Financial Freedom Isn't Luck

Make 2025 the turning point for your finances

This holiday I met up with a special friend who went to school with me. Something struck me as we caught up and talked about our parents approaching retirement. My father (sole breadwinner), was always obsessed with saving and budgeting. He didn’t make the smartest investments in his 30s but never splurged. He was a GP (medical doctor) and put most of his money into hospital shares and hospital buildings - arguably overexposed to a single industry and country. We never lived in a fancy neighbourhood and we didn’t travel abroad on holidays. Interestingly, my father also never owned any branded clothes (more on that later).

My friend’s family, by contrast, seemed to have it all when we were growing up. They had a stunning, brand-new house in one of Bloemfontein’s most expensive neighborhoods and took trips abroad. I remember often feeling “poor” by comparison. Now, 20 years later, I’ve realized how different the outcomes of our parents’ financial choices have been.

My friend’s dad, a lawyer, also earned well but didn’t invest much. He banked on his office building for retirement, but its value hasn’t kept up with inflation, and now he’s struggling to sell it. He wouldn’t be able to sustain his retirement for long on these proceeds. At 65, he can’t afford to retire.

Meanwhile, my dad’s frugal living and later decision to retrain as a radiologist—a move that increased his earnings dramatically—has completely changed his financial future. He can stop working whenever he wants, buy a beach house, or a farm (don’t ask), or visit me in Switzerland without worrying about the cost.

Seeing these two paths has been a big eye-opener. It’s a reminder of how much long-term financial decisions shape our futures in ways we don’t foresee. And how decisions (like buying a house outside your means) or your family’s spending habits compound significantly over time. I think about it a lot now, not just for my parents, but for myself too.

If you take one thing from this blog: The money choices you make and habits you instill in your family in your younger years are so important. Don’t wait until you’re older or richer before you start thinking about retirement. Not living lavishly or outside of your means could very well mean affording a decent retirement. But you’re not going to save your way to retirement. You need to invest, and that’s why you’re here.

Get the fundamentals right

I’ve written about the three wealth pillars before and you can use this as guidance for getting the fundamentals of your finances ready for 2025:

Here are a few things you can start doing to get each of these pillars stronger in 2025:

• Compounding:

  • This comes with time and consistency. The best you can do here is start investing as early as possible. Read this blog to understand the biggest driver of wealth creation.

• Behaviour:

  • Develop the discipline to invest consistently. Make this a debit order that gets invested monthly before you get tempted to use the money.

  • Don’t be afraid of stock market volatility. Yes, of course, you should understand the risks - but don’t stop contributing, or worse, withdraw your money, when the stock market is down.

• Knowledge:

  • Invest in low-cost diversified ETFs, it’s the best way to invest because (1) very few funds beat the market in the long term, and (2) fees will eat into your compounding potential—read this blog to understand why, and how you can save on fees.

  • Get international diversification! The US makes up almost 50% of the global stock market value, so if you’re not at least 50% exposed to US companies - are you truly diversified?

Is the market too high right now?

I always get this question, regardless of where the market is. Valuations are very high at the moment and Warren Buffet is holding a lot of cash which many people are using to motivate their fear of investing.

At the start of 2024, one of my investment banker friends in Zurich told me he was waiting for the market to drop before he invested. What has happened since? The S&P 500 has returned 24%. Compare that to what the banks predicted at the start of 2024:

• JP Morgan: -8%

• Morgan Stanley: -4%

• Barclays: +1%

• Goldman Sachs: +7%

They have full-time analysts working on models and research, and they get it wrong. The point being: no-one knows what’s going to happen. Make regular monthly contributions regardless of market conditions and focus on what you can control: your savings and spending rate.

Your budget should empower you

I have never met someone who loves a budget. I only started “loving” my budget when I saw how much it allowed me to invest. I became obsessed with meeting my investment goals set in my budget. During my corporate job, I invested 20% of my salary. Some months I didn’t spend all my “non-essential allocation” and then I would invest extra money. I got so much satisfaction from it. And no, I didn’t religiously track every expense. Here’s what I did:

I used the 50/30/20 rule

• 50% of salary on needs (housing, transport, food, electricity, schooling, health insurance etc)

• 20% invest (or pay off debt / build an emergency fund - see priorities of cashflows below)

  • This could also be investing in yourself - take my free mini-course if you have not yet

  • Make your investments debit orders which are paid into your investment account as soon as your salary comes in

• 30% wants (what’s leftover after needs and investing is covered - like clothes, entertainment, travel)

As soon as I received my salary I would put money into my investment account and soon after the other debit orders would go off my account: like rent, and health insurance. Then I knew what was left in my account was what I had left to spend the rest of the month. Luxury spending would only happen towards the end of a month once I knew all my expenses had been covered for the month and I had allocation left for “wants”.

