Financial Independence

This is the essay for the second theme of my 2020 goals.

In this essay, I will research how best to think about my financial situation. A part of this is related to the why (what does money enable), and a large part is also related to time (because that is often juxtaposed to money).

Currently, I don’t have much money/cash, but I hope that in the future I will be able to accumulate some wealth (and/or give it away effectively). So better prepare now. And I think many of the lessons do apply to my (and your) daily life already.

Learning Goals

1. How do I compare spending now vs saving? (time value of money, interest, etc)
2. How should I spend my working/productive time? (opportunity cost, freedom)
3. How can I invest?
   1. Is there a place where I have an informational advantage?
   2. Which stocks to buy? (which ‘basket’, via which broker (de Giro?))
   3. Are there even other opportunities next to stocks? (real estate?)
4. Am I spending money on the right things? (monthly checks)
5. How can I best save for retirement? (change anything?)
6. How do the taxes work? (wealth, income, dividends, etc)
   1. Can I make a good model for this?
7. How much money would I need to ‘retire’ (FIRE/LEAN FIRE)?
8. How do I protect the downside? (tail risk, black swans)
9. How do I look at the above in relationship to Effective Altruism / donating? (e.g. make even more to donate more)
10. What are cool (or informative boring ones) blogs/websites/videos to follow to keep learning?

Plan of Attack

1. Coordinate with a friend about the topic/who will research what
2. Define what my goals are for my finances (what does it enable?)
3. Recap what I already know (books, videos, etc)
4. Do the research
5. Write down learnings/plan here
6. Make an implementation plan (7. Profit)

Financial Goals

The goals below are somewhat chronologically/more expensive. They are mostly based on income/wealth and not really on spending, mostly because almost everything I do is cheap/within just about every Dutch person’s reach.

1. Earn a living wage (have enough money to pay the bills)
2. Save money for my pension each month
3. Have money spare to do nice things (vacations)
4. Have money to donate
5. Own a house
6. Pay of that house
7. Pay down student debt (someday)
8. Invest in stocks/bonds/other
9. Build wealth
10. Live of that wealth (if needed)

What I’ve Learned

I’ve decided to stick to the questions I’ve had before and wrote down my learnings.

How do I compare spending now vs saving? (time value of money, interest, etc)

This is based on that you shouldn’t save all your money and then spend it when you’re old and can’t enjoy it (or are dead).

For myself, I would say that spending anything on things I could also do for free or cheaper is somewhat of a waste of money. With that attitude, I think I will have enough money left to donate and save.

Let me give an example here. I think that getting coffee at Starbucks is somewhat of a waste (so I aim to always bring my own coffee / get it for free at the office which is near Starbucks). But I do spend some money on festivals because I enjoy that more than say only taking walks in the park.

I do think that I will be happier if I have more money saved (so saving in itself is a good thing), but that the effect on the day-to-day is very small.

What I can imagine is that I should spend some money now to save in the future and that I shouldn’t be hesitant to do this (e.g. to get solar panels)

Actionable: Make a budget (well I have one, so updating it, see appendix 1).

How should I spend my working/productive time? (opportunity cost, freedom)

I think that working on interesting problems is one of the most important things. I think that should also include things that allow me to make money or free up time to work on interesting things that don’t make money.

Or in other words, spending some more (boring) time on maximizing income should be done if that frees up time to work on new (non-paying) interesting problems/ideas.

But… only to a certain degree. You (or I) shouldn’t work for 100 hours a week to make a lot of money (e.g. as a lawyer or consultant) as to ‘later’ be able to use that money to ‘enjoy’ life. I think that at all moments you should enjoy life and only work until there are no more benefits (short or long term) from it.

How can I invest?

You can’t time the market (see A Random Walk Down Wall Street) so buying stocks every month is one of the best (if not the best) strategies.

Below are the more specific questions about where to invest (money-wise).

Another book that I liked is The Most Important Thing. This is more sensible advice on how to think about investing, more for the active investor.

Is there a place where I have an informational advantage?

Maybe one day there is an informational advantage to be had in either psychedelics or longevity. Both are of great interest to me, but I haven’t looked at the investment space yet. I also doubt that there is much a single investor can do here at this moment (i.e. it’s only for funds and other organizations).

I do think that my psychology (calm, thoughtful, second-order thinking) is suited for investing. But I do know that I don’t know much. So, for now, I will defer this question to my advice on investing (for a pension) the same amount every month.

