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2 Feb 2015


Today's reader email is from another youngster who is towards reaching financial independence really fast. If you are as wise as this young professional, you may soon be having money work for you.
Hi there

I have recently sold my car to replace it with something cheaper, I freed myself from debt (Retail accounts, and credit card) with R75,000 to spare.

Aged 26 I would like to invest this money in hopes to buy my first property at 30 with a massive lump sum.

I am thinking of putting it in some type of fund where I can add about R2,000 a month to it. I would like to have the money available to me within 3 to 4 years time, and often I come across 5 year type of funds only. What would you suggest if the best route to take with this?
Well done on choosing to live your life in your terms K. I wish more young people were half as wise. As this email is very similar to the one I published two posts ago, I will only point our reader to it at: Diversifying a Portfolio. I may also recommend: Building Wealth from your First Job. Now onto the interesting stuff that may also help this reader and others on having money work for them.

Having Money Work for you
My friend asked a question along the "money working hard for someone" lines today. As expected I was too excited to engage in the debate and because I am a bit of a nut case, I am still as excited to repeat myself here now. The fact is that, you will never be able to work harder than money is capable of. I learnt this awesome truth over the years. You are just one person with limitations. Your money on the other hand can multiply itself forever. So why do what your money can do for you? Look at the examples below.

Compound Interest
A simple example of a baker who bakes cookies to sell them to various office workers. As a baker, you are only capable of baking a finite number of cookies and make a finite amount of profit per day, because you only have 24 hours minus 8 sleeping hours, 1 bath hour, 1 stock buying hour, 1 social networking hour, 2 other chores hours, etc. Do you realise just how limited your time is? Anyway you do bake cookies and make your nice profit daily. From that profit you decide to put R2,000 aside every month in an interest bearing account like a bank money market account or savings bonds if it were possible. For the purpose of this example, lets put the interest rate at 8.5% per annum. You save this amount of money for 10 years.

Monthly savings - R2,000
Interest Rate - 8.5%
Term - 10 years
Total amount saved - R240,000
Interest earned - R138,942
Total - R378,942

As you were busy sleeping, buying stock, baking cookies, driving around to deliver and doing a lot of lousy stuff in between, the monthly R2,000 that you worked for was busy working hard for you. It made R138,942 in interest for you. That is just one way of having money work for you. 

Growth from High Performing Exchange Traded Funds (ETFs)
Another similar example is that of high performing ETFs. I will push it to the one that yields 25% per year. By the way that is not the best one can achieve with ETFs. My son is with the one that yields close to 40% every year since he started.

Monthly investment - R2,000
Interest Rate - 25%
Term - 10 years
Total amount invested - R240,000
Growth - R825,609
Total - R1,065,609

How is this for money working for someone? Your R2,000 per month could only be summed to R240,000 in 10 years. But because it was hard at work every second of the day, it single handedly produced an extra R825,609. That turned you into a Millionaire. Don't you just love how amazing this can turn out to be?

(Almost) Passive Income
Now we look at one having a lump sum to invest in stocks that bear high dividends. One can get thousands of rands in dividends monthly over a medium term period of investing. This is of course after one has selected good quality and high dividend stocks.

Another example is that of a rental property. I like it when an investor buys a bargain property in a high rental demand area and puts it on the market. If you bought right, price wise, you may be killing it in the net rental income. That is what I mean by having money work hard for you.

Not passive at all, is flipping a property. It is a lot of short term work. We actually bought a property in an active property market area 6 months ago. We did clean the property up for about 2 months part time. We are now getting interest from buyers at more than 50% in profit. If we were to push it a bit, even close to 100% in profits is possible. That is another way of making your money work for you. And if you used the homeloan to buy, you may even be making someone else's money work for you.

Reaching Financial Independence
Remember how you start your working life, working harder and harder for your money. You may, if you are fortunate, start investing your earnings early in your life. You may also start a side hustle just because you can. Your investments may be earning you some passive income like dividends. Your passive income may at some point catch up with your salary... it actually does at some point.

At that point you realise that you do not even need to be working for your money because your money is now working for you. That is a definition of financial independence or like some refer to it, financial freedom. It is a stage where you never need to work for money ever again in your life. You may still hold a job because you love to. But whether you do have a job or not, money pours into your account. You may take a year traveling the world or volunteering in the local orphanage, and your passive income will sustain you.

Everyone should be working towards reaching financial independence. Who wants to need to work forever?


  1. Interesting,i wish I could no the fund that is used by your son so that I can diversify my portfolio

  2. Interesting,i wish I could no the fund that is used by your son so that I can diversify my portfolio