WHAT IS YOUR WORTH AS A MONETARY VALUE?

Calculating Your Earning Potential as Your Biggest Asset

Your earning ability is one of the most valuable assets you possess, as it determines your financial stability and ability to meet your goals over time. By estimating your future earnings, you can quantify its value and understand why protecting it is crucial. Let’s break down how to calculate this monetary value using an example, and highlight how earning ability protection, as well as death income coverage, can safeguard this asset.

Example: 39-Year-Old Earning R80,000 Per Month

We’ll calculate the total earning potential of a 39-year-old person earning R80,000 per month, assuming:

• Inflation rate: 6% annually
• Retirement age: 65
• Total earnings after tax: R47 million

Step-by-Step Calculation

1. Current Annual Earnings Multiply monthly earnings by 12 to get the annual earnings:
2. Future Earnings Growth (Accounting for Inflation) We assume the individual’s earnings will increase in line with inflation at 6% per year. To calculate future earnings each year, you adjust for inflation using the formula:
3. Cumulative Earnings To estimate the total future earnings, we’ll sum up the earnings for each year, adjusting for inflation. This can be done by calculating the future earnings for each year, adding them together over the 26-year period. Instead of calculating year by year, you can use the formula for the future value of growing annuity, which accounts for inflation-adjusted earnings over time:
4. Post-Tax Adjustment After calculating the total future earnings, we apply a tax rate to get the after-tax total earnings. In this example, the total after-tax earnings are estimated at R47 million.

Key Takeaway: R47 Million to Protect

This R47 million represents the total earning potential from now until retirement. Given its significant value, it's important to consider earning ability protection and death income coverage to ensure that this potential is not lost in the event of illness, disability, or death.

Why Protect Your Earning Ability?

1. Income Protection: You can protect this future value with income protection insurance, which provides a steady income if you’re unable to work due to illness or disability. It ensures that, even if something unexpected happens, your financial future remains secure.
2. Death Income Protection: In the event of death, death income protection ensures that your family or dependents continue to receive a regular income, replacing the earning ability you would have contributed. This is vital for securing their financial well-being.

Final Thought:

Your ability to earn is one of the most valuable assets you have. Calculating its worth, like the R47 million in this example, helps highlight the importance of protecting it. Through earning ability protection and death income coverage, you can secure this valuable asset for yourself and your loved ones.