By Andrew Russell
28 March 2020
The world’s eyes have been firmly on the British Royal Family since the Duke and Duchess of Sussex made the shock announcement that they would step back as “senior” members and seek to become financially independent.
Financial independence has become the focus of the debacle with questions abounding about how Harry and Meghan can possibly achieve this goal. From their Sussex Royal website, the plan for independence is reliant on continuing to receive payments from Prince Charles’ famed Duchy of Cornwall estate and security being supplied by the Metropolitan Police. There are plentiful rumours about the Sussex’s future plans, including Meghan returning to her acting career and providing the voiceover for a Disney movie.
The young Royal’s desire for financial independence has got people asking what ‘financial independence’ really is and is it achievable for ordinary, run-of-the-mill folk like us? PKF Wealth’s Andrew Russell, advises clients on exactly this.
According to Andrew, there are two aspects to achieving financial independence.
The first, and most exciting, involves giving up work while still receiving regular income. This is what most Australians are working towards when they contribute to their superannuation but, it is possible to achieve this before you’re entitled to draw on your super; if you’re smart with your money.
A portfolio of shares, bonds and property can make you financially independent when can you receive passive income that replaces your employment income. Portfolios need to be resilient in tough markets, robust through economic downturns and be able to withstand cyclical events. To achieve this, it’s essential that you diversify your investments and re-invest earnings to take advantage of compounding interest. Or, more simply, don’t put all of your eggs in one basket and don’t spend the income you earn in the early years but reinvest back into your portfolio.
Even with all going well, it would be unusual for an average income earner to be able to give up work completely just based on investments. Andrew’s best guess would be that someone who was very careful with money and penny-pinched the whole way in order to achieve this, would be in the mid-40s at the earliest before they would be able to put their feet up and live off their investments.
A more realistic view would be to invest early, giving you the ability to change your work conditions to suit your current life.
The second aspect of being financially independent is to clear yourself of non-deductible debts. In everyday terms, this means paying off your mortgage and freeing yourself of financial commitments. Whilst this isn’t as exciting as option one, having the knowledge that you’re not beholden to any particular payments can help you to enjoy your job more and allow you to plan for your future goals.
Achieving financial independence and retiring early (FIRE), is the goal of many people, not just the younger Royals. The best way to get yourself in a good financial position and achieve your financial goals is to engage a financial adviser. Research shows that those who take professional financial advice are better off than those that don’t. They take more family holidays, have greater peace of mind and have more confidence in their financial decisions.
To start your journey to financial independence, get in touch with PKF Wealth on (02) 4928 7000.