Q&A: So You Want to Retire Early? 5 Things You Need to Start Doing TODAY!

Question: Most people dream of retiring early and living a life where you are not dependent on anyone financially. You are in a position of complete self-sufficiency. You do not rely on a boss/master/institution to pay you a monthly check. It also means that you do not need to work. You could spend the next year, five years, ten years, or twenty years fishing, playing golf, surfing, hiking through the Himalayas, or traveling around the world on a motorcycle – and you would have a sufficient flow of passive income to fund your activities. Is it possible to turn this dream into a reality, and if so, what do you need to start doing today?

Answer: There are lots of great points in that question. Let us unpack them. Firstly, let's talk about retiring early. It may be hard to believe, but there are plenty of people that love their jobs. Also, there are lots of people that love working and for them, a rapid withdrawal from the workforce is scary because they do not know what they will do with their spare time. Working is not necessarily a bad thing, provided that it is fulfilling and meaningful. Too much free time can be a death sentence and a gateway to depression and anxiety. In my opinion, active retirement is the goal. This active retirement will look different to different people. It may encompass some work – either for remuneration or philanthropic – but I would never advocate a retirement exclusively dedicated to leisure. Human beings are designed to be active. Secondly, it is possible to retire early – and by early I mean before the age of 50 (taking into account that the normal retirement age is 60 and the average life expectancy is 62 for males and 68 for females).

Question: Before you kick off with the 5 points, can you give us some idea as to how it typically takes someone to get to the point where he can retire starting from zero? Answer: I am not a huge fan of the word “retirement” because it is associated with old people in retirement homes. I prefer to talk about financial freedom. This is the life you perfectly described in your introductory question. The journey to financial freedom is long and hard. It is fraught with danger and temptation at every turn. It is a marathon, but not a normal marathon. The route is not well signposted, the road is not well paved and the course is not flat. The odyssey requires determination, discipline, and stamina.

In terms of time frame, I work for 25 years for people with no investment savings. These are people with a net asset value of zero. The sum of the things they own is equal to the sum of things they own.

Question: so you need to start off by calculating your net worth. How do you go about doing that?

Answer: It is a relatively simple calculation made up of two steps. You start off with your assets. You need to include anything you own which has a positive monetary value. When it comes to placing a value on your assets, you need to be conservative. You also need to differentiate between the market price of an asset and the sentimental value you might attach to that asset. You will need to be mega realistic and even more conservative on your asset valuations:

· Cash and money in the bank

· Your home’s current resale value

· Investments – mutual funds, college savings accounts, shares, retirement fund

· The current market resale value of your car

· The re-sale value of personal property - jewelry, household items

Then we move over to your liabilities. These are all your financial obligations, loans, or debt which must be paid. Liabilities tend to be easier to value because they tend to be defined in monetary terms:

· Your outstanding mortgage balance

· Personal loans

· Car loans

· Credit card balances you still need to pay off

· Student loans

We are now in a position to calculate your net worth. It is the difference between your assets and your liabilities. You need to total up your assets and total up your liabilities. If your assets are greater than your liabilities, you have a positive net asset value. If your liabilities exceed your assets, you have a negative net worth.

Question: So you are saying that for someone that someone with absolutely no savings can become financially free in 25 years?

Answer: That 25 year period is the maximum period and worst-case scenario. You can get there far quicker. It all depends on how you play the following five variables. You will recall that to be financially free, you need to start doing five things today. Let's kick off with thing 1. You need to understand your financial DNA. The test is simple – are you a spender or a saver? Financial freedom is a process, an evolution. It requires you to become an investor. If you are a spender, you first need to become a saver. That is the biggest jump. Once you have become a saver, the transition to an investor is a small step.

Question: What factors determine whether you are a spender or a saver? I presume your parents and society had an important role? Answer: Absolutely. Your upbringing is crucial in determining your relationship with money. If your parents were reckless with money and spent it before it came in, and then had to scrape through the rest of the month, you too will probably adopt similar habits. Millennials, the generation that is widely accepted as having been born between 1981 and 1996, tend to be spenders. Their parents are the baby boomers. The baby boomers were the hippies who grew up in the 50s and 60s. They wanted it to be easier for their kids so they spoiled them. A 2015 PWC survey showed that only 24 percent of millennials have the basic financial knowledge and only 27 percent seek financial advice on saving and investing. Generation Z, on the other hand, was brought up by generation X who are products of the stress and turmoil of the seventies and the eighties. The collapse of the Berlin Wall, the assassination of Indira Gandhi, Chernobyl, the Challenger explosion, the launch of Fox Television, and the Exxon Valdez oil tanker belching 240,000 barrels of oil into the ocean. Socially, the 1970s saw a spike in divorce rates. The confluence of all these factors created a cynical, pessimistic, and hardnosed generation. This has had a profound impact on their kids. The Zs, like their parents, are more financially literate at a much younger age than previous generations. This is thanks largely to the financial anxiety that the Xs have passed down. The Zs are also more likely than millennials to save a good chunk of their change. They are more likely to use budgeting apps like Mint and Acorns. They also stay out of debt. They would rather rent assets than buy them.

