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Financial Planning Rant Real Estate

The debate around Rent control and Rental yields

Twitter, last week, was filled with a trending topic of #eigentumswohnung. The real culprit behind this massive outrage with an article on Rent control in Berlin, titled Ganz schön unsolidarisch.

The writer has ruffled some feathers, talking about people who bought apartments and with rent control, their yields will collapse. Germany, is a rental country, and very few individuals purchase houses. This opinion peace has received a backlash as rent control will be applied for next 5 years in Berlin. The issue in Berlin is a little serious as rental prices have gone up significantly in the last 5-6 years and risk gentrification. Sadly, all of this sudden hate resulted in the writer quitting twitter!

Now, am no expert on this topic, but a few months ago I did listen to Freakonomics Radio and an excellent discussion happened on this very topic, the website covers the most of it. Housing in Germany is a different animal, house supply is also tightly controlled and coupled with ultra low interest rates the prices are inflated. In fact Munich seems to be have been called out for this.

Suche Wohnung - Searching for an apartment
Suche Wohnung – Searching for an apartment

If you are trying to search for a rental apartment in Germany in a big city, you are probably competing against 60-70 other applicants at any given time!

At the time of this writing my portfolio has a cash component of 53% cash, largely because we are trying to save for a car and an apartment. The biggest challenge I face today is that our speed of saving is slower than the real estate price increase in our city.

For us, buying a home for self use is our primary goal, but we know that this will pin us down to a place. While I do not know what the future holds, but surely capping is not the right solution here. The demand for housing, social housing and approval of such plans has lagged all across Germany in the big cities. The fact is, people are moving to bigger cities, and rental control does not fix the lack of supply.

Sure, the rental yields will be lower, but at the current house prices, they are already insignificant. Getting a rental yield of 4% on an apartment of 400k EUR is just not possible, it may not be a great investment and might just get added to list of money mistakes.

Categories
Post Progress Report Series

Savings Update – October 2019

money jar
Another Money Jar!

Its that time of the month again, when we share our savings update! Last month we posted a savings rate of 45.7%, but as I had mentioned our savings rate is not as high in most months.

Our savings update for our individual savings this month were:

EarnerSavings Rate
Mr A21.1%
Mrs A46%

Our combined savings rate after combining our incomes is

28.7%

So, what went different this time and what is new?

Forced discomfort of upfront savings

My usual approach to savings has been to save a portion at the beginning of the month and then later towards to end of it. I felt that maybe I can push myself more and be upfront in savings.

This time I wanted to try to saving a 1000 EUR, and I transferred this to my savings only account within a week of getting the salary. It seems to have been okay, but a little uncomfortable in spending.

I will continue this for at-least 2 more months and check back if it is really makes me save better.

Higher than usual expenses in September and October

September is also the month when my toddler and I have our birthdays, we did spend some on celebrating and buying gifts. We did optimize on celebrating my toddlers birthday at home instead of booking a place like earlier.

Additionally, we had two Indian festivals this period and spent more on gift giving. This will continue for the next month as well, but then it will taper off and is expected at this time of the year.

Our Big Failure of the month

With all the extra new spend we delayed our remittance to folks back home. While there is no urgency to it, delaying it was not ideal and I need to fix this.

Outlook for the next savings update?

The outlook looks fine, we hope to go back up in the 30s next month as we expect our expenses to stabilize. I do foresee a repair expense of around 150+ EURs in the next week but that is unavoidable. I also expect some work expenses being paid out to top things off.

PS: October 31 is World Savings Day!

Categories
Rant

Side Hustles are hard!

Get yourself passive income, add to your monthly income stream to reach FI fast, I am doing it, and so can you.” Did you ever notice that far too many blogs and Youtube channels have these list articles, and explain how easy it is to side hustle. A typical post picks some Side Hustle statistics like the one below to prove how its way more common than you think, and how you are missing out.

The Millennials are at it again…usual suspects

Not convinced? Look at my recent Youtube search, the results were seemingly infinite!!!

The reality is, most of these hustles require way more effort and time, and do not guarantee a steady or any return. Sometimes, the ones telling you about the hustles are pushing their own ebooks or courses instead.

…..but Side Hustles work, don’t they?

Well, some of them do. The fact is, that only some side hustles or nebenjobs are quick to start with (Uber driving or food delivery) with no initial investment.

Most Youtube channels or blogs fail to indicate how hard it can be to start off on most side hustles, often they are touting their own storefronts, blogs, ebooks or online courses. Their platforms are for their own marketing. The lead time, the effort and uncertainty is often hidden.

No association with this guy, but he kind of covers every side hustle ever!

If it were all so easy, wouldn’t everyone be doing it?

….I think I can still my side hustle work

Great, if you have an idea or time to work on a side hustle you are confident with, then please go ahead and do it. I do not want this post to sound that this does not make sense and you shouldn’t try. All I wish to say is that be aware of the potential failure and hard work needed. Finally, be aware if it is a long term thing or a short term gig.

…so what does actually work?

If I knew, I’d be doing it :-D.

I think skill based side hustles really make sense, if you can coach a sport, or help kids with homework, or teach baking. Skills which are real, and local are the ones which I’d opt for.

Finally, first try to maximize your skills and income at your job, this will have a compounding benefit as you grow more.

…what is Mr A’s side hustle?

