2020 has been a strange year, of many firsts for all of us. Here’s my big first time project: Writing a book! It is called MONEY FIRST, and I am very excited to share it with you!
My book will answer questions like,
How does banking work in Germany, how can I save on bank fees?
What is SCHUFA, how do I get a free SCHUFA report, how do I maintain a good score?
How do personal income taxes work in Germany?
Which insurances should I buy in Germany?
How do I invest money in Germany? What is a Depot, Sparplan? How do I manage taxes on capital gains?
The Corona crisis has upended our lives, suddenly a trip to the grocery store is the biggest outing of my week. Everyone’s facebook and instagram timelines are more like #latergram and no projections of great lives. Instead its all about survival, and waiting it out. The crisis has also led us to evaluating our money habits and look at what really matters.
If you have not looked into your money habits, and have some time at hand, it is a good time to try it. I will suggest a few things at the end of this post, jump through if you are in a rush.
Now, lets look at our money habits:
Lesson #1 : We ate out more than we realized, and it was affecting my health.
nom nom!
We used to believe that we only ate out 3-4 times each month, when we go out as a family to a restaurant. Its our escape and sometimes it was also a way to close a busy exhausting day. Now, even when we are often working late in the evening and struggle with childcare during the day, we make it a point to cook. The only luxury has been frozen pizza.
We had simply failed to count the coffees, croissants, ready to eat salads and on the fly noodle trips which are all less than 30 metres from our apartment. None of these are very expensive luxuries but they added up both to the bills (>150 Euros a month) and to my waistline. I lost a couple of pounds in the first weeks of the isolation.
Will we never eat out? Of course we will, its still our escape, but this financial habit needs more careful consideration.
Lesson #2 : Many Most of our purchases are non essential and not critical
Last weekend we watched The Minimalists documentary, while the lifestyle is too extreme but it has a lot of value. Our realization was that we are not as frugal as we thought ourselves to be, we have accumulated hundereds of tiny objects instead and struggle with clutter.
The result has been a clean up exercise, I have reduced my wardrobe by 30% of all clothes, and reduced the books I owned. While this new excitement is great, I am not sure if I can sustain this.
Lesson #3 : Great experiences have little to do with the price
We like to travel, 2-3 trips an year has been a normal for us, and a few day trips during summers is refreshing. We have always been careful in budgeting and booking except a few times like last year. With no option to travel on Easter, cancellation of our parents trip to Germany and no bookings in place for summers, we are home and trying to make the best of it.
A walk to the river on a sunny weekend and the ability to experience spring without the noise of cars swooshing by has been refreshing. We didn’t need to spend any money for that. I have also learnt to make peace with no trips, and we are doing fine (for now). Of course, I fully realize a walk down the riverside cannot replace a holiday, but the ability to adapt is the biggest strength of being human.
Lesson #4 : Happiness exists in tiny things each day and not in big goals.
We knew that consumption is not sustainable, but the real realization only came in during this isolation.
Spring this year is quieter and fresher.
I realize that blowing bubbles in my little balcony with my toddler is a source of happiness, or 20 Euros worth of sand is enough to give him a feel of a playground right in that balcony.
I also learnt that things which I used to think what a family man should provide like cars or house with a garden do not matter to my family. In the long run, those things might be useful, may even be a measure of success to some, but are NOT a measure of happiness. This money habit of comparing myself with others, has to stop.
Lesson #5 : Fear is a great motivator to save and invest in your future
As Coronavirus has hit industries, some of my customers are struggling too. At the moment, my job seems safe, but it can all change. The result of this is two specific things I am now actively focusing on:
Investing in myself: I am actively learning new skills, so make myself available for more projects and also secure myself for a a shaky future. I would like to prepare for what is to come after coronavirus.
Counting our blessings and tightening our belts: Over the years, many people in our life questioned about why we moved to Germany. The answer rings true today, if things go awry, the German social system and the health care will be around for a while to allow us to recover. To top this, we are holding more cash than before, because these are uncertain times.
How can you evaluate your own money habits?
I have a simple list of questions you can ask yourself. I must say, your answers or goals can be very different from mine and that is fine. If money inspires you and a Tesla is your dream, so be it.
What are the top 3 life goals for you? (hint: Money, Relationships, Career or Health).
Has the isolation changed for you in terms of spending? How?
What is the one thing financially, which you are not able to do, and it still feels fine?
What is the one thing in terms of spending, which you are not able to do but would like to continue?
How prepared are you if there is a loss of hours or job loss suddenly?
I have a confession to make in this post. In the months of November and December, I failed to reach savings goals. I saved nothing in November and saved half of what I wanted to in December. Es ist mein schuld! It is my fault (schuld is also used as the German word for debt!) and am now trying to cope with lack of discipline while chasing Financial Independence.
Did Black Friday made me fail to reach savings goals?
