PAYBILL: 151987

5 Pillars To Achieving Financial Independence

Posted on 2017-07-11
5 Pillars To Achieving Financial Independence

For most Kenyans, the idea of becoming financially independent and retiring early is not very far- fetched. Every Kenyan would like to settle back and enjoy life’s pleasures before the mandated retirement age of 60 years. By the time most Kenyans get to their 40’s, most of us don’t want us to be working for money let alone working at all. We want to be spending more time with our families young and old, spending more time in the countryside and spending more time volunteering. If you were asked, how much money do you need for you to retire tomorrow? Is it KSh 5, 10, 100 million?

That’s why the concept of Financial Independence and Retiring Early (FIRE), which is gaining major global recognition, and many savvy Kenyans are now picking up this mantra.

What is FIRE?

Well, FIRE refers to Financial Independence and Retiring Early. It simply means that one has passive sources of income or investments that cater for all their needs that you don’t need to work to live. These sources of income may come from assets where one doesn’t have to spend any time or effort to generate any returns e.g. bank deposits, stocks and shares, bonds, rental income. At this level, one can safely withdrawal a given amount of money from their investments enough to sustain a comfortable livelihood. This is called the Safe Withdrawal Rate (SWR).

It is important to adjust for inflation and changing lifestyle patterns when considering what one’s SWR will be.

So, how do you achieve FIRE?

Decision and Commitment

First and foremost, it involves internalizing and understanding the concept of FIRE before embarking on anything else. Understanding that there are sacrifices and some hard decisions coupled up with a lot of discipline to achieve your goal. One has to set their eyes on the life they want to live and work single-mindedly towards it, paying less attention to the simple distractions and pleasures of today. It also involves setting up timelines and tracking the progress to see if any impact is being made. FIRE is about comprehending the life you want in the future and then reorganizing your entire present lifestyle to achieve those goals. This is a life changing decision that has to be adopted in every part of one’s life from finances, friendships, family, work and other stakeholders. Choosing a spouse is something that has to be considered very carefully, the right spouse could help you reach your goals faster while a wrong choice could wreck your finances and leave you toiling in the workforce way past your retirement age.

Planning and Tracking

The second step after understanding the concept is taking charge of your finances and well living below your means with the future pretty clear ahead. This is perhaps the most difficult part of the FIRE journey especially in our Kenyan society. How do you drive a Toyota when your office colleague is buying a Range Rover and Mercedes Benz for his/her spouse. One is forced to attend all manner of expensive restaurants, consume copious amounts of alcohol every weekend and squander any little savings in the process. It is easy to fall into these simple vanity traps and lifestyle inflation but once your resolve is set, you can set your eyes ahead and go far. It is important to actually sit down and track all the monthly expenses to a dot to give you a clear picture of where your hard earned income is going to. You might be surprised when it dawns on you that over a half of your income is being spent on alcohol, dining out, impulse purchases and more. You can do that on an excel spreadsheet or subscribing to an app that tracks all your finances for you. You can check out YouTube to get some tutorials which will improve your excel sheets. New apps in the market like LOOP by CBA bank is something that most Kenyans can use to easily and conveniently keep track of their personal finances. Understanding your monthly cash outflow will give you a very visual picture of how you can cut down on all the bloatware in your life and drive to financial freedom a lot faster.

Multiply Your Incomes

Increasing your sources of income will also go a long way in establishing your financial independence and retiring early. Warren Buffet, one of the richest people in the world urges not rely on one single source of income but to diversify mostly because it reduces the risk but also brings forth more money. And for a young person in their 20’s or early 30’s, juggling up to 3 jobs is pretty much possible so instead of spending the whole weekend watching football and lounging on the couch, take the opportunity to hone your skills and make them sellable. While most of our families in the African culture emphasize on the saving culture, it alone is not the silver bullet, one has to increase their present earning potential, this coupled with the strict financial tracking and planning.

Secure Yourself and Your Assets

While on this journey to FIRE, it is equally important to not only to focus on the best-case scenario but also consider that sometimes life throws you back a step or two. An illness may leave you in great financial distress and not just physical when you are suddenly bedridden, medical insurance cover is perhaps the most important, covering your health against life’s uncertainties. Asset insurance is yet another important type of insurance in the FIRE journey, car insurance, home insurance are yet more covers that will give you peace of mind and give you indemnity in the unfortunate event of partial or total loss.

Double Your Money

Once you have got a handle on your monthly income and expenses, started growing your incomes and secured your assets, the next step is growing your investment portfolio. Now here you need to employ smart financial skills in order to succeed. The focus should be tax light investments and secure ones which will propel you to your goal even faster. Your portfolion should be set up like a football team namely the defence, midfield and attacking sections.

Defence: are your life insurance products like the education savings plans, life insurance plan, critical illness cover, personal accident insurance covers. These types of covers pay out in the case of eventuality, partial or total disability and death.

Midfield: Here comprises of the investments that can generate stable incomes with very little or no risk, these are the bank accounts, fixed deposits, bonds and the likes.

Attack: Here are the high risk investments like shares trading, businesses, land and real estate. These are investments where one can earn very good returns on their money pushing them faster on the journey to retirement.

Much as these five principals might look very easy and achievable, in practice they require a lot of sacrifices and dedication. A complete change of your lifestyle and perhaps friendship circle, financial discipline and strong resolve. Like any journey, one a step at a time can do it, the fruits to reap far outweigh the simple everyday pleasures.

Image :

Back to all posts

Popular Posts

Email Subscription

Get In Touch
1st Floor, Rhapta Heights,
Rhapta Road
Nairobi, Kenya

Our Partners



IRA Registration