Other factors that affect your spending patterns are culture and society. For example, Americans are colossal spenders while the Chinese are Olympic savers. South Africa is NOT a nation of savers. In 2019, the national savings rate was -0.1% of GDP. This makes us a nation of dissavers – we spend and borrow more than we save. It has to be said that in 2013, the rate was -2.5%. So we are improving, but we are still in negative territory.

Question: I am sure social media also plays a role in our spending patterns. It has done a sterling job in equating happiness with physical possessions and lavish experiences. Sumptuous mansions, Italian sportscars, first-class airline tickets, expensive gadgets, and shining jewelry creates the impression that happiness can only be achieved through spending. It has never been more challenging to keep up with the Joneses.

Answer: The social pressure to move away from saving and into the camp of spending is immense but as with all trends, there are counter-trends. This counter-trend comes in the form of minimalism as more people realize that spending does little to enhance human happiness.

Question: So once you know your financial DNA, I presume that you need to break your spending patterns and learn how to save. Over time, it becomes more and more difficult to change a habit because that habit has become more natural to who we are and how we act. And research shows that we automatically favor what is familiar to us—even if we know it's not to our benefit. The challenge is creating a new normal, which involves behavior change. Surely this is an extremely difficult thing to do.

Answer: It is not difficult – all you need is a little guidance. Here are my top 10 savings tips. And the cool thing is that some of these tips will make you happier and healthier:

1: don’t buy a house – rent or share. Your house is not an asset.

2) don't buy a car – rent or share (carpool) or use public transport. Fewer cars on the road mean less traffic and cleaner air.

3) lower your utility bill – install LED light bulbs and turn odd the geyser (cold showers are good for you)

4) cancel your gym membership – get outside and run, hike, do push-ups in the park, use the public outdoor gym.

5) become a vegetarian – veggies are cheaper than meat, and cows pollute more than cars

6) buy second-hand clothes. It is cheaper and you will reduce the carbon footprint of clothing manufacturers

7) buy generic medication – as good as non-generic and a fraction of the price

8) drink less bottled water – more expensive than tap and you can help save the oceans

9) become a minimalist – sell you excess stuff. If you haven’t used/worn it in the past 3 months, and don’t plan on using it in the next 3 months, sell it (or donate it).

10) become a chef – eat in instead of eating out in restaurants

Question: There is some drastic stuff on that list. Einstein said that "insanity is doing the same thing over and over and expecting different results." To realize different results, you need to do different things. These are incremental changes. From what I am hearing, it seems that there is no silver bullet or get-rich-quick scheme. To become financially free, you need to make incremental changes that compound over time. Set numerous achievable goals. A fraction of a percent changed every day, compounded over many months and years will yield outstanding results. So what do you do with all these savings? Answer: That leads us to step 3. Pay off your bad debt, and by BAD debt I am not talking about debt that you have fallen behind on. I am talking about debt that is not being productively used.

Question: Interestingly, you make this distinction. Financial advisers are terrified of debt. Get out of debt NOW. Let's put the numbers into perspective. The global debt or bond market is three times larger than the global equity market. Debt makes the world go round. Without debt, and without credit, the world’s economy will not grow. Any economic growth plan that is worth something will focus on ways in which small and growing businesses need access to credit. How can we differentiate between good and bad debt? Answer: Bad debt is debt used to finance activities that do not generate any cash flow. For example, taking out a loan to go on holiday, or remodel your home or to increase/decrease the size of a body part. Then, we have good debt. This is the debt that is used to acquire assets that generate cash flows. A loan to buy an apartment or a piece of heavy equipment that is rented out is inordinately good. Good debt is a powerful tool in the attainment of financial freedom. The bottom line is that what determines whether debt is good or bad does not depend on the interest rate. If you borrow money at 30 percent, but invest it and get a return of 40 percent, that is good debt. Goodness or badness is determined by how the proceeds of that debt are put to work, and not by the interest rate.

Question: So where do you stand on credit cards. The US politician Elizabeth Warren said that credit cards are like snakes: Handle ‘em long enough, and one will bite you. Are these pieces of plastic really as evil as many people make them out to be? Answer: There are two payment options on your monthly credit card statement. The first is the minimum payment. Credit card companies pray you to choose this. It allows them to charge usurious interest rates disclosed in small print on page 89 of your contract. There is another option which is the payment to avoid interest. This is a thing of beauty. It will settle the balance at the cutoff date of the card. The cutoff date is normally ten days before the payment date. If your cut of date is the 20th, your payment date will most likely be the 30th. If you buy a Louis Vuitton bag on the 21st, you will only need to pay for that necessity on the 30th of the following month. You are the recipient of 39 days of FREE MONEY. I don’t care where you from, but that is a great deal. The banks make no money out of you in terms of interest. They may charge an annual membership fee but this is all the blood they will be sucking from your veins.

