Early Retirement · Financial Independence

Setting my FIRE number 2020 update, when can I retire early?

Previous blogs: Setting my FIRE number: when can I retire early? (2020)

In 2020 I made a first attempt to update my FIRE number, I was not really sure how to calculate it yet, as there was no sure way to calculate this in Belgium. Most calculation models are based on a US model where people need to save themselves fulltime for their retirement. In Belgium the situation is a bit different, as we have three pillars for our retirement

What pillars do I have?

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The 3.5% rule

Before starting I just wanted to give a quick recap on what we call the 3.5% rule. Actually a lot of FIRE blogs will stick to the 4% rule, but the 3.5% rule is actually a lot safer. It assumes that the stock market will go up every year on average with 3.5% + the inflation rate, giving you enough money to survive every year. You will not have to worry about the stock market going up or down, as it usually does, but instead you just take 3.5% of whatever is in your portfolio every year and survive on that. That should be small enough to have an ever-lasting portfolio.

My state pension

If the law does not changes I will get my state pension at 67. This is the age that the government wants people to retire. There is an online app called mypension.be where you can actually see how you get at the retirement age.

While many European Countries give a pension this pension only comes at a late age. In Belgium its 67! It might be that by this age the age has moved back again. You shouldn’t take the risk to let the government decide on when you can retire. At the very least you need a backup plan.

But assuming that everything is going like they tell me now I will get a pension at 67. The height of this pension is depending of how much taxed you paid and mostly how long you worked. Additionally you can buy off educational years (up to 4) that you studied. This is quite cheap if you do it within the first 10 years after graduation, but after that becomes expensive fast. Its especially useful if you plan to retire before 67, if not then its probably not so useful for you. I have bought off these years for this reason.

My pension looks like this, it means the longer I wait to retire, the higher my pension will be.

You can see that if you work until 67 that even then the retirement money is not so high, only 1934 EUR, unless you own a home it will not be enough to have a comfortable retirement, especially since you will have more medical bills and probably more staff such as house cleaners since you can do less yourself. In other words, additional funds will be needed. So that means even if you do not plan to FIRE you really should start thinking about how you will manage when you retire as the state pension will most likely not be enough.

In case you want to do the simulation yourself (as a Belgian citizen), you can do this on mypension.be

The second pillar: Occupational pension

My previous job invested about 1% in a work pension, my current job even invests 6% of my yearly wage into a work pension. That’s quite interesting, because as it turns out it can grow to quite high by the time you are 67. The downside here is that the growth is limited by the minimum growth the government says the fund should have, which is pretty much the inflation. Still its a very nice boost you would get at 67. Using the 3% rule it would give me an additional 637 EUR at 67 if I kept working until then.

The Third pillar: private pension

The third pillar includes an extra pension saving plan that the government is giving Tax advantages for. You can save about 1260 EUR per year in an additional pension fund and withdraw 30% from your taxes when you fully invest inthere. The downside is of course that these funds come with considerable costs and the returns are not necessarily higher then what you invest yourself. I do invest fully in these funds because:

  • Its only 1260 EUR per year
  • The less taxes I pay the better

For the growth of this fund I have assumed a modest 3% growth per year, this together with my yearly investment, gives me the following income at 67, depending of when I stop working:

So another 252 EUR income IF I stay on the job force until 67, giving me a total of 2854 EUR. I would say this is good news. If you are in the workforce, and don’t want to worry to much about retirement and don’t mind to work until 67 then your pension should be high enough to cover your retirement.

Its only when you want to retire before age 67 that you run into a problem. Say you want to retire 10 years earlier I would only be left with 2242 EUR at age 67 plus I would need to find a means to survive for an extra 10 years. It gets more difficult if I wanted to retire at age 47, as then I would only have 1644 EUR at 67 plus a 20 year gap I would need to fill.

The fourth pillar: other investments

This is where my fourth pillar comes in. While officially its part of the third pillar, I prefer to classify this under a second pillar. This is where you store your additional investments in real estate, the stock market or other type of alternative investments.