The truth here is a combination of gift giving and planning for future travel. In the past 30 days I spent money on gifts for our anniversary, my wife’s birthday, a dinner on that birthday and gifts for a friend who just got married. You see a pattern here?
How did I get there?
My failing to save in November was quite disappointing, and I had resolved to make amends in December.
Come December, I fell off the wagon, I avoided reading any FI content to hide behind my shame. Today, I finally felt brave enough to look myself in the mirror and forgave myself.
I have little regret for spending money on people I cared about, and was conscious to not go overboard. What I did fail at was not being able to plan these expenses.
and survival checklist?
Ah yes, the Dave Ramsey approach is to eat rice and beans! My checklist to survive when you fail to reach saving goals:
Is this a symptom of a bigger issue? Am I not able to control myself here? No
Is this temporary or a permanent expenses which I cannot handle? No
Were my savings goals too big that they simply put me off and I felt I won’t get there anyway? Maybe
So, I aimed to save more than 1k EUR per month, and the goal was far too high to achieve. Like my dieting attempts, the high goal simply made progress impossible. In the tight months I could have lowered the targets and survived the frustration.
My survival tip to manage goals is to attempt Incremental changes, small steps lead to big results, else your old habits are hard to break. In fact in a way I just ignored my own advice.
I also suggest this beautiful Everyday App, which makes it super easy to track changes.
I have not been a keen imitator is template dreams, I still do not own a car, and have argued against buying an apartment at home. However, recent changes in the local European interest rates, changes in life situation and simply higher rents made me start believing that we could own a home. However, recent events have just made us decide that we have to delay buying our home.
For Sale
Why buy when you could have rented Mr A?
True. We tried and are failing.
After becoming a parent, the limitations of the space in our current rented apartment and the struggle of our visiting parents climbing 3 flights of stairs made us search for a bigger rented apartment.
Yet, with the constant struggle of applying and never being called to visit, and the few instances when we did get to visit homes, we are facing an uphill challenge where a bare increase of 10 sq.m area is going to cost us 40% more in rent. Rents have simply skyrocketed in the last 3 years. Additionally, we cannot simply move too far as we are bound by constraints of the daycare (already 7 km away). Thus the brilliant idea of buying an apartment was born, and we started to save for it.
You have to delay buying a home, because you do not have the money, isn’t it?
True again. Isn’t that always the case? I had been keeping an eye on a new development which was in a perfect location, and closer to the day care and yet not so far from the town center. An year of more purposeful saving made us come close to around 12% of the house value we had planned for (based on prices in the same area 18 months ago).
The price list came through on Monday, and it simply crashed through our plan. The prices of the apartments have risen higher than we had estimated, and our down-payment is lower than we wanted. I know I can probably get the apartment at 90% mortgage. I am tempted to try this, the apartment seemed perfect and had parks and no drive zone for children. But paying more than 35% of our monthly income for 30 years and extra maintenance money on top is not a financially wise decision.This is not how we Get FI! I do not want to write this purchase to be the title of my next Money Mistake post!
My wife and I had a long discussion this morning, and she just said,’We cannot take a 30 year mortgage which eats 40% of our income, this is stupid given that our child will be out of his daycare in 2.5 years‘.
She is right.
Delay buying a home. Hurts.
So, we have now reassessed our dreams and take a step back. We will save more next year, and are looking at places within our budget. Hopefully it might work out in 2020. I know I really liked that place, but I also like Maseratis…
In the end, our homes are our safe spaces, and it is our loved ones which make them a home else they are just brick and cement.
Let me state out this in the first sentence, “I am not an expert on this topic, I am fiddling around and will help you figure what I already know. I am not even 7% of my FI Target and I can still fail to achieve financial independence”
But, I am confident that I will do better than what I was doing earlier (which was nothing), I might be slow or fast but I will get there eventually!
…but if we fail to achieve financial independence, we are screwed!
No, of course there are pitfalls on your journey to attempt to get to financial independence, let us not make it sound easier than it is. That side hustle may not work out, your pay rise may not happen, sickness can happen, repairs, car breakdown, bad investments and so on. There are a million unknowns which may or may not happen, and we cannot control them.
The only thing we can control is, our reaction to them, and still keep moving forward. So here are some postulates we can work with!
Some saving is better than no saving, it can be 50 EURs instead of 250 EURs you had assumed. It still counts.
Markets, be it housing or financial, will crash and rise.This is not in our control, but what is in our control is to invest for the long term.
Health beats any hustle or job, eventually ignoring your health will cost you the very same money you made by ignoring it.
Missing goals and targets in short term is normal. Don’t sweat it, bad days or weeks or months are natural!
Inspite of all the money talk here, money is still not the most important thing in life. So, live a little!
So, all I am trying to say is, start now and work towards this hard but worthwhile goal. We might be slow, or not achieve 100% of the target, but we will not even up in mud. Unless you make really serious mistakes, you will not end up broke.