Question: so how do you get out of your bad debt? Answer: I would suggest making use of the debt snowball method. The strategy assumes that your debt is not consolidated – which means that you owe money to more than one party – more than one bank credit card, a few store cards, and possibly even a loan from Shady Larry from around the corner.

Start with the Smallest Debt First

This goes back to the law of the jungle. Predators focus their efforts on separating the weakest member of the herd. You are this predator and the weakest is that debt of a couple of hundred dollars you owe on your Amazon credit card for a village of garden gnomes you bought after a drinking game with your mates. Once the smallest debt is paid off, one proceeds to the next larger debt, and so forth, proceeding to the largest ones last. This method is sometimes contrasted with the debt stacking method, also called the "debt avalanche method", where one pays off accounts on the highest interest rate first.

Question: Why are we not paying off the most expensive debt?

Answer: This strategy wants to keep you motivated so that you can build momentum in your debt liberation method. It may be that your largest debt is also your most expensive. Let's assume you go after this debt as Edmund Hillary went after Everest. If you are not in good financial shape, by the time you reach the base camp, you are going to be suffering from altitude sickness and crying for your mother. So instead of going after Everest, let's start off with Kilimanjaro and then work our way gradually up to the Himalayas.

The basic steps in the debt snowball method are as follows:

Step 1: List all debts in ascending order from the smallest balance to the largest.

Step 2: Commit to paying the minimum payment on every debt.

Determine how much extra can be applied towards the smallest debt.

Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off. Note that some lenders (mortgage lenders, car companies) will apply extra amounts towards the next payment; for the method to work the lenders need to be contacted and told that extra payments are to go directly toward principal reduction. Credit cards usually apply for the whole payment during the current cycle.

Step 3: Once a Debt is Paid in Full...

....add the old minimum payment (plus any extra amount available) from the first debt to the minimum payment on the second smallest debt, and apply the new sum to repaying the second smallest debt.

Step 4: Repeat until all debts are paid in full.

In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow, hence the name.

Question: Ok, so just to recap. We kicked off looking at becoming a champion saver and using those savings to pay down our bad debt using the debt snowball method. That sounds fantastic, but I think that we need to address the elephant in the room. I understand that R1 saved is R1 earned, but at the end of the day saving is a defensive strategy, and you cannot do anything of this unless you are earning money. When are we going to start talking about the earnings variable in the equation? Answer: You are right on cue, my friend. Point 4 focuses on maximizing your earnings potential. School teaches you to focus on your weaknesses. But you are no longer in school. This is life and life is all about maximizing your talents and to hell with your weaknesses. When water flows downhill, it flows around the obstacles, not over them. The best way to optimize your earnings capabilities is by starting your own business. However, not everyone is an entrepreneur, so let's start by helping you find your perfect job. A lot of people find themselves in dead-end jobs going through the motions. People spend about 1/3 of their adult lives working. If you are in the wrong job, that can be soul-destroying.

Question: So how can you avoid being in the wrong job that is gradually destroying your soul?

Answer: Go online. There are many free personality tests – make sure that the job you have, or applying to, fits your aptitudes. Once you know this, you need to find the perfect job, write a great resume so that you get the interview, and then nail that interview. I really do not have a great deal to add on this point, but one thing that young South Africans are acutely aware of is the fact that the formal job market is shrinking. This is a global phenomenon. This trend started before the pandemic with technology starting to displace human beings.

Question: The futurist Yuval Noah Harari speaks about the future of irrelevance. In the past, people were concerned about employer exploitation. Harari says the future challenge is not exploitation but relevance. We must now face the threat of irrelevance as automation, artificial intelligence and big data displace traditional employment.

Answer: Technology is forcing redundant workers and job market entrants into a corner where the only option is to start a business. Also, as technology revolutionizes the economy and cycles of change shorten, people need to continuously reinvent their skillsets. The days of studying a career and dedicating your professional life to this one career are over. You will need to acquire new skills and embark on a journey of continuous learning. In this world of constant flux, softer skills such as emotional intelligence, communication, and negotiation skills, and the ability to sell will stand out. So too will the skill of financial literacy and the ability to create opportunities outside the world of big business increase in importance.

Question: So instead of entrepreneurship is an option for future generations, it may

become mandatory?