In my case I plan to invest right now about 800 EUR per month in this fourth pillar. I already have 47.000 EUR invested inthere. The good thing about this investment is that you can start withdrawing whenever you like, so you can use this portfolio to bridge the gap between when you retire and the official age of 67.

Now I am assuming a growth of 6% per year for this porfolio and with a monthly investment of 800 EUR per month, the growth cycle looks like this:

Meaning at age of 67 I would be able to withdraw 3220 EUR safely or combined with my other pillars almost 6000 EUR. A pretty wealthy retirement right?

What about retirement before 67?

Right the interesting part. Of course we don’t need 6000 EUR / month to survive. Even half of that would give us a very comfortable wealthy lifestyle.

There is two main things that affect your retirement age: how much you invest, and how much you spend. I really do say how much you invest and not how much you save, as you might be setting aside money for other goals as well. In my case I am also setting aside cash to invest in a house for myself so I am not investing everything that I save. Its important to make this distinction for yourself as I really do consider housing to be important.

But for those who want to retire before 67 (or who knows it could be higher as the government increases this number)

Lets calculate my FIRE number

2019 Recap

In 2019 I calculated that my FIRE number was 983350 and I was 3.7% along to FIRE. This was based on my current portfolio and a yearly expense in 2019 I had of 29501 EUR!

I did had 29501 EUR expenses in 2019, but also a great income. This year my income dropped with about 20%

It was a pretty huge number, both in terms of expenses as in terms of FIRE number.

What changed in 2020

In 2020 I had about 25000 expenses, so I actually managed to lower my expenses with 4500 EUR! Thats pretty nice. Lowering expenses actually makes it easier to retire. For me I noticed I spend huge amounts on restaurants so just cutting these out already allowed me to save a lot more. Granted Corona did help a lot with that!

I calculated that in 2019 I needed about 27 years until I FIRE’d. This was still better then the 32 years to go to official retirement. My income dropped with about 20% in 2019 because of Covid, however because expenses matter so much in terms of FIRE, I actually managed to cut off another 8 years from my retirement. I am now planned to FIRE in 20 years! Of course I want to try to lower that a few years more. This shows to me that FIRE is not a one set number you calculate once and it stays like that, infact lots of things can influence your FIRE number such as buying a house or having children. Its not because today I can FIRE in 20 years that this will be the same number next year.

I can also say that where in 2019 I was 3% FIRE, I am now 6% FIRE. This is going up slow, but thanks to compound interest the number will accelerate as it grows larger.

How to deal with purchasing a house, children

Well its because of these additional expenses I am only investing a fixed amount. That means higher saving rate does not necessarily lower my retirement age. I invest a fixed amount of 800 EUR in the stock market every month. Once I bought my house then I will consider to increase this number, but I expect it to be fixed in 2021.

Additionally I am slowly starting a house-saving portfolio. So far I put money I saved for a house in the money market, but I realized that the hunt could take longer then expected and then its good to be covered somewhat for inflation. It remains risky to do something like that because it might be cash I need on the short term, but I found that keeping it in money market is just as Risky, as the prices of houses go up and the value of cash goes down. To limit the risk I am moving the cash with about 2000 EUR per month from money market to the stock market. More about that in my December portfolio update!

Interested to follow my progress? Follow me and join me on my Roadtrip to Financial Independence!

Early Retirement

Five steps to take in 2021 to start your FIRE journey

FIRE is a marathon, not a sprint. And like any marathon you need to prepare. You won’t know where you are exactly until you prepared. With a new year coming up now is the perfect time to set these first steps! Trust me all the calculators online and simulations online will not be able to tell you the same as your very own data.

1. Start to track your income

Probably most people will be able to give some indication of how much they make per month. But what about your holiday bonus or end of year bonus? What about your tax returns? What about side incomes? They are quite common in Belgium but most people don’t know how much this exactly is. So how much do you actually make in a year? How much is your income rising each year? Start writing this down every month, and do this for at least a full year.