Which stocks to buy? (which ‘basket’, via which broker (de Giro?))

As far as my reading of blogs and reviews goes, DeGiro is the best place for people in The Netherlands to buy stocks. If I do commit to this way of investing, I will update which tracker/basket (or individual stocks?) I’ve bought.

At this moment (March 2020) I will also leave this question open. I might investigate this further (or defer to friends) when I want to buy stocks outside pension investments.

Update (April 2020)

DeGiro has various trackers (baskets) that you can buy. The most popular are:

• Vanguard FTSE – worldwide, costs 0,25% per year (cp/y)
• Vanguard S&P 500 – tech stocks, 0,07% cp/y
• iShares MSCI World A – worldwide, 0,20% cp/y
• iShares S&P 500 – tech stocks, 0,07% cp/y

The most popular trackers, like the ones above, are free to buy (so no transaction costs if you have one transaction per month!) (see this blog with info about finding all these, and the official list here).

Most blogs say that buying the first one is the best/most recommended. Personal preferences may also lead you to buy the second (which is already a large part of the first, but more focused on tech).

Some may even argue that you want to buy individual stocks, but I would urge against this. Historic results are no guarantee for the future, one company can fall (but an index will keep rising), you are not a professional investor, you could just be lucky – for a while.

Shares or bonds?

The advice, by the founder of Vanguard, is to have XX% shares and YY% bonds, where the latter is your age (e.g., of you’re 30, you will have 70% stocks, 30% bonds).

I think this makes sense, but with me planning on living far beyond 70 years of age (when people plan on withdrawing money, and thus want fewer fluctuations), I think I will stick to a higher percentage of stocks. The exact percentage, I will have to see.

Buy all at once or spread it out?

I might have a relatively significant amount of money to invest (versus the €300 I now invest in pension-investing every month). I’ve searched if I should invest it all in one go, or spread that investment out.

This Vanguard article says that historically the lump sum way works best. But investing over a longer time may lower your chances of regret (e.g. by not investing everything just before a crash).

Are there even other opportunities next to stocks? (real estate?)

After looking into this (with a friend), this is only possible if you’ve paid off your own house. Then it would possibly be interesting, but it has many risks also associated with it.

So for now, I’m sticking to stocks.

See appendix 2 for more info.

Am I spending money on the right things? (monthly checks)

This point fits nicely in with appendix 1. Here I look at my monthly budget and take a snapshot of how I spend my money. This will change over time and every month I fill in my excel to track this. Please message me if you want to have an (empty) copy to make your own plan.

How can I best save for retirement? (change anything?)

I will stick to €300 investment into a pension investing every month. I have some ‘sandbox’ calculations where I can see that at low expenses this is all I ‘need’, so for now I will just invest/give away everything above what I spend.

How do the taxes work? (wealth, income, dividends, etc) Can I make a good model for this?

Together with a friend, I’ve made a model of this and as with the other things, feel free to ask me for it.

The key points are:

• Dividend income is taxed lower than salary, so we have our ‘normal’ DGA loon, and the rest is dividends
• Wealth taxes only apply at a very high level and soon probably only above 440k
• You will be taxed over your income if you’re retired, this includes the AOW and pension-savings (pensioenfonds).

How much money would I need to ‘retire’? (FIRE/LEAN FIRE)

Well, I don’t plan on ever retiring and sitting behind the petunias. I also plan to live for a whole long while (see here). And that is living in good health (mental and physical), so therefore I also plan to stay productive and be able to earn enough (and have low expenses).

Ok, that all being said. I’ve modeled some scenarios (again, feel free to ask for the excel) and these are some concrete (probably wrong, but in the right ballpark) numbers:

All of the below numbers assume a ‘safe’ withdrawal rate of 4% of the principal (the money saved).

They also include €826,80 gross income from AOW (government handout to all people with a pension – but I think it will go up with inflation) and my own pension saved (estimated at €1754 gross – (already in ‘future’ euro’s – so no inflation correction here). They are not included in the ‘before 70 y/o’ section.

FIRE – Financial Independence Retire Early

If I would want to keep on living as I do now, with the same expenditures, I would need the following:

After 70 y/o: €390.000 (or €235k if no mortgage – INM)

Before 70 y/o: €1.180.000 (€900.000 INM)

Lean FIRE

If I would live on the ‘bachelor’ budget (see appendix 1), I would need the following:

After 70 y/o: €30.000 (€- INM)

Before 70 y/o: €700.000 (€550k INM)

So it does really differ a lot if my (our) expenditures are high or low when I ‘retire’. If, after 70 years (the assumed retirement age) I retire and spend little, I need virtually no savings, but if I want to retire now and keep on living at the same pace, the amount of money needed is substantial.