Answer: I think we need to brace ourselves for a world in which there are less formal and traditional employment and outsourcing and freelancing becomes more prominent. Just look at how businesses have changed over the past 20 years ago. You would have your accounts, human resources, payroll, marketing, lead generation, etc. Today, many companies can outsource these functions which reduces their cost overheads and enables them to only pay for the work that is done. The website Fiverr is testimony to this new trend. Fiverr is an Israeli online marketplace for freelance services that was started in 2010 and is now worth over $6 billion. For example, you are a freelancer offering translation services. You register on their website and create a gig where you offer to work for $5 per 100 words translated. People looking for these services will check out your profile, how previous clients have ranked you, and then decide whether or not to hire you. You can get a website built, get help with digital marketing, get legal and business counseling, etc. Fiverr has grown into the Amazon of digital services. It would be hard to find a more transparent marketplace. There is no way to hide and all the sellers are stripped bear but there is another problem other than the intense and brutal competition. Many digital services are now being automated.

Question: So given that everything is digital, services can be offered from anywhere in the world. All you need is an internet connection. So let's say that someone is working in a full-time job but does not feel fulfilled and is looking to make a leap into starting a business. Maybe what he or she could do is get a side gig of Fiverr while still in full-time employment? Answer: Absolutely. You may love your job but hate your employer. You may be a financial adviser in a large brokerage house. Test the waters to see if some of your largest clients would move with you if you decided to jump ship. Set up a side gig as a prelude to making the jump. In 2017, CNN reported that 44 million Americans have a side gig they run in parallel with their full-time job. Perhaps you have a good nose for real estate. Instead of plowing your savings into a money market account, acquire a couple of high-quality apartments, and rent them out. Start to develop a stream of income that is independent of your formal employment and see how it pans out. If you a wizard on social media, set up a gif on Fiverr to help with their social media marketing campaigns. You don't need to storm into your boss's office and plonk down your letter of resignation right away.

Question: The biggest issue that many young people face today is their limited access to capital. How can you start a business if you have no capital?

Answer: Nathan Latka wrote a great book "How to Be a Capitalist Without Any Capital: The Four Rules You Must Break to Get Rich". It is no longer necessary to have the capital to launch your career as a freelancer and start to generate a stream of income that is independent of your formal employment – or even why you are at university. The digital world has opened up a new world. Independent work is developing quickly as digital platforms create large-scale marketplaces for workers to connect with buyers of services. On one hand, they allow for workers’ wishes of being independent and managing their time to be fulfilled. On the other hand, they give work to a large share of the population who’s unemployed or inactive and want to work. Furthermore, they also help businesses to find people with specialized skillsets for short-term projects.

Question: the coronavirus pandemic is also forcing more people to do more things online which is providing an additional boost to the digital economy. Take a company like Zoom Video Communications. It provides videotelephony and online chat services through a cloud-based peer-to-peer software platform and is used for teleconferencing, telecommuting, distance education, and social relations. The stock is listed on the NASDAQ exchange and was trading at around 100 bucks just before COVID. In six months, it was trading at over 500. What do you think about digital products as a way to maximize your income on the road to financial freedom? Answer: Who would not be lured into the appeal of digital products? They cost “nothing” to make – apart from your time which means that your markup is astronomical. We are talking about software, ebooks, videos and courses, podcasts, and video production and games. I have personal experience with ebooks. They are extremely simple to produce and market. You can use Kindle Direct Publishing and then sell them through Amazon. What a fantastic idea. It is estimated that there are 310 million active Amazon customer accounts worldwide, 90 million of which are Amazon Prime members who spend an average of $1,300 per year on the platform, with the remaining 220 million non-Prime members spending an average of $700. You would be an idiot not to tap into this gold mine. But here is the problem – do you know what the competition is like on Amazon? It is estimated that there are 6 million eBooks on Amazon. Clearly, you don’t compete against everyone. If you write a financial self-help book, you are not competing with Fifty Shades of Grey. My best eBook “Everything You Know About Finance is Wrong” was #2,902 in Motivational Business Management. In the entire eBook universe, I was ranked #1,483,968 in the Kindle Store as at the end of October 2020. I briefly jumped into the top million in June but that was short-lived. My point is this: I sold less than 100 copies of this book and I was in the top 25 percentile of the Kindle Store Community. This means that more than 75 percent of all books on Kindle sell less than 100 copies IN TOTAL. It is brutal out there. I did everything right – careful keyword research, ad promotions, free copies, heavy marketing on social media (LinkedIn, Facebook, and Instagram) and these books just did not move. This market is just too crowded. People that post videos on YouTube about how to make millions out of eBooks are full of shit. They made nothing so they became coaches because they recognized it as a more profitable alternative. Do not fall into this rabbit hole.

Question: People are so used to free stuff. I did a little research on online courses. I went to Google and did a search for "free online courses". Before doing this, I expected to see a couple of million results AT THE MOST. I was not even close to being in the ballpark. In fact, I was in a different galaxy floating through an eternity of nothingness. There were almost 6 BILLION results. In this sea of freebies, what is the chance that you will be able to charge for your courses? Again, I am not saying that it cannot be done, but it is not easy to build a business model out of this.