2. Start to track your spending

White tracking income is for most people fairly easy as its just writing down wages and tax returns every month spending is a bit more challenging.

Now firstly you need to decide where you write this down. My personal favorite: google sheets. You have it online, on your phone and has all the basics you need to start.

To make it a bit easier to input data into google sheets you can use side tools. For example KBC has a very good tool that is already displaying your expenses in different categories. I use much of the same, or at least very similar, categories in my sheet. Check out what they are on my monthly savings rate reports. My categories might not be the same as yours by the way. You don’t want your categories to be to small or to large.

3. Research investment opportunities

Rushing into investing might be an expensive lesson. Do your research first. Check out FIRE bloggers who have been on this journey for years and learn from their winnings but more from their mistakes. For example when I started I thought peer to peer was a good way to reach FIRE but it turned out to be very risky.

98% of people going for FIRE will concentrate on the stock market and real estate. Stay away from alternative investments and go for the types that are proven to work.

4. Find out what really matters in life

FIRE is about what really matters to you in life and what makes you happy. For example when I started tracking my expenses I found out I was spending 500 EUR on restaurants per month. To be honest I eat out to be around people, I personally don’t mind that much if I eat a home cooked meal or a 3 star menu in a restaurant, its just fun being out.

So I budgeted myself at 100 EUR per month for restaurants, avoided high-cost restaurants and ordered more often simpler food if I did go out, like croque monsieur for example.

In order not to alienate myself from others I started focusing more on sports and found that this is actually a good way to be around people as well. One downside is that sports costs as well. But at least when you buy stuff its much longer lasting then a 1 hour meal.

Find a good balance between going for FIRE and living your life. your life on hold to save every penny. Knowing what makes you feel good and what can make you happy without spending needlessly is a good start. Make sure you make progress but also avoid putting your life on hold since even in a marathon you need to stop for some food and drinks from time to time to keep you going.

5. Decide on why you want to retire early

Lastly you need to know why you want to retire early. This will help you in your journey to make the right choices. In my case its not necessarily because I don’t like to work (although I do have some of those days) but its also to keep my options open, and because I don’t fully trust the Belgian government that they will have enough money in 30 years to let me retire safely.

2021 is coming and its the perfect time to start to plan! Remember this is your preparation, only when starting these 5 steps you will be able to take the next step to calculate when you can actually FIRE.

Early Retirement · Financial Independence

Setting my first FIRE number: when can I retire early?

How could I have FIRE blog without a plan to retire early? Its time to change that!

What is a FIRE number?

Your FIRE number is the number you need to retire. Its the amount in investments you need to reach before you can officially say you have enough money to no longer work for the rest of your life.

While many European Countries give a pension this pension only comes at a late age. In Belgium its 67! It might be that by this age the age has moved back again. You shouldn’t take the risk to let the government decide on when you can retire. At the very least you need a backup plan.

How do you find your FIRE number?

So how do you calculate that number? The first thing you need to do is to track your expenses. If you don’t know what you are spending you will not know if you can retire or not.

Once you have written down your monthly expense every month for at least a year, then you can calculate your fire number. You just add all months up together then you divide it by 3.5 and you multiply it by 100.

3.5% is the number you could withdraw reasonable safe every year from your portfolio without needing to worry about money for the rest of your life. The stock market still goes up 6-7% by average so normally your portfolio should even grow with this number.

There is different numbers outthere. Most of the FIRE community choose 4%, and actually 4% is quite safe for the majority of the time. But I feel its always good to build in a little bit extra safety. But if the stock market goes up 6% per year why not choose 6% as withdrawal rate.

Well first there is inflation you need to keep into account, but secondly if you choose your number to high and you retire just before a big financial crisis hits then you could be in trouble. The worst year to retire was actually 1929. The second worst was March 2020, just before the dot com bubble busted.

