-term insurance: R820
- Critical illness insurance: R794
- Hair & beauty: +/- R790
- Connectivity & cloud storage: R780
- Energy (electricity, wood & gas): +/- R750
Does my spending reflect my values?
Every year I look at this list and ask myself if it reflects what's important to me right now? Health has always been something I value dearly and my combined medical aid and critical illness figure is often my biggest spending category for the year. In 2022 I spent a lot on the home and garden front. That's gone down slightly in 2023, but I needed more planters and pots to grow more food, which helped to bring down my grocery bill this year. I've taken up teaching dance classes again, but dancing barefoot on tiles quickly started affecting the knees, so another seagrass carpet had to be made. Also, I've had enough of staring at the bare walls of my living space and have started buying art materials again to paint/draw what I'd like to see on the walls, and also had some drawings from my 20s framed. Creativity and beauty became more important to me this year, and I notice that's starting to show in how I spend my money too.
The Weekends away item doesn't accurately reflect the 9 trips made in 2023. If it wasn't for my mom who decided to use all her accumulated timeshare points this figure would have been at least double the R1000 p/m shown here. Since my dad's passing in 2021, family time has become even more important to me, and this budget item will probably increase next year. My partner and I are also looking at a trip across our borders in 2024; it's been a while.
An item I can really afford to spend more on next year is workshops and continuous learning. This year I was lucky to pick up a stack of second hand books related to dance and movement classes, but next year I'd like to order some expensive new books to upskill to become the best conscious dance teacher I can. Upskilling is always something worthwhile to spend your money on, if you have a space where you can apply it. I've also started organising workshops in dance and movement forms I'd like to learn more of. I don't charge anything for organising and marketing these, but in return I don't pay the attendance fee to the visiting teacher. It's a fun way to save on continuous learning, if you have the time to coordinate these events on behalf of another teacher.
Financial freedom is precarious
During 2023, my portfolio moved beyond 100% of my financial freedom target in the first quarter, down to 96% of target in October, and then back again to just over 100% of my target amount. I added the maximum annual amount allowed into my TFSA in March by cashing in normal taxable money market funds and recently added a few thousand rand to my RA (tax-deductible contribution), just to bring down my tax due on interest earned for the year. The portfolio dip was a handy reminder of how precarious financial freedom is. It's less like building a house and more like having filled a dam, which will remain exposed to market fluctuations (evaporation) and market or even systemic collapses (dam wall damage). Because I'm drawing down from my portfolio, I make sure I have at least a year's supply of expenses in the money market - not subject to the whims of the stock market.
How did my funds perform?
My offshore unit trusts performed best - 15% for the year. And this part of my portfolio is also the best long-term performer - 10.1% per year since I opened the investment account. The worst performer for 2023 was my Euro share trading account, which is down more than 30%. My overall portfolio has been giving about 9% per year on average since I started out - not exactly enviable, and proof that one doesn't have to be particularly good at picking unit trusts or ETFs to reach financial freedom. Two general equity unit trusts or ETFs made up of a wide range of global and local stocks respectively are good enough for most people. As long as my portfolio keeps on earning 4% more than inflation on average in the future, I'm happy.
Portfolio changes needed in 2024
In terms of geography, I currently have 52% of my portfolio exposed to offshore markets and 48% to the SA market and I'm OK with that. Considering that at least half of my expenses will be in rand and not subject to exchange rate fluctuations (also considering all the imported items I spend money on), I don't see the need to increase my offshore component and expose myself to more rand volatility unnecessarily.
In terms of asset classes, about 72% of my portfolio sits in equity and property, the higher-volatility classes. That suits my medium risk appetite, although one could argue that I'm still young and can afford to have more in equity (the stock market). That will naturally happen as I slowly deplete the money market component of my portfolio over the next couple of years, effectively increasing my equity exposure %. At the moment I like the safety net of a large money market portion. At least I'm using the high interest rates offered by Tyme Bank (11% on 1-year fixed deposits) for a portion of my cash. Should there be a bona fide market crash next year (not a mere 5% dip), I'll use the opportunity to swap some lower-earning cash on 48h notice for more equity.
Financially free or not, find the work you were born to do
Money is only one component of financial freedom planning. Meaning is just as important. We can find meaning in our relationships, in volunteering and mentoring, in growing our own food, in renovating a home, transforming a landscape, healing and conserving a piece of land, to name but a few. I get an allergic reaction every time someone who doesn't know me well calls me "retired". In my mind, this is the true start of my second-half career. I facilitated dance classes in my early 40s but didn't have enough financial reserves then to carry me through the first years of earning very little money in a new pursuit. In my case, another nine years of salaried corporate employment was needed, and now I have everything I need to do the work I was born to do. At my own pace. A year into financial freedom, life is spacious, mindful and meaningful.