Answer: I have written four books. The first three: "Everything You Know About Finance is Wrong", "12 Investment Revolutions" and "Trilogy of Capital Assets". I will be the first to admit that these books were a solid effort. They were not greatly written, but they were above average. I did my very best to write them in a way that they would be accessible to a wide audience and they provided some solid advice. I then discovered that the average person is not an avid reader unless you can condense your message into 140 characters. Social media seems to have reduced the attention span of the average person down to a couple of minutes. The solution, therefore: video.

Between March and May of 2020 – during the hard portion of the coronavirus lockdown – I dedicated my time to condensing these three books (150,000 words) into a series of videos. The total running time of these videos was in the region of 20 hours. Each video ran for about 20 minutes and included my beautiful face in the bottom right-hand corner and a series of PowerPoint slides. I quickly accepted that they were not the finest batch of audio-visual content, but firmly believed that I would sell them for R9.99 per video. I went out and promoted them on my social media (I have about 3,000 connections on LinkedIn and a couple of hundred on Facebook). I accept that I am not a social monster but I have a fair sprinkling of social connections. I was not able to sell a single video – so in the spirit of lockdown, I decided to give them an away. Even that was not greeted by a deluge of demand. The point that I am trying to make laboriously and tangentially is that selling online courses is not as easy as it sounds given the amount of free content available. Granted, a large portion of this content is crap, but there I no shortage of high-quality material. The Khan Academy is a good case in point. Khan Academy is an American non-profit educational organization created in 2008 by Sal Khan, to create a set of online tools that help educate students. The organization produces short lessons in the form of videos. The bulk is focused on school education (algebra, calculus, physics, etc.) but they are also starting to encroach on my space (personal finance). The Bill and Melinda Gates Foundation has donated $1.5 million to the academy, and Bill uses some of the 10,000 free videos to educate his own kids. The Khan Academy sets the bar relatively high. It is one of the many examples of how free online courses are making it increasingly difficult to monetize educational content.

It is impossible to talk about online courses without reference to Udemy – the elephant in the room. In the same way that China had a deflationary impact on global product prices with their cheap labor at the turn of the 20th century, so too has Udemy generated downward pressure on online courses. Udemy is an open marketplace where anyone can teach anything and charge for their courses. Udemy course prices start relatively low: $10 for new users. The most expensive courses on Udemy are currently $199.99, although you can often find coupon codes online with savings of up to 90%. This means that almost nobody pays the full ticket price for a Udemy course. You may argue that although you are earning a few cents on the dollar ticket price, you have access to a massive market. They claim to have 35 million students, 57,000 instructors providing courses in 65 languages. Udemy claims to have had 400 million enrollments. There are 130,000 courses available. So how do instructors get paid? If you bring the student onto your course (through a special code you provide that student), you will receive 100% of the fee paid. That is fair enough. If the student finds you on Udemy, you receive 50 percent of the cost. If a student takes a course based on a Udemy paid advert, you receive 25 percent. Unless you are a mega influencer, in which case you probably have better things to do with your time than making instructional videos, the bulk of your revenue will be shared with Udemy. Given the competition, it is unlikely that this business model is going to generate a strong stream of passive income.

Question: So that is a little depressing. If the digital world is so competitive that it is difficult to make a good living there, what would you suggest?

Answer: I think it is important to make one point very clear. Online is here to stay, there I no doubt about it and your business strategy must have a very important online/digital component. I am a fan of digital, but I think you need to make your offering very specific and not try and tap into the global audience where the competition is just too intense. My suggestion is to do the following. Identify key global business trends and then find ways in which they can be applied in your region/community/sphere of influence.

Question: in other words you need to have a very specific business strategy. So instead of offering a global subscription service on how to exercise your dog, you offer a dog walking service in your suburb by teaming up with the local vets and building up an email database of potential local customers?

Answer: That is exactly what I am saying. That taps into a global trend. Younger generations are shying away from getting married and they are having fewer children.

Question: I recall reading an article on entitled: Pets vs. Parenthood: Why Millennials Are Owning Pets Instead of Having Kids. Young Americans may be less likely to be homeowners or parents of human children, but they are leading in their rate of pet ownership. The $69 billion pet industry has already grown three times larger than its size in 1996, and Millennials are fueling the increase. With 44 percent of Millennials remaining unsure if they want to start their own family, it makes sense that their Instagram feeds may be more full of fur babies than tiny humans.

Answer: The biggest mistake when it comes to investing in businesses is that people look for the wrong things. They look for exciting, sexy, glamorous, and popular businesses. The same is true when it comes to starting their own businesses. There is nothing glamorous about walking a bunch of crazy dogs and having to pick up their poop behind them. But as you grow, you can hire people to do the job. The business has low overheads – you don't need to rent an office. You do not employ the dog walkers – they are freelancers. Your biggest cost is marketing which you can do online on a small budget.

