Categories
Financial Planning Personal Rant

When you fail to reach savings goals – Survival checklist!

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.

Categories
Financial Planning

Lessons from actual monthly budgets in Germany

Budgeting!

This November, the Reddit Finanzen group had an explosion of budget threads. Many users shared then own actual monthly budgets in Germany and then there were shitposts… As Budgeting is an important step towards financial independence, it just made sense to write this post.

Even since I moved to Germany from India, I have noticed that Money is not a topic which seems to be actively and openly discussed. This was a great opportunity to see how people spend and save, and learn from them. Of course, survivorship bias exists on these posts, where people struggling with budgets do not share their stories (and I respect that).

I have handpicked three posts with very different life stages and circumstances. There are many more on the sub-reddit.

A 26 year old data scientist in NRW

26 year old Data Scientist, with a saving rate of 14.5%
  • The actual in hand pay for this person is 2400 EUR/month (Abzuege means payments to pension system, taxes etc…)
  • He has a decent saving rate of 14.5% each month, but is not investing at all.
  • Things at odd is that he is paying as much as his rent (550 EUR) on living expenses (including Hello Fresh). He explains this by sharing that he doesn’t like to cook a lot. I guess this is where he could optimize.
  • He is also paying for insurance for his girlfriend, which is a noble thing to do.

A double income, single child family in Bavaria

24.5% savings rate with a house paid off!
  • Love the amount of detail on this chart, but I find it also hard to navigate.
  • So the poster is a 50 year old with a wife and child, and is an engineering manager in Munich.
  • The total household income per month (without kindergeld/child money) is 6058 EURs. This is an amazing monthly income to have, and this includes around 427 EURs of passive income!
  • Their savings rate is 24.5% (1408 EURs). He also invests over 1k EURs in private pension plans and ETF.
  • The child is probably a teenager as there is a car insurance (PKV) for him.(wrong here, PKV is private health insurance)
  • They have a fully paid off apartment, and this is fantastic, because most people in Germany don’t own a home!

Unemployed Scientist and his Medicine student wife in their late 20s

Unemployed and yet saving 26%
  • This is by far my favorite post, this completely breaks the idea that you cannot save when unemployed! Of course, unemployment insurance is helping the Scientist
  • Their monthly income after taxes is 1736 EUR/month and yet they are investing 450 EUR/month (26% savings rate!! towards financial independence).
  • They do not own a car(car sharing) and live like students.

GetFI Takeaways from these monthly budgets in Germany

  • Savings and investing is possible at every income level!*
  • Your house rental or credit is a massive factor in better savings rate. All examples had fairly low rentals or a paid off house. I find it very difficult to find a house at those rents in my town.
  • The lack of credit card debt is obvious and good!
  • The stereotype that Germans are cautious with savings instruments seems to hold, many saved a lot but invest very little.

*I believe this to hold true only when housing costs stay <40% of your take home income.

Categories
Personal Post

Achtung! We can still fail to achieve Financial Independence

Achtung! Drop ahead.

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.

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 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.

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
Financial Planning Index Funds and Stocks

Will the next recession be the end of Financial Independence movement?

I had reserved my second blog post for sharing more about me and where am I starting from in my Financial Independence journey. However, an event much more important has occurred which may impact almost everyone planning for their FI.

Last week on Friday, the long term interest rates on US Bonds fell lower than the short term interest rates. This event, has been a precurser, to every recession in US in the last 60 years. Naturally, this has triggered a recession risk with analysts guessing that a recession is imminent in the next 6-24 months (thats a very wide range of time!!).

As the warning has been triggered, there is already a slight panic and selloff has intensified, across the globe. At the same time some academics and analysts are trying to cull the panic to say that this has not happened consistently for a longer period of time and may not mean a recession is near.

In any case, lets assume that the predictor will hold and we are heading towards the cliff. This means that the market should head for a correction of 20-40% at its worst. This will dip the stocks or index funds invested by this community of Financial Independence aspirants.

Lets look at the illustration below, the VTI was trading at its highest in 2007 (just before the last recession at 74.5 US$ and it fell down to 46.11 US$ on 17 October 2008, and then further to 34.06 US$ on 6 March, 2009. It then needed almost 5 years to reach its old heights in 2013.

The question now is, is it a good time to sell and make profits OR it is just wise to stay on track and not blink as we hit the iceberg?

Its impossible to predict when will the recession risk will or how deep will it be. In the end one needs to think on our feet and act accordingly.

Cheers!