On reddit I found a post of someone who tracks the portfolios of people who retired early in march 2000. This is how their portfolio survived based on their withdrawal rate. Check out what happened bellow:

It is not looking so good with their portfolios. However do not panic, we need to keep in mind this was the second worst period to retire. The odds that this happens to you are rather slim. And even in these times of big economic crashes, most portfolios are still surviving. We can see the 2% and lower are very safe choices.

So why did I chose 3.5%? Well firstly at 67 I expect a goverment pension. So I do not need my money to last a lifetime. If all else fails I can fall back on that. As you can see on the graph 3.5% can easily survive long enough to reach 67, even in the worst of times. Secondly I will also diversify with property so that if one investment is doing bad I can fall back temporarily on the other. 3.5% return net is realistic in Belgium on property. Should my retirement age get closer to my pension age (such as 55 for example), I will probably switch to the 4% rule.

So lets calculate my FIRE number

Now as I have been tracking my expenses rather well last year, and even better this year, I feel its really time to calculate how much I need to retire early.

According to my data in 2019 I had a total expense of 29501. Now there is some notes to make here. I drive a company car, have a company laptop and my company pays for my mobile phone subscription. These are all items I would need to take into account. So normally I should foresee some budget for that. However I am also currently paying off three loans (as you can see in my yearly expense). I do feel that I will make sure that I am loan free by the time I retire, so these will balance off.

So if I count make the calculation 29501 / 3.5 * 100 my FIRE number in 2019 was 983350 EUR! This is the amount I need to have in investments to be able to retire.

I guess this is why I never calculated it. I expected it to be HUGE. And it is. It shows that in 2019 my expenses were way to high. Most months I spend around 3000 EUR and now its clear that this was just way to high and I should live more frugal. Corona really helped me with that. Instead of going to restaurants or to bars I ended up having picnics outside. True…it did came on the right time, it was spring and we had some really nice months, but I still feel I can beat my last years expenses and do much better without going back on life quality!

So when can I retire?

Some people set their FIRE number and then do not change anymore. I noticed that my expenses change slightly every year. If I manage to lower my expenses then my FIRE number drops. If I spend more then my FIRE number goes up. I decided I will update my FIRE number every year based on the expenses of the last 12 months.

Now that I know how much I need to retire based on my expenses of 2019, I can also calculate when I can retire. However in this phase of my life there is just to much uncertainty. I am looking for a house, I might still have children, I don’t know how much my future partner would make, if she would be on board with FIRE or not,…

But I can calculate how far I am along. I know it will be depressingly low but seeing the number go up every year will be so motivating, that’s why its important to write it down, even if there is such a long way to go!

Now when looking at my monthly portfolio I only want to take into account my liquid investments. I do have a portfolio with retirement savings as well, but they will not come free until I’m 67. While I really do support to have them, as they will give an extra boost at retirement, I will not be able to use them right away if I retire early.

I have a total of 37256 EUR in my portfolio. First the good news, having this amount of money means that every year I would able to safely withdraw 1303 EUR. While this is a nice amount, nobody can really live from that. The bad news is that if I calculate that its only 3.7% along to retire early. But at the same time if I listed this in 2018 it would have been even a lot lower.

What I don’t want to do at this point is calculate how long it will take me to reach that. Even in the very short term I feel so much can change in my life, I rather just measure it every year and once I am closer to the end I will add a timeline.

I plan to work on both raising my investement portfolio and lowering my expense ratio. I feel if I manage to keep improving both sides then I will grow faster and reach that early retirement. Remember its a marathon not a sprint and creating your first fire number is the first step in reaching the finish line!

Progress to FIRE

Along with my FIRE number comes a brand new meter that will track my Roadtrip to financial independence!

[ultimeter id=”2861″]

Interested to follow my progress? Follow me and join me on my Roadtrip to Financial Independence!

Uncategorized

Moving abroad | Why Portugal is the ultimate financial independence country

What if I told you there is a modern country out there, part of the EU, great healthy food, low cost of living with seas, a great climate and low cost of living?