Question: You mentioned global trends in business. Disruption is everywhere. Businesses and sectors are being disrupted like never before. Technology, disintermediation, and the climate are making previously dominant companies vulnerable, while startup companies run by millennials in hoodies are becoming increasingly dominant. While all this is happening on a micro level, on a macro level we are also seeing a shift in global power from the west to the east. Failure to identify, understand, and exploit these changes will be fatal for any entrepreneur. Businesses fail principally due to their inability to anticipate changes. Charles Darwin said that it was not the strongest of the species that survives, nor the most intelligent. It is the species most adaptable to change. Can you walk us through key global trends that entrepreneurs need to be aware of?

Answer: Let me rip through them for you. The first is the move from fossil fuels to renewable energy. South Africans are all too aware of load-shedding and how it impacts our lives. Eskom needs to open its grid to third parties. The solution is not to go out and build new coal plants. It is expensive and pollutes the atmosphere. When Eskom opens up their grid, smaller producers can find a piece of land, set up some solar panels, and sell their output to Eskom. The second trend is the growth in demand for second-hand clothing. By 2028, 13 percent of the clothes in women's closets are likely to be secondhand, up from 6 percent in 2018 according to ThredUp. The secondhand market, which includes resale, thrift, and donations, has grown 21 times faster than the retail apparel market between 2016 and 2018, to a $28 billion industry in 2018. It is projected to be $51 billion by 2023. The main growth driver is the resale market, which is expected to quadruple between 2018 and 2023. Sales in the apparel rental market have also surged, becoming a $1 billion industry in 2018 that could reach $4.4 billion by 2028, according to GlobalData. By 2028, 4 percent of a women's closet will consist of subscription and rental products. You can get slightly used high-quality items at a fraction of the cost of their newer counterparts. Not only is buying used good for your finances, but it is also good for the planet. Clothes companies are massive polluters and any activity from your part to reduce demand for their polluting products is one step towards healing the planet.

Question: So a good business going forward could be selling second-hand clothes online or setting up a physical store selling second-hand clothes. I presume the stats you mentioned were for the US but we are seeing the emergence of a similar trend here in South Africa. What is happening in terms of financial services?

Answer: The financial services sector is under threat and on the top of the list of potential victims are the banks. The Millennial Disruption Index reports 71% of millennials would rather go to the dentist than listen to what banks tell them.

Question: Why has traditional banking not captured the hearts and imagination of the average man?

Answer: In 2008, banks lost their biggest asset and that is trust. They lost the trust of their clients and technology companies moved rapidly to fill the gap. Since the financial crisis, the number of financial technology or fintech companies has increased exponentially. They are moving aggressively onto the turf dominated by the traditional banks and cherry-picking the most profitable segments. Before 2008, banks were mildly successful in incorporating technology into their services via online banking and call centers- most of which were located in New Delhi. After the crisis, regulators tightened the rules in an already overregulated market. While banks were obsessing over compliance, tech companies were entering a phase of mega-innovation. Consumers were exposed to a world of hailing a taxi from their phones, being pampered with same-day delivery on Amazon. Technology companies identified this gap and started to fill it with sweet sweetness. As of 2019 Facebook boasted numerous banking licenses and was experimenting with its own cryptocurrency. Amazon was experimenting with student loans. Alibaba was running one of the largest money market funds in the world and WeChat (the Chinese version of WhatsApp) was doing 820 million wire transfers during the Chinese New Year. If you trust Facebook with photos of your newborn baby, will you not trust them to handle your finances?

Question: What has been the role of cryptocurrencies in speeding up the rate of change in the banking system?

Answer: Cryptocurrencies, blockchain, and crowdfunding have now made possible a life without banks and the world is rejoicing. If you want to transfer money or pay accounts, crypto accounts allow you to do so. If you want to borrow or invest money, you can go to crowdfunding sites like Moneytree or Lending Club. If you want to buy and sell stocks or mutual funds, you can do so through apps like Robinhood.

Question: So how do you make money from this disruption? Answer: Finding what is broken in the finance industry is not difficult. Make a list of all the things that piss you off about your bank, stockbroker, pension company, insurance company, and financial services company. Then find companies that are working tirelessly to solve these pain points, or start your own company that will focus on filling these gaps.

Question: So let's do a quick recap because we have covered a huge amount of ground already today and we still have not reached the killer punch. We are talking about five things that you need to start doing today to attain financial freedom - or using the old terminology, retire early. We looked at understanding your DNA and how it is important to transform yourself from being a spender to a saver. We spoke about eliminating debt and also we spoke about maximizing earnings. The only thing is that we still have not arrived at the most important part. Saving and working hard is all very well, but how is that going to take us into a life of financial freedom? Answer: That was a great summary. Points one to four will lead to a situation in which you earn more money than you spend. The question now is what do you do with this surplus money. You need to become an investor. I think Robert Kiyosaki put it best in his book “Rich Dad Poor Dad” when he said that instead of working for money you need to make money work for you, and the way that you do this is by becoming an investor.