Besides do you even have a choice?
When your rentenversicherung(pension) will get you less than 1k EURs after working for 35 years, and your retirement date will continue to climb up to almost 70, how will you survive? Old age poverty is as real as it can be.
Our current social security system is not sustainable and will be either barebones or collapse completely by the time we age, and we need to find a way to supplement the gaps in our income at that age.
Old Age Poverty in Germany
So, as I said it before and will repeat, it is all worth the effort.
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
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.
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.
While we are on the topic of my relationship with money, I would kick start the series of My Money Mistakes and make it an annual edition. The year is yet to close, but I think I have already done the worst ones.
Our Goa trip; can’t remember the taste anymore..
Each year I make stupid money mistakes, which I mentally tag into my stupid mistakes bucket. Small bad purchases or misses which result in this are allocated, and try not to beat myself over them. My Money Mistakes is not about those accidental events, but of seemingly deliberate stupid decisions I have made, and will make with money.
This year, I have two really good candidates,
Trip to India, to attend a destination wedding and never getting to meet my own immediate family. We planned months ahead, got tickets for the three of us, survived 13 hours of flights (and a bomb scare at the airport) with a toddler to attend a wedding and meet old friends for 10 days. We did take a few days off after the wedding to stay in a resort and enjoy Goa (look it up, nice place). Yet, if I add up the tickets+gifts+wedding wear+hassle we had to go through, the trip was just not worth it.
Apart from a damage of over 3000 euros, we got sucked into showing off our well being (the indian way). We did enjoy meeting some family members and friends, but this could have been done differently at another time. Never again.
Investing in Cannabis stocks. You can already see where this is going, I bought into CGC and AC stocks, both of them tanked horribly. I had a stop loss and luckily only experimented with 300 bucks, but even with that a loss of 21% in value hurts. Clearly I was high without learning the specifics. Will-not-repeat. (Side Note: On the other had I sold off Shopify which I never trusted and still made a profit, it is still going upwards but I don’t buy it.)
Would you like to share a mistake you made with money in the past year? Maybe we learn from it
The reason behind sharing this personal story is to decode my relationship with money, this post also puts out into public the story of family’s struggles over the years.
As mentioned in About Me, I am from India, my parents continue to live in India. Born into a relatively wealthy family, my father opted out of their business and went on to work in a government owned technology company. He did well for the first two decades or so, managed to build himself a house and grow in the organization. My parents were always cautious in spending and these values passed on to us.
Strike 1: Depletion of Investments and Faith
India had to opt for various reforms in early 90s, which opened up its markets to global investors. In 1992, the BSE Sensex grew from 2000 points in January to over 4467 points in April. This was a massive bull-run, fueled by stock price manipulation orchestrated by Harsad Mehta. On April 28, 1992, the market crashed by 12% wiping off billions of investments.
This single event resulted in losses for my father, as a result of it, he never spent a single dime towards market investments. The faith on market forces was broke, and remains to be so. He missed on the growth options available.
Strike 2: Surviving on partial pay for almost a decade changed the relationship with money
As a result of economic reforms, state owned companies started facing massive competition from new entrants, their inefficiencies/mis-management laid bare and my fathers employer ended up being a loss making firm. The direct impact of this was overdue salary payments, take-it-or-leave it early retirement options became the only choices.
Multiple years of partial pay meant we struggled managing our lives, and were extra frugal for many years. The unpaid income is lost, and has never been paid. He finally opted out with an early retirement. Switched careers in mid-50s to become a professor and lasted another decade. This helped him build a little corpus and helped his confidence.
Personal memories
The topic of money was not openly (and still is) discussed, we had no real financial education except for being frugal. I believe that there was a sense of shame for them, for they actively tried to hide their situation with their friends or family.
I still remember an argument between my parents when my father had to pay extra 300 INR (5 EURs) for an AC train ticket for me. This was because I was to accompany a cousin who could afford to travel in AC. It was one of the few times when the strain was laid bare.
The other event which I remember is when I was about to start my first job, and he wanted me to take a flight the first time. To support this, he took a personal loan and give me a little bit of money for the first month. He simply had no savings to help me out then, but he was proud of me. I am happy to add that it was the last time I asked him for money during my working life.
So, my relationship with money?
Save. Save. Save. Be frugal and careful on how you spend money. The result is that whenever my monthly account goes below 10% of a month’s pay, I feel stressed.
Do not invest. The market is rigged. It has resulted in me avoiding the market, and even when I started the invested amounts were minimal. It is only in my 30s that I understood my mistake and have tried to fix it.
Security over risk. I am pretty risk averse, be it investing or career. This remains to be a barrier, and I believe being FI will allow me to take those chances.
Don’t talk Money. We don’t speak money with each other. This has lead to a situation where they think I do not earn well enough because I am frugal!
Do you have any stories to share about how your relationship with money was shaped?