As I am living in EU I do compare the member states outthere to see what member states would be good for settling after financial independence.

With about 27 EU member-states and people able to travel freely we have a lot of options to consider on where to go. We can move from one day to the next and we know our rights are protected in other EU countries.

Benefits of choosing Portugal

Low housing cost

The ability to buy a buy a property without spending all of your money. You don’t want the property to be in the middle of nowhere and at the same time you do not want to be forced to live in a small apartment in the city. So it needs to be reasonably priced without sacrificing to much on size or location.

Housing prices in Portugal right now are by average cheaper then Belgium. However prices are really surging, while the wages in Portugal are not that high. Maybe foreign investors have discovered the country?

Tax climate

Did you knew that when you move to Portugal you do not pay any taxes for 10 years? That’s very interesting if you are financially independent.

In Portugal this is also known as the Non-habitual Residence (NHR) option. Anyone who hasn’t lived in Portugal in the last 5 years can move there and will pay no taxes for 10 years! Can you imagine to live tax free for 10 years. This is valid for all passive income’s you get from abroad. It is not valid for work income, although you do get a flat tax of 20% instead of the usual 48%! So even if you are still working it is worthwhile to consider this!

Easy to move and easy to visit

For EU countries with low cost airlines flying often and cheap on Portugal travel costs are not really an issue when it comes to Portugal. At least not when you live in an EU memberstate.

Healthcare

Healthcare is free in Portugal for Portugese citizens. So you need to become a permanent resident before you will get access to this. If you have European citizenship you will have access to it also.

So make sure you have health insurance when you move. Its why its a good thing you already look now at a good health insurance that provides at least coverage in EU (if you are an EU citizen) or even better globally. Its better to get good insurance now and a low price when you are young, then end up paying 150 EUR / Month when you are 67. But if you do get one that provides good global coverage so you remain flexible

If you didn’t consider this you will need to get a local health insurance. Just make sure you are always covered. You do not want to risk to run into huge bills.

Children

Its possible when you retire you have children that you plan to take with you. Ideally they are still young so they can pick up Portuguese quite fast. Or they are old enough to already have a solid education in their home country. Before leaving make sure you and your family follow Portugese lessons. Portugese is a bit like Spanish / French / Italian so if you know any of these languages it could be easier to learn.

Education in Portugal is free and compulsory until the age of 18. It will be in Portugese. Young children pick up a language faster so that would be something you do not need to worry about.

As for place to live, a lot of children would probably enjoy the climate and sea based activities that Portugal has to offer!

Climate

While we are talking about climate, Portugal doesn’t really has a winter. Even in winter its usually temperatures above 10 degrees there. Then again in summer it can get really hot! Portugal is famous for Fires, and very rarely can even get hit by a Tsunami.

sunny image of Algarve coast with clear blue waters

This is however a very rare occasion. The last one was in 1755 and now we have good systems to detect tsunamis. But do get a good distaster / fire insurance…just in case!

Dream destination

Portugal is an amazing country to visit for holidays. It has beautiful nature, a nice sea, and great food and wines.

Image result for portugal travel

Image result for portugal wine tasting
Douro valley wine tasting

For food expect a lot of seafood and tapas. Dishes that I personally really like to eat!

Cost of living

When looking at statistics the cost of living in Portugal are considerably lower then typical Western Countries. Take my own country (Belgium) for example:

Source: https://www.numbeo.com/cost-of-living/

But Belgium is not the only one. Take the US for example:

Source: https://www.numbeo.com/cost-of-living/

Nothing says this will still be the case in 10 or 15 years. But right now its looking promising. Combine the lower cost of living together with the tax benefits you get and it makes it financially a very interesting country to live.

Would I be willing to move abroad?

Honestly I always believed I would retire in Belgium. Having lived in Brussels, Amsterdam, London and Stockholm, I always felt like I would return back home. I earned more because I spend time away from home, and it would be nice to be close to family and friends.

