Achieving Financial Freedom in Ghana: A Practical Step-by-Step Approach

At CedisPay, we understand that financial freedom is a goal many aspire to achieve. It’s about gaining control over your finances and creating a future where your needs and lifestyle are supported by passive income—not active work. This guide provides practical steps and tools specifically designed for Ghanaians to achieve financial independence.

What is Financial Freedom

Financial freedom is the ability to live the life you want without worrying about money. It means having enough wealth or passive income to cover your living expenses, so you no longer rely on a paycheck

For example

If your annual expenses are GHS 75,000, financial freedom means having enough passive income (e.g., rental income, dividends, or interest) to cover this amount every year.

Key Concept: The Rule of 25

The Rule of 25 is a simple formula to estimate how much wealth you need to achieve financial freedom. It states that you need 25 times your annual expenses saved or invested in order to withdraw 4% annually and sustain your lifestyle indefinitely.

Why 25 Times

The rule is based on studies that show a portfolio can last indefinitely if you withdraw only 4% of its value annually. This approach accounts for inflation and average investment returns.

Example Calculation
• If your annual expenses are GHS 75,000, you multiply this by 25: GHS 75,000 × 25 = GHS 1,875,000
This means you need GHS 1,875,000 invested to safely withdraw GHS 75,000 each year without running out of money.

• Step 1: Calculate Your Financial Freedom Number Your Financial Freedom Number is the total amount you need to achieve financial freedom. Use the Rule of 25 to determine this number.
  Example
  • Annual Expenses = GHS 75,000
  • Financial Freedom Number = GHS 75,000 × 25 = GHS 1,875,000
  This number is your long-term target
• Step 2: Assess Your Current Financial Position To achieve financial freedom, you must first understand where you are today.
  • Calculate Your Net Worth: Your net worth is the difference between what you own (assets) and what you owe (liabilities).
    • Assets: Include savings, investments, property, or other valuables
    • Liabilities: Include debts such as loans or credit card balances
    Example: Assets = GHS 400,000, Liabilities = GHS 100,000, Net Worth = GHS 400,000 - GHS 100,000 = GHS 300,000
  • Measure Current Passive Income: Calculate how much passive income (e.g., rental income, dividends, interest) you currently earn annually.
• Step 3: Identify the Gap The gap is the difference between your current financial position and your financial freedom number. Example: Financial Freedom Number = GHS 1,875,000, Current Net Worth = GHS 300,000, Gap = GHS 1,875,000 - GHS 300,000 = GHS 1,575,000. This is the amount you need to save, invest, or earn passively to reach financial freedom
• Step 4: Build a Plan to Close the Gap The gap is the difference between your current financial position and your financial freedom number.
  • Save Aggressively:
    • Set a Savings Target: Break your gap into achievable annual savings goals. For example, to close a gap of GHS 1,575,000 in 15 years: Annual Savings Target = GHS 1,575,000 ÷ 15 = GHS 105,000
    • Cut Unnecessary Expenses: Track spending using the CedisPay Financial Wellbeing App. Prioritize needs over wants (e.g., limit takeout meals, reduce entertainment costs).
    • Save Automatically: Use standing orders to move a percentage of your income into savings or investments every month.
  • Invest Strategically Investing allows your money to grow faster through compound interest and market returns
    • Understand Compound Interest: Compound interest is when your money earns returns, and those returns also earn returns. Over time, this creates exponential growth. Example: If you invest GHS 10,000 annually at a 10% annual return for 15 years: Future Value = GHS 417,725
    • Investment Options for Ghanaians:
      • Treasury Bills: Safe and high-yielding options with interest rates often exceeding 20%.
      • Mutual Funds: Balanced funds in Ghana, such as Databank Epack, provide growth and income.
      • Dividend Stocks: Buy shares in companies like MTN Ghana for regular dividend income
      • Real Estate: Invest in affordable housing to generate rental income
  • Build Passive Income Streams
    • Start a Rental Business: Purchase property or convert part of your home to rent out. For example, a GHS 300,000 property could generate GHS 2,000 monthly (GHS 24,000 annually).
    • Create Digital Products: Write an eBook, create an online course, or sell intellectual property that generates royalties.
    • Invest in Tier 3 Pension Funds: Tier 3 pensions offer tax benefits and a reliable source of long-term passive income.
• Step 5: Automate and Track Your Progress
  • Track with the CedisPay App: Use the budgeting and goal-setting features to monitor your savings, investments, and passive income.
  • Set Regular Milestones: Break your journey into smaller, actionable steps (e.g., save GHS 500,000 in 5 years).
• Step 6: Adjust as You Grow
  Regularly review your plan and make adjustments based on:
  • Changes in income or expenses
  • Market conditions affecting investments
  • Personal goals or unexpected life events
• Step 7: Celebrate Financial Freedom When your passive income matches or exceeds your annual expenses, you’ve achieved financial freedom! This milestone allows you to:
  • Retire early or work on your own terms
  • Pursue hobbies and passion projects
  • Spend more time with loved ones

Practical Tools for Ghanaians

• Budgeting Tools The CedisPay Financial Wellbeing App helps you create a realistic budget and track your financial goals.
• Savings Accounts and Treasury Bills: Leverage high-yield savings accounts and T-bills for secure growth.
• Investments: Explore local mutual funds or dividend-paying stocks on the Ghana Stock Exchange.
• Retirement Planning: Contribute to Tier 3 pension schemes for long-term financial security.

Conclusion

Achieving financial freedom requires discipline, strategic planning, and the right tools. At CedisPay, we are committed to supporting your journey with innovative solutions, including budgeting apps, financial education, and wealth-building resources. Take control of your financial future today—start with CedisPay! Ready to Connect with Your Financial Goals? Let CedisPay Guide You to Financial Wellbeing! Access the My Financial Wellbeing Budget App to start achieving your financial goals today: https://cedispay.com.gh/budget. Visit our website today at https://cedispay.com.gh/ to apply for loans. Our team is available to assist you via: Phone: +233 244680960, +233 59 574 1614, +233 595741673