How to have financial independence: assets x consumption – 12/18/2023 – Market

The Mega-Sena draws are usually eagerly awaited by those who dream of being able to stop working. Luck in gambling is not, however, the only way for those who want to spend their days with an income that does not come from the sweat of daily work.

According to experts, it is not necessary to win the lottery to achieve financial independence, but the alternative process takes time and discipline. It involves everything from defining a standard of living that allows for the habit of saving to building an asset that will be converted into periodic income in the future that covers the cost of living for the individual or their family.

Patrícia Palomo, investment leader at the Unicred cooperative, says that, in order to choose how to use your time —working for pay or dedicating yourself to other activities—, it is essential to have some type of financial recurrence: an income of sufficient value to pay for the consumption pattern, which is available as frequently as necessary to pay the bills.

She points out that the natural path involves building heritage, which can be done from different sources of income. Although the most common is salary, there are options that help speed up the process, such as property rental and investment income.

Defining consumption patterns is essential

Palomo states that the speed with which a person will achieve financial independence will also depend on the flow of expenses, that is, the consumption pattern adopted throughout life.

This is also one of the factors that enter the accounts of economist, CFP financial planner and ESPM professor Paula Sauer.

She says that, to calculate the amount of assets needed to live solely on the income from these resources, it is necessary to divide the annual cost of the individual or family by the profitability of the investments.

“When doing this calculation, be honest with your cost — that is, don’t underestimate your ability to spend — and conservative with the return on your investments.”

She cites a hypothetical example, in which the annual cost for a person or family is R$100,000, and the average return on investments is 5% per year. In this case, the person would need to have investments of R$2 million to live solely on the income from the investments.

If the cost of living increases and the investor makes larger withdrawals from investments, he must be aware that his next income will be lower. Either he will have to adapt his expenses to smaller monthly withdrawals, or he will need to assume the risk of his assets being consumed over time.

“Throughout life, plans change, dreams take on new forms, unforeseen events happen. The cost of living will certainly vary and, depending on this, the investment portfolio must be rebalanced”, says Sauer, adding that the economic scenario also enter the account.

This means that variables such as inflation, interest rates, unemployment, economic policies, wars and elections can turn all calculations upside down.

Palomo, from Unicred, states that it is up to each individual to assess whether they prefer to take a little longer to achieve financial independence, in order to maintain a higher standard of living, or whether there is a certain urgency or anxiety in stopping working. and start living off income, which will consequently imply smaller monthly withdrawals and a more modest standard of living.

“Saving is a negotiation between the pleasure of the present and the security of the future”, says Sigrid Guimarães, partner at wealth management company Alocc. “This is a daily struggle, and everyone finds their balance.”

Guimarães points out that, if a person is the type who wants to enjoy the pleasures of life and doesn’t save anything, their future may be uncertain and they may eventually become financially dependent on a third party.

On the other hand, if the person is always extremely concerned about the security of the future and saves all their income, perhaps on the day they reach their goal they will not have the health or time to enjoy the achievements.

“I always tell clients that we try to find a balance to meet today’s dreams, but without giving up concern for the future”, says the manager.

She suggests to those who want to achieve financial independence that, even if the amount to be set aside per month is low, they start building up savings as early as possible, so that the interest on interest works in their favor over the years. .

According to the manager, studies indicate that a person who starts saving at age 25 accumulates, on average, up to five times more than a person who started saving at age 50, due to the multiplier effect of interest. “The sooner you start, the less effort and the easier it becomes.”

Choice of investments depends on each person’s risk tolerance

When considering the various investment alternatives available on the market today, Palomo emphasizes that, before anything else, it is necessary to take into account each person’s profile and risk tolerance.

For those with a more conservative profile, who do not like to see large fluctuations in their statements, the specialist points out that there are a series of fixed income instruments that offer periodic income through the payment of interest and amortizations.

She says that, when considering an investment in fixed income, it is important that investors pay special attention to investments that pay real interest, that is, above inflation, in order to preserve purchasing power over time.

Public securities traded on the Tesouro Direto platform, such as the Treasury IPCA and the Treasury Renda+, which offer a fixed interest rate plus inflation variation, are considered among the most accessible options.

Private securities such as debentures, issued by companies in the infrastructure sector, are also usually indexed to the IPCA and offer remuneration rates above government securities, but, in this case, Palomo warns that it is necessary to study the company’s financial health beforehand. to put in the money.

Manager recommends liquidity cushion to cover three years of living costs

Sigrid Guimarães, from Alocc, says that her recommendation to clients is that they make a financial reserve to deal with possible emergencies, such as job loss or a pandemic, which is sufficient to cover day-to-day expenses for a period of up to three years.

“Many people think three years is an exaggeration. But, when the pandemic came, it became clear that it wasn’t”, he observes.

This reserve, says Sigrid, must be in low-risk and highly liquid investments, such as post-fixed public bonds, DI funds and CDBs from large banks.

This way, when you need the resources, you don’t run the risk of being shocked by a negative balance or having to wait weeks before you can access the money.

Once the emergency reserve formation stage has been completed, the ideal is to add layers to the portfolio made up of assets with a higher level of risk and higher return expectations.

“If the person has a fixed income reserve, it is unlikely that they will have to access more volatile categories in an emergency, such as shares and multimarket funds, which need the benefit of time to deliver a greater return in the long term”, says the manager.

Real estate funds and shares can also be part of a portfolio

Among the alternatives with a moderate and bold profile, an option well known to the population cited by experts is real estate funds.

These funds invest in properties such as corporate buildings, logistics warehouses and shopping centers, and pay dividends to shareholders at intervals that may be monthly or semi-annually. An attractive feature of the category is the fact that the dividends distributed are exempt from IR (Income Tax) taxation for individual investors.

In the case of real estate funds, however, the Unicred specialist emphasizes that it is necessary to keep in mind that they make up the variable income class and are subject to fluctuation in invested capital according to market conditions.

The same goes for shares traded on the Stock Exchange. If the investor has a higher risk tolerance and is aware of the possibility of both appreciation and decline in securities prices, they are also an alternative that can form part of a portfolio that aims to achieve financial independence through the periodic payment of income. , says Palomo.

Tips for those seeking financial independence

• look for ways to increase income in order to build assets that can become a generator of passive income in the long term;
• form a liquidity buffer of three times the annual cost of living in low-risk fixed income investments;
• speed to achieve financial independence depends on the desired consumption pattern;
• Savings formation should start as early as possible, so that interest on interest works in your favor over the years;
• risk tolerance needs to be taken into account when evaluating investment alternatives;
• Fixed income, real estate funds and shares are alternatives that can form part of the investment portfolio.