At the same time, I am used to living abroad, and connections Belgium – Portugal are quite good. For me personally I would probably not move there by myself, but if I would not be moving alone and I would take this step with someone special I might consider it.

Remember to officially move you need to live in Portugal for at least 184 days a year. You need to be able to prove you have a local life there. So what would stop you to spend 1-2 months also at home during the summer in your home country, so you can reconnect with friends and family.

One thing is for sure, and that is that Portugal would be high on my list to move to. However can you believe I have never traveled to Portugal? I actually will do this next year and I might put down my findings here. See if it will convince me more or make me change my mind instead!

In just terms of having visited nice places to live Portugal is not the only country that crosses my mind. I have been across the world and seen some really really nice countries. But looking at the full package, distance to home, taxes, climate, expenses,… Portugal is looking like the best place to live when you think about financial independence!

Uncategorized

How do you become rich? | The simple life

My first wage was 1270 EUR after taxes / Month

Additionally I got a “gasoline card”, basically free gasoline for my car

I was really proud. I thought I was making a ton of money.

Ok…1270 is not such a high wage by Western standards perhaps.

But include free transportation, and knowing healthcare is almost free in Belgium, what more do you need?

I was living in Gent (famous university city), and was still renting my Student studio.

I had inscribed me in just one course at University that allowed me to stay there.

And this at just 270 EUR / Month!

It is strange that after almost 9 years I still remember those numbers. They meant a great deal to me.

In a way even then I was right I would not need to worry about money.

Not as long as I am working anyway.

Because of that I never really paid much attention to what I bought.

Still I was able to save.

I was always a simple person. I didn’t need much to be happy.

I always carefully consider every purchase.

Its just part of me.

Is this part of you to?

Are we the kind of people who try to become Financial Independent?

Are we the people who are just happy with what they have? Do not need much.

My work shoes for example costed 300 EUR. They are now about 7 years old.

When they broke I had them fixed. As good as new for 25 EUR.

Not that I wanted to save so much money. I really just like the shoes. Why change if they fit and look good?

It just shows that Fire might be something you have all along. Even if you don’t know about it.

We are part of a community of people who have come to realize we are happy with what we have.

If you are not happy with what you have you might not ever be happy.

If you make 1270 EUR / month and you are unhappy, you might not be unhappy with 2000 / month. Maybe not with 10000 / month either.

You will always want more. Want to spend more.

These are not the people who become Financial Independent.

You need to stop buying that new car you do not need.

That bigger house.

So you have enough room for all your friends…

That new furniture you can show off.

The thing is your friends do not care.

They don’t mind to sit on an old couch.

They might even like your vintage table and chairs that you bought second hand.

Mostly they like your company.

Buy what you need, not what you want.

Buy what you need, not what you think others want.

Do not spend and buy whatever comes to mind.

Not if you want to become Fire.

The fact of the matter is you do not become rich.

You either feel rich, or you might not ever be.

You are not rich by acting rich.

You are rich by being happy with what you have. A simple life for some, but great wealth for those who have always been happy with just what they need.

Not what they want.

Yet there is plenty of people who consume this way. They are many.

They like the big house. The fancy car.

They act rich. They look rich. They are not.

And they probably never will be.

They will not be happy with what hey have. They will always want more. And with more comes more bills.

They might have a high wage. But a high wage is not wealth.

They are not bad people. I am not a preacher against this culture.

I am happy when I can keep my 7 years old shoes that fit well longer.

Some others are happy when they can get that 10.000 EUR watch. A 50.000 EUR car.

A 50.000 EUR new car… New? Only new the day you buy it.

In the end consuming is good for the economy. And a good economy is good for me.

But its not for me to act rich.

And you are reading this. So maybe we have something in common?

I can help you with that. Three words.

Stop acting rich.

Stop acting rich.

Stop acting rich.

Three words, three times. That should stick.

a quote from a book I read a few months ago: The millionaire next door by Thomas Stanley.

