On this Independence Day, see how and when to declare yours – 09/06/2023 – From Grain to Grain

Although this September 7th is Brazil’s Independence Day, you can take advantage of the focus of the holiday to plan your own independence. For this, I will help you answer the two main questions: when and how is it possible to achieve your independence?

Before talking about the numbers, let’s understand the importance of independence.

When a country is not independent, it lives under the command of a third party. Thus, it has its choices repressed and its development contained.

When applied to individuals, the meaning is not very different.

Independence can be understood as autonomy. If you are independent, you have autonomy of choices and thus you can develop more.

Whenever I write about financial independence, many comment that it is not achievable. Don’t listen to them, these are the ones rooting for your addiction.

Pursue your independence and when you achieve it you will understand how freeing it is. In fact, halfway through, you will already begin to feel this satisfaction.

So let’s get to the answer on how to achieve it. For this, the first step is to draw up a plan.

The plan must contain at least four elements:
1 – The starting point, which is your current assets;
2 – The objective of equity that we are about to find;
3 – How much you should contribute periodically to reach the goal;
4 – The real interest rate during the equity accumulation period.

To calculate the second element above, three additional questions are needed:
1 – What income do you want to have to be financially independent?
2 – How long do you want to receive this income?
3 – What is the interest rate in the income benefit period?

This plan will answer the question, when can you achieve your desired independence.

In order for you to arrive at the answer and simulate various scenarios, I created a spreadsheet that you can download at the link.

To simulate, just fill in the cells in yellow in the worksheet.

In the initial example of the spreadsheet, shown in the figure above, I consider an individual who has an initial equity of BRL 50 thousand, who can contribute monthly with BRL 1.5 thousand, who intends to live on an income of BRL 5 thousand for 30 years . In the example, I considered an interest rate of IPCA+6% per year during the accumulation period and IPCA+5% per year during the income benefit period.

In this example, the individual would reach independence in 21 years, that is, in 2044.

To obtain this interest rate of IPCA+6% per annum, the investor can, for example, apply through CDB within the FGC guarantee and have a very low risk.

Take advantage of the holiday to simulate your plan for financial independence and start this month on this journey to gain your autonomy of choices.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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