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Financial Planning Germany financial products 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. I am personally a big fan of Index funds, which are lower in costs and deliver average returns.

….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.

Update: 22 June 2020

How do you open your Sparplan?

Comdirect:

Schritt für Schritt Anleitung für die Einrichtung eines ETF ...
If you have an account, get to the Wertpapiersparplan
  • Find your preferred ETFs on justETF and find its WKIN number.
  • Login to Comdirect> Geldanlage> Wertpapiersparplan
  • Click on Sparplan Einrichten
  • Enter your amount, minimum being 25 EUR. In the next screen you pick the funds.
  • Search for the WKIN which you had picked, add multiple funds if you nede.
  • Note the amount and the provision fees, i.e. 1.5% of the money invested goes into the fees.
  • In the next screen pick the frequency (monthly/once in 2 months/4 times a year), the date to buy and length of the plan.
  • Furnish your confirmation TAN and you are ready.

Quick questions on Tax and Residency

  • What is Capital gains taxes in Germany? The tax rate is 25% plus 5.5% solidarity surcharge, this should be paid at source. Some depots like Degiro do not offer this at source, and you need to take care of it in your returns.
  • Any tax exemptions on Capital gains? Capital gains of upto 801EUR are tax free, so for a family, this can be 1602 EUR.
  • Any special exemptions on Long term capital gains? Sadly, none.
  • Can I open a Depot account as a Work permit holder or PR holder? Yes, this is absolutely fine as you are tax resident of Germany.

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.

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Post Progress Report

Savings Update – Sep 2019

Time for our first savings update, we had been trying to be more efficient for a few months now but it was to complicated too calculate for many reasons. As a result, its only in September that we are able to properly do it. One important rider, we weren’t super frugal, we still ate our and rented car for trips.

Money Jar
Not our money jar

We both have different payout dates, so I am trying to align our incomes in the same pay period and share the final percentages.

EarnerSavings Rate
Mr A35.1%
Mrs A 77%

As both are incomes are different and Mrs A is part-time at the moment, and thus when we do an actual calculation, we get to the below:

45.1 %

The month was an exception and I think our savings rate will average between 30-33% for an year.

So hang on for the next savings update. Next time I’d also share successes and mistakes of that month.

In other news, Germany’s Household Saving rate is 10.8% in 2019, which is a big ass number!

How much are you able to save now? What is your monthly goal?

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My Money Mistakes Personal Post Series

My Money Mistakes – 2019 edition

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

Categories
Personal Post

Decoding my relationship with money

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.

Retirement planning

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?

Categories
Book Review Financial Planning Post

Book Review: Playing with FIRE

Playing with FIRE, book cover
Playing with FIRE

Playing with FIRE (Financial Independence Retire Early) is a book by Scott Rieckens. I picked this up over the weekend after looking at the trailer of the documentary of the same name. The book (and the documentary) takes us on the 1st year FIRE journey with Scott and Taylor. It covers their journey from living in California with perks like a BMW and a boat club membership to becoming FIRE ninjas.

I would like to say it is a GREAT read. It is recommended for people who are just getting introduced to the concept of FIRE and aren’t really confident on where it might lead.

The transition of how Scott and Taylor go from expensive life choices to making intentional and conscious life decisions is worth in gold. It also easy to connect with their story, given that they are a normal young family like mine. Additionally, I also found frank confession of fear and struggles of Taylor to buy-in to the whole FIRE concept specially relevant. We find hard to convince ourselves with this kind of a lifestyle choice to gain Financial Independence in-lieu of expensive choices.

The book is an easy read and can be finished over a weekend, and I would highly recommend it. My only gripe with the book is that I would have liked Taylor to give more than just snippets here and become a co-author in the next edition (if there is one), her take is as central as Scott’s.

Finally, some readers might complain that it does not offer specific plans or approaches to Financial Independence. My take here is that specific plans are already available via various blogs including this one (and you start can by visiting I will teach you to be a Millionaire).

How it impacted me?

This booked sparked our first proper conversation as a family about Financial Independence. Not only did this make my spouse curious, we ended up watching news snippets on FIRE community and the trailer of the documentary.

My spouse is on-board with this, and her first comment after viewing the trailer was:

This is all so true, and makes so much sense. We could become financially free and then pursue passions which we like’.

This has been a major WIN for both of us and I’ll write about this in my next post. I sure hope they have the Playing with Fire documentary show planned in Germany.

Highs

  • Easy to read language
  • Easy to connect to their situation
  • Good and simple introduction to FIRE concepts
  • Little Math
  • Helped spark a deep conversation on FI with spouse

Lows

  • Lacks enough takes from Taylor’s perspective
  • May not serve as a blueprint for the readers

If you are interested in buying the book, you can use the link on the right (and I’d get a referral).

Categories
Financial Planning Post

Maserati dreams for Financial Independence dreamers?

Fridays are usually more relaxed than most days, and I often take my toddler to his day care (KiTA), we take a public transport street tram to a stop 12 minutes away, and then depending on his mood and weather, its either a stroller or his laufrad (walking bike) for the last 6-8 minutes.

Last Friday was the laufrad day, and he was loving that last stretch on his bike, giggling as we strolled away to his daycare. After dropping him there, I picked his bike and started to walk back to the tram stop. As I left the daycare, a Maserati Levante rolled up in the parking with another dad dropping his kid.

Breathtaking, isn’t it?