A must read really.

But we are wandering.

What you really need to do to become rich? Follow me!

So back to me

As a “rich” guy making 1270 a month, I had no clue about Fire.

I didn’t had a desire to be retired.

I wanted to work. I wanted to be useful

I know a lot of people are this way. Its in our nature to be challenged.

But as we know Fire is not about retirement.

Its about freedom of choice. To be able to do what you love.

To be able to do what makes you happy. Because who can say they have been happy every single day at work so far?

I read about Fire, now maybe for the first time one year ago.

I always assumed I was a good saver. In another blog I wrote that I estimate my savings rate is about 70%.

I never really wanted to take the effort to write down how much I saved.

One friend even asked me recently what my savings rate was and I confirmed again 70%.

70% is huge. I thought I was a star.

Until this weekend.

Prepare for a shock

This weekend I did decide to take the time and write it down. And do the calculation.

As it turns out I am a decent saver, but not the star I thought I was.

August seems pretty bad. My highest expenses in August are

  • My loan for my apartment (ok cant help this)
  • The building organisation for my apartment (we are putting up a new roof. It will be high for another while, but its a quarterly payment..)
  • Restaurants
  • Cheques for cleaning

Yes I have a cleaning lady.

I pay only about 40 EUR / month for this. As we are the Fire community we know how precious time is.

For me this is a cheap way to buy some free time. So I won’t cut back on this.

I payed 270 EUR this month. It seems high but that’s only because I paid for a few upcoming months.

That leaves my restaurant bill. This is actually a recurring issue.

Every month I have a huge restaurant bill.

I guess its not until I did the calculation of my savings rate that I found out.

You see I travel a lot for work. A lot.

And when you travel you don’t know many people. You don’t always want to sit at home and buy something in the supermarket.

There is also social pressure. You do not want to be the guy who says its to expensive.

And lastly I do enjoy to go to restaurants. I enjoy trying different food.

I am Belgian afterall. And we are famous to enjoy food and drinks.

Belgian beers anyone?

But I know that cutting on this would be the easiest way to increase my savings rate.

Why is savings rate important?

Ok lets move back a bit and figure this out first.

There is two components that will determine when you are Financially free:

  • How much return (such as interest) you make on investments
  • How much you spend

While a high wage will help to have a higher savings rate easier, in the end if you have a low savings rate then it will not matter how much you earn.

The Fire community usually assumes a 5% return on investments. But as a safety border all calculations happen with 4%.

So lets assume the following:

  • Saving rate of 62%
  • Investment return of 4% (that I take out every year)
  • I invest everything I save
  • I have no savings or investments right now (as we know this is false but lets just assume it for now)

Then I can retire in 11.7 years.

11. 7 years. It actually does not sound so long.

This could be you as well.

But wait…

..what if I take out something? Maybe those restaurants?

Well what we see is that even an increase in 2% savings rate could make me retire 1 year earlier.

This could be you as well. Would saving an extra 2% be worth it?

Worth it to be financially free 1 year earlier?

Have one year extra that you are totally free.

And can do whatever you want?

Whatever you want!

So are those restaurants really worth it?

I do enjoy them. Dropping them will be difficult. But maybe I can try to lower them?

Would 1 year extra be worth it for me? Would it be for you?

That’s what we are trying for right?

But wait…???

Didn’t we say being able to do whatever we want?

Isn’t Financial Freedom also about the choice to do that?

I had my shoes repaired for 25 EUR, not to save 300 EUR on new shoes, but because I liked them.

So wouldn’t whatever I want include those restaurants visits for me?

Or perhaps I am not that different afterall from the consumers society we live in then?

We all have some of that in us. And that’s okay. We are good for the economy this way afterall.

But you cannot have and the restaurants, and the trip around the world, and the big house. Not if you want to be free.

You must find what that freedom means to you.

How many years of freedom is it worth to you..

How much is it worth to have that new 50000 EUR car..?

..that car that is only new the day you buy it..