It’s a lie that you need to have lots of money to invest in the stock market. You can invest small amounts regularly. In your journey to financial freedom, you need to invest your monthly savings into the stock market. Many people manage to save, but then they invest their savings in the wrong place. They put this money into a low risk, low return fund, or instrument for their retirement. After all, this is your nest egg – the money that you will be using in your twilight years when you have more hair growing out of your ears and nose than growing out of your head. Advisers encourage you to be conservative and play it safe.

This is bad advice. While it is true that as you approach retirement you need to ratchet down your risk, in the years and decade leading up to retirement you need to strap on the turbocharger and grab your helmet. To understand the implications of saving for retirement, let us do the numbers. Savers normally invest in funds and instruments where the returns are linked to interest rates. In the 1990s, deposit rates in South Africa were between 15 and 20 percent.

Today, this rate has plummeted to around 5 percent. Let us now understand the impact of this structural downward shift in interest rates on the returns for savers. If you had saved R500 per month, at an interest rate of 20 percent for 25 years, how much would your savings be worth? The answer is R4.2 million ignoring tax and inflation. If you save R500 per month, at an interest rate of 5 percent, how much will your savings be worth in 25 years? The answer is R298,000 ignoring tax and inflation. That is brutal! Imagine saving religiously for 25 years and not having enough money to buy a new VW Polo!

You need to Invest for Retirement. One of the things I like to do is to train people on how to become a master investor replicating the strategies of market gurus like Warren Buffett. But let’s assume you do not have the time or the inclination to embark on this quest. Let me share with you a simple strategy that you can implement today.

Step 1: Relax

The stock market brings out the worst in us because people think they can use it to get rich quick. Most people are terrified of the stock market because it exhibits wild and volatile swings and this is true – in the short term. The stock market, over the longer term, tends to be more predictable and benign. Your first step is to recalibrate your opinion of the stock market and take a long-term view. You need to be patient and you need to be religiously disciplined in your investment.

Step 2: Monthly Contributions – Annual Consultations

Every month, you need to commit to investing a minimum amount of cash into the stock market and you are only allowed to check your account statement once per year.

Step 3: Choose a Low-Cost ETF

Not everyone has the desire or time to analyze individual stocks, which means ETFs can be a powerful financial tool. I would recommend a broad-based country ETF like the Satrix 40.

Step 4: At Least R1000 a Month

All you need to do is invest R1,000 per month. To understand how extremely attainable R1,000 per month is, I did a quick Google search on what R1,000 can buy you these days: ten or twelve movie tickets, 6 months of Netflix, four or five new movies on DVD, fifteen used DVDs at a yard sale, lunch for four at a fairly nice restaurant, 40 cheap burgers or 90 candy bars. Over the past 25 years, the JSE All Share Index has delivered compounded returns of approximately 12 percent. This is better than a poke in the eye with a blunt stick and one needs to take into account that this return includes three major stock market crashes – the bubble bursting in 1999/2000, the collapse of Lehman Brothers and the Great Recession of 2008, and the Coronavirus pandemic of 2020.

So how much would your 25-year religious investment in this index yield? The answer is almost R1.9 million. That is inordinately better than investing in a savings account. Now, let's assume you can afford to invest R2,000 per month – you will have R3.8 million after 25 years. If you invest R5,000 per month, R9.4 million. If you invest R10,000, R18.8 million which would effectively make you a dollar millionaire.

Question: That is simple stuff. You really do not need to be an investment genius to make money in the stock market. Let's now look at the other side of this positivity. What would you say are the three biggest mistakes people make when it comes to investing for retirement?

Answer: One of the biggest mistakes is being afraid of risk and avoiding the stock market. The stock market is one of the greatest generators of wealth on the face of the earth. Having said this, many people avoid the stock market for two reasons. Firstly, they think it is too dangerous. Most people are terrified of the stock market because it exhibits wild and volatile swings and this is true – in the short term. The stock market, over the longer term, tends to be more predictable and benign. Your first step is to recalibrate your opinion of the stock market and take a long-term view. Secondly, they are under the misconception that you need to very super smart and dedicated to investing. In reality, you do not need to be an expert in stocks to become financially free – a basic understanding will suffice. This is what you need to know. A stock market is a place where you can invest in thousands of public companies. Also, the risk is your friend. If there is no risk, there can be no return – it is simple as that.