I don’t have one. I do get those ideas, but my daily work and family life keeps me occupied. A side hustle has a cost of time on it, and right now I am not willing to sacrifice my family time chasing a side dream. I am yet to have an idea which I feel can be long term sustainable for me.

I am yet to have an idea which I feel can be long term sustainable for me. Also, I do not regard this blog as a side hustle, I do have ads and some affiliate book links, but I’d be surprised if I can recover hosting costs from it (also not our goal)

Categories
Financial Planning Index Funds and Stocks Post

What is a Sparplan? What is Mr A really doing with his Sparplan?

Sparplan (I am so tempted to add a meme on this is SPARtaa..) is the way out of automatically managing your investments each month. It is an equivalent of a SIP (Systematic Investment Plan) if you are an Indian investor.

….when I login to my bank account, I notice two options, geldsparplan and wertpapiersparplan. What is the difference?

I use comdirect, and they have these two options, the main difference is:

  • geldsparplan – This savings plan simply takes money from your account and deposits into a Tagesgeld account which earns a whopping 0.01% interest (as of this morning) p.a. In other words, not worth it.
  • wertpapiersparplan – This savings plan is the one we need, we can setup a monthly investment amount and usually declare ETFs or even stocks to invest in each month.

….how much do I invest in a Sparplan? How much does Mr A invest each month?

As of this morning, I am investing 1098 EUR into my sparplan each month. This is mostly focused on diversified ETFs and 1 tiny piece of Amazon stock. I will write more about this in Portfolio page soon.

Let my number not scare you, I started really slow. I was investing less than 300 EUR/month an year ago and less than 200 EUR/month 18 months ago (2018).

As I have mentioned before and might do so again, we have to start with small steps and get comfortable. It took me a while to get comfortable with the idea of investing, and I started really slowly. I had never invested in Germany and had been programmed to be more cautious.

Can’t guarantee the numbers, but you catch the drift!

You can start with even 25 EURs/month, then and grow from there.

….what do I invest in? What are the pitfalls?

Picking your investments is a massive undertaking, but has been extensively covered in reddit.com/r/finanzen or on frugalisten.de forums.

The key pitfalls are, all investments carry risk, transaction costs charged by your depot account per transaction and TER (annual expenses) must be considered very carefully.

….but can I not simply buy ETFs each month on the go and not bother with a sparplan?

Yes, of course you can, or you can automate it and forget about it. This is the whole premise of the famous book, The Automatic Millionaire. If you really look at it, it just makes sense, one automated step which simplifies your steps to your Financial Independence.

It makes it easier for me to plan it and worry about one less then thing to do each month.

If you have more questions on sparplan, then write into the comments section.

Categories
Financial Planning Personal Post

Financial Independence is worthwhile for me, you and everybody. Period.

Have you come across internet posts which label the FIRE movement as a cult, or how meaningless life will be if you retire at 40, or how FIRE is all about those people who hate their jobs? My answer to them all is Nein, Nein Nein! Financial Independence (sans retirement) is a worthwhile pursuit meant for all of us.

Job Losses are a reality

Job losses are real, and a reality of business cycles

Bayer to cut 4,500 jobs in Germany

Ford to cut 5,000 jobs in Germany in savings drive

Bank Job Cuts Approach 60,000 as Commerzbank Plans to Swing Ax

Thomas Cook is no more – What happens to its 21000 staff

The above headlines are from 2019, and we are yet to announce a recession. All those big companies are shedding, and I can bet that most of the employees there are really good smart people, and have families to take care of, yet they face a massive challenge in the months to come.

Sure, the German unemployment insurance will cover 60% of their pay for upto 2 years. Will they find good jobs soon, with similar pay and satisfaction? How many will end up being long term unemployed?

Finally, what if you or I were among those people, with obligations to take care of. Wouldn’t having an active effort towards Financial Independence make it easier? You may start with a small rainy day fund, but aim for a long winter, every little step will count.

Let us drop the myth that you are only Financial Independent if you do not need a job anymore, you can be Financially Independent for shorter period of time as well.

..but I do not want to Retire Early…

Exactly, Retiring Early is optional, not even an important factor here. Sadly blogs and popular media obsess over RE more than they talk of FI. All steps taken for goals, investments are really oriented towards being FI.

JL Collins wrote an amazing book called the Simple Path to wealth, he talks about how being Financial prudent allowed him to survive multiple job losses.

..but to be Financially Independent, I need to be frugal, its hard…

Image rights : Pat Bagly

Balance, and disciple is necessary for any worthwhile pursuit in life. You can either do a crash diet to lose weight, fail and gain all of it back again, or make quality food choice which you can continue over long term and reap health benefits.

What I mean is, its still okay to have a coffee from a cafe sometimes or continue your Netflix subscription if that feels essential to you. Guilt tripping oneself for every spend is not the way to do it, but tracking or planning reasonable purchases is. (PS: You define what is reasonable)

However, If your balance is in spending everything, then you need to re-assess your priorities. The decision to pursue Financial Independence is also your own life decision, nobody can force you into this, you are the hero/heroine of your life.

..but Financial Independence is worthwhile for people with above average incomes, and I can barely get by

If you had been lucky to have enough in the past and this is a temporary blimp then attempts at Financial Independence would have helped.

In contrast, if you never got a chance to even start saving and have been struggling for a long while, then you need to seek help, it can be help to find a new job, or upgrade skills or even more. I can only suggest that you need to hang in there tight, and keep going.