Priorities of cashflow

1. Pay off high-cost debt first. Like as student loans, credit cards, and personal loans. It does not make sense to invest if the interest rate on your loan is costing you more than the return you can get on your investment.

   If you’re in high-cost debt you should consider cutting out all luxuries to pay it off. No more restaurants, clothes, or travel until it’s paid off.

2. Set up an emergency fund (3-6 months of living costs in a notice deposit account. Up to 12 months if you’re self-employed.)

3. Invest in a tax-smart way. Depending on where you are a tax resident there are different options, typically with annual limits*:

   1. Roth IRA (USA) - *$7’000

   2. Lifetime ISA (UK) *£4’000 and Stocks & Shares ISA (UK) *£20’000

   3. Pillar 3a pension (Switzerland) *CHF 7,056

   4. Tax-Free Savings Account (RSA) *R36’000

   5. Look into your country's tax-smart options!

4. Invest outside tax-smart accounts.

Don’t confuse tax-smart investing with retirement/pension funds

Governments often encourage people to invest in pension or retirement accounts by offering tax advantages, such as deductions from taxable income for contributions made. However, these accounts typically come with conditions. For example, you’re required to invest in retirement or pension funds that adhere to specific regulations. These regulations often mandate two key restrictions:

1. A minimum level of local investment exposure (e.g., Regulation 28 in South Africa limits foreign equity exposure to 45%).

2. Limits on equity exposure (e.g., pension funds in Switzerland can only allocate 50% of their assets to equities).

What’s the impact of these restrictions? In the long term, they can lead to lower returns compared to more flexible investment options that allow for global equity exposure. While the tax benefits can be appealing, they often don’t outweigh the opportunity cost of missing out on higher growth over time. I’ve analyzed this trade-off in detail for Swiss pension assets in this video. Calculations for South Africa coming soon.

I am also generally not a fan of these pension or retirement funds, especially for young professionals, because they don’t take enough equity risk. They invest your money along with people much closer to retirement which means they cannot take too much risk in the fund which is not in your best interest (this is especially the case in Switzerland where you often don’t have any choice in the underlying investments and exposure).

Invest in yourself

I also reflect on what really increased my father’s net worth twenty-fold and will allow him to retire very comfortably: the fact that he decided to go back to university and retrain as a radiologist at the age of 45. He gave up a high-paying GP job, worked for the government for five years, and survived off savings with four kids in school and my mom not working. He invested in himself, and financially he took 2 steps back to make a massive leap forward. The day my father qualified as a radiologist, we went to Country Road (a “high-end” clothing brand in South Africa) and bought him his first set of “nice clothes” - because now he needed the clothes to match his new title. A memory that will forever be etched in my mind.

This might be something you need to consider: how you can increase your earning potential. Is it time to upskill yourself (like pursuing an MBA or doing an online course on AI), start networking to land a different role, or even launch a business? Investing in yourself might mean your investment portfolio won’t be growing (or it might even be shrinking if you need the cash) but you’re doing it to make leaps in the future or to increase your job satisfaction.

Quick-fire tips to increase your wealth in 2025

• Ask for an increase. Your employer’s pension contribution and your bonus are based off on your base salary. It impacts your wealth more than you realize.

• Watch out for lifestyle inflation. A higher salary should not always mean a new car, or upgrading your house. If you’re behind on investing - catch up first before upgrading your lifestyle

• Check on your investment fees! Move to lower-cost providers and funds. In most cases it would make sense to exit your investments, pay capital gains tax, and invest elsewhere because of the fees you’re paying unnecessarily. A 1% fee could mean 25% less value on your investments in 40 years.

• Max out employer pension if you have the option - a no-brainer, free money from your employer even if it means you need to match their contribution.

• Stop holding on to old assets that are not good investments. Do the proper analysis of your property investments. If it has not held up to MSCI All World Index 20 yr returns (~13% annually in ZAR, ~7% in USD) - Sell it. Many people suffer the sunk cost fallacy of “I have already spent so much money on it - I need to recover it”. You will be better off taking that money and investing elsewhere - likely a global ETF and have less hassle too.

Want to learn more?

• Sign up for my free mini-course and receive 5 daily emails with investing lessons

• If you’re a Swiss resident, do my course on tax-smart investing in Switzerland

• Watch my YouTube video on getting your finances ready for 2025:

Disclaimer: None of my content is personal financial or tax advice, it is for educational purposes only. Always do your own research or speak to an adviser before making any investment decisions.