The second mistake is investing in a retirement annuity. I hate annuities. Only one person makes money from a retirement annuity and that is the annuities salesman. According to billionaire investor Ken Fischer, if you invest $1 million in an annuity you will put a kid through private college. The problem is that it is not your kid. It is the kid of the annuity's salesman. Fisher says you would be better off cutting a check directly to the salesperson and then investing the balance directly in stocks and bonds. Do not be fooled by the sales rhetoric. Annuity salespeople will regale you with the tax benefits, the power of compounded growth, the discipline of saving (a lie that we have debunked), supporting your dependents, and long-term stability. If you are financially educated and disciplined, you can do better with direct investments. Annuities are black-box investments – there is no transparency and accountability of results. The fees are bordering on criminal. Moreover, when you retire with that annuity, you will get a stream of income akin to a quaint Scottish brook. You deserve the whitewater rapids on the Zambezi River.

The third biggest mistake is a lack of patience. Impatience (noun) - the tendency to be impatient; irritability or restlessness. What causes impatience? Impatience is triggered when we have a goal and realize it's going to cost us more than we thought to reach it. Impatience is the single biggest obstacle to financial freedom. We are living in an age of instant gratification, same-day delivery, and super high-speed internet. We complain about being forced to wait for 40 minutes for takeoff on a transatlantic flight. We have lost sight of the fact that modern-day air technology allows us to travel from New York to London in 6 hours. In the old days, it took weeks by boat and there was always the chance that if you did not die of scurvy, you were attacked by pirates or crashed into icebergs. I Googled “long term stock investing” and came up with 269 million results. I then Googled “stock trading” and came up with 4 billion results. Why is it that trading yields 1,400 percent more results than investing? This is no surprise because trading is sexier than investing. The objective is the extraction of short-term profits. Day trading or scalping has taken off over the past ten years. To answer this question, you need to answer the following: when it comes to money management, do you want sexy or do you want boring? Do you want Marilyn Monroe in the Seven Year Itch or Fred the accountant? In a perfect world, you want your chef to be French, your sports car to be Italian, the driver in the lane next to be non-Italian, your watch to be Swiss and your policeman to be British. What about money management? There is a great quote from Paul Samuelson. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.

Question: It is interesting what you say about sexy investments. Investments should be simple, boring, and predictable. Sure you have great stocks like Tesla that have done exceptionally well recently, but these stocks are rare and they do expose you to a great deal of concentrated risk. It is better to spread your risk over several different companies when it comes to investing for retirement. So let me try and summarize the five things you need to start doing now to be financially free in 25 years. Firstly, you need to understand your financial DNA – whether you are a spender or a saver. Secondly, you need to work on becoming an Olympian saver. Thirdly, the first destination of your surplus saving must be destined to paying down bad debt – debt that is not generating a reliable stream of income. Fourthly, you need to work on maximizing your earnings power – be in your job or as an entrepreneur. This in turn lays the foundation for the fifth step which involves becoming a disciplined and master investor. It needs to be noted that all five action steps are not building blocks – they need to take place simultaneously. To end off, I would like to touch on the topic of wellness. The chat-up until now has been dominated by money and would be easy to fall into the trap of believing that money is a source of happiness and fulfillment. Could you give us a few parting thoughts on this?

Answer: Financial freedom requires changing your relationship with money. When you work for money, money becomes your master. It rules your mind, your actions, and your desires. When money works for you, you are flipping that relationship. You are now the master. You are in control. Money works for you and you in turn work for a higher purpose. You need to find that higher purpose. It could be to provide for your family or give back to your community or your country. It could be to free up your time to pursue what you find meaningful. Also, you want to do business with people that share your values. If money is your why, it will become an endless source of anxiety. You will never have enough. I have traveled to several Central American countries and I love speaking to taxi drivers. There is always an election somewhere and I like to understand how the taxi drivers select their candidates. They often choose the wealthy candidate under the belief they will steal less. In reality, the rich almost always steal more. If you have one million, you want another million. If you have one billion, you want another billion. The thirst for money is insatiable. If money is your why, you will never be satisfied.

A Harvard study set out to understand the secret of happiness. It analyzed a large group of people over the decades. It was not a snap survey on a random sample. It selected two groups and then followed the evolution of their lives over a long period. The findings from the study were fascinating. For over 75 years, the study tracked the physical and emotional well-being of two populations. The first, known as the Grant study, analyzed 456 poor men growing up in Boston from 1939 to 2014. The Glueck study followed 268 male graduates from Harvard's classes of 1939-1944. The multiple generations of researchers analyzed blood samples, conducted brain scans (once they became available), and dissected self-reported surveys, as well as actual interactions with these men. The researchers found that professional success was not a source of fulfillment. The more people progressed up the corporate ladder, the more money they had, the more assets they acquired, and the more complicated their lives became. With this increased complexity came increased anxiety and with this increased anxiety higher stress levels. Also, they found themselves less fulfilled. They were, however, able to overcome this sense of emptiness by immersing themselves in their jobs. They filled their days with professional activities and their weekends with social engagements that left no time for reflection. The Harvard study showed the most fulfilled and happy people were not the most successful. The people who felt the strongest human connection to their community, their friends, and their families felt the most fulfilled.