It wasn’t the first time I had seen this one, I have also seen people arriving in Porsche’s here to the daycare. Yet, each time I witness these cars, I am also reminded that I am 35 and I am yet to own a car. It also reminds me that these guys may not be much older than I am, and are possibly so far ahead of me that I might never catch up, they are the Top 1% of this country.

If those cars are a sign of their success and hard work, then is my using public transport frequently in comparison is…a sign of not being successful?

Many years ago, when I was 19, I had declared to a friend that I will own a Mercedes by the time I will be 25. At the time Financial Independence meant that I could spend money the way I wanted. Looking back, it was fine to dream big, but stupid to not have any plan, at 25 I had just about enough money to buy a 400 EUR laptop.

So back to the Maserati, it took me a while to recover from comparing myself with the rich dad, and reevaluate that today even if I cannot get a Maserati, I can very easily get a Mercedes on lease, but do I really need one? For anyone aiming for Financial Independence, one has to be stubborn about making intentional choices and decisions towards your ultimate goal.

Have you ever felt comparing yourself with others, based on their possessions? How did you tame your mind and cope with it?

Categories
Post

How rich or poor are you in Germany?

Yesterday I visited a the website of Der Speigel, this news website has an active finance section, and it has come up with a Survey which allows you to check how rich or poor does your income make you in Germany. This is based on a survey conducted since 1984, with over 14000 households and 38000 participants.

How rich are you in Germany/?

The study has very interesting conclusions which can surprise you, the big takeaways for me were:

  • Average net income (after taxes but including income from all sources) is around 1869 Euros/month.
  • An individual (not household) income of 2805 to 4673 Euros/month puts you into an upper-middle class income bracket.
  • If you earn more than 4673 Euros/month, boy you are rich!

This study is has a few surprises because people do not believe that they are upper middle class or even rich. In order to put more realistic calculations, the researchers have also weighted down incomes into a demand based adjustment, for example, if you are single an income of 3440/month puts you in top 10% while if you have a family with 2 kids, then you need 5160 Euros/month to belong to the same group.

While study only talks of incomes, and wealth distribution in demographic groups, and also mentions risks of poverty for these groups, it does not talk about saving habits and investing philosophy of the people or the presence of income outside of their primary occupation. It also fails to address Net Worth, and only looks at a monthly income as a measure how rich or poor one is, this completely misses on the debts/liabilities a household would have.

You can check out the interactive graph here, and download the summary of the report here (German).

Do you agree with the findings of the report? Please share your opinion in the comments below.

Categories
Financial Planning Post

You can be a Millionaire if you Save, invest and repeat!

how to be a millionaire

Over the last few months I have actively enjoyed reading various blogs, websites, listening to podcasts and participating in forums on the topic of FIRE. Nobody can really teach you to be a millionaire, without really knowing your personal situation and struggle. However, you can still take first steps towards it by Save, Invest and Repeat.

Reading other popular FIRE blogs and hearing podcasts is also scary. There are so many active participants who are younger than I, and are miles ahead. Many earn way more than I do, and seem to have figured it all out.

At this stage, it feels like a lost opportunity, but that does not mean we cannot start now. Being late to the party does not mean we won’t enjoy it. Maybe Save, Invest and Repeat (or SIR as I would like to call it) later than others will not make you a millionaire, but it will still get results.

So, the first step is setting your goals, the s is in bold, because there are no singular goals in life. Instead of just looking at a goal of say 1 million Euros at 50, lets break them down to chunks which will allow us to focus on shorter time periods.

How do I set my goals when I do not know how much I will need after retirement! True, but you can come close in estimating it, some mention that 70% of your average expenses are a good indicator. However, the problem with this approach its more accurate as you age and less accurate if you are relatively younger(because inflation and life events will change this). The other way of doing it is tracking your monthly expenses for upto 2 years, remove those expenses which you believe will exist at the time of retirement and then estimate your monthly expenses. The big ticket fixed numbers will not vary so much.

Minimum expected expenses =  (Average Monthly Expenses Now - Expenses Not expected to happen at retirement ) 

Finally,

Real Retirement Needs = Minimum expected expenses + Unknown + Old Age Tax
Here, 
Unknown = This is a number which we cannot plan for now, so assume a percentage (say 2%)
Old Age Tax = For lack of a better phrase, it is the costs of care and services needed at the sunset. It may be circumvented via care insurance.

So, now may I ask you to first come up with your magic number?

Next step, setting up a plan with byte sized goals.

Categories
Post

GetFI – The Manifesto

I have been following blogs, books and podcasts on the FIRE movement, some of them are simply brilliant but yet most are often relevant if you are from the US. I believe German content or other European content might also exist out there but with my crap language skills its all but a lost cause.

So, our goal is to write blog posts and share ideas/insights with the goal of attaining Financial Independence or at-least getting close to it. I would like to outline the GetFI Manifesto.

The GetFI Manifesto :

  1. I am by no means an expert, which means there might always be a better way of doing things. If you notice that, share your opinion and correct me.
  2. I will not sell products or services barring having ad support on the website or referral links of services/books which I actually use (without sponsorship). This is also because I only aspire to monetize this blog to the extent of making it pay for itself.
  3. I will help you make a plan if you wish to share your financial challenge or situation, and publish them only if you give consent.
  4. I will also share a list or reviews of podcasts, books and other media which I find interesting or relevant.
  5. I would love if you say Hi and spread the word. At times I will hold giveaways, because writing without anyone to read is often uninspiring.

So, if the above makes sense, and you are in the mood for making changes for a better future, I suggest you to start with You can be a millionaire.