A few notes. The model is somewhat pessimistic in money from AOW (could be higher) – but with inflation could be the same. And it takes into account an average amount of taxation on savings in a few trances, so the actual taxation is a bit lower (see here for more on ‘vermogensbelasting’)

How do I protect the downside? (tail risk, black swans)

One thing I think is important here (besides that you read The Black Swan), is to limit expenditures. This is what limits the amount of money needed to be saved and then also the amount of taxes you have to pay over that amount of money.

Later. Emergency fund?

How do I look at the above in relationship to Effective Altruism / donating? (e.g. make even more to donate more)

If I look at my budget (appendix 1), then one could argue that everything above €3000 income (net) is too much (i.e. could be donated – on top of the €250 already in there).

But I also want to save money to be able to ‘retire’, I want to buy off the mortgage on the house, and I still have quite a lot of student debts.

This is my draft for the spending percentages of the ‘extra’ money above €3000:

• first €1000 on mortgage
• then 50% donated, 50% saved for student loans (start paying back in 2022) / investments
  • Donation minimum is €3000 per year, so this will supersede the other two categories (investments/mortgage) if need be
  • The money saved for student loans is also the money I will invest (so everything above student loans is investment money)
  • So, if I’ve ‘saved’ the student loan money, the 50% is investment
  • And if I’ve paid off the mortgage, I could just keep the 50/50 donating and investing
  • I plan to invest (put money into stocks) every month, and take out money for donating in December (read: On average I could gain 3.5% by doing this)

What are cool (or informative boring ones) blogs/websites/videos to follow to keep learning?

• Mr. Money Mustache – Financial Independence blog, doesn’t post that much but has an awesome archive
• Early Retirement Extreme – Another great Financial Independence blog, also see the book below

Implementation Plan

I’ve already implemented most of the things discussed. I do think I could be spending less and will focus on doing those regular things better (getting a beer at the supermarket, getting free coffee at work, etc).

But the main focus points, over time, will be on investing and making the most of the money. And of course, being able to donate.

With my next venture (now in the early phases), I also plan to donate away everything where possible, as long as there is enough money to keep the business going.

I plan to write out my views for that soon.

Appendix 1 – Personal Budget

This is my personal budget and some notes on what I think falls into each category and possible actionables. This budget is also my budget and doesn’t include my girlfriend’s expenses (but does include our combined expenses / 2).

Income

Total Income: €3000 (this is variable and based on the ‘DGA loon’ plus a little extra (e.g. Airbnb income))

Expenses

Mortgage: €410 (I understand that this is extremely low, I’ve paid off a part of the mortgage already so that factors in)

Repairs: €125 (VVE – collective money for repairs)

Improvements: €100 (other improvements, like insulating glass, later solar panels (not possible), so not something regularly, but good to have it in the budget)

Electricity: €65 (I think this also includes gas but could be a bit higher together – maybe this will be updated to €100 ish)

Water: €15 (for the municipality)

Sewer: €80 (it’s a smaller amount per month, but includes a once-a-year payment to the municipality)

Cleaning: €0 (no housekeeper, can do it ourselves plus Anne (our cleaning robot – highly recommended, as is a cordless vacuum))

Phone: €7,50 (no-phone abbo, 2gb)

Internet: €34 (alas no fiber internet yet)

TV: €0 (also no Netflix for me, girlfriend does have it in her personal budget)

Insurance: €105 (Medical, Travel, Home/Inventory insurance)

Medical: €40 (budget, but averaged €5 in 2019)

Groceries: €180 (seems reasonable, but I think it could be lower, €6 per day now – pandemic update: this is much higher as going out and other categories have folded into this one)

Clothing: €45 (I don’t really shop that much, if at all, for fashion, so it’s mostly new shoes, pants, etc when needed)

Mobility: €80 (I was over budget here, with €97 per month last year, of that €34 is weekend-free for NS, rest is also mostly NS – pandemic update: also much lower)

Pets: €80 (food for Max, some indestructible toys)

Dining: €30 (1x per month)

Brunch: €30 (1,5/2x per month)

Going Out: €140 (everything from going climbing, to seeing a movie, festival, could also be a bit lower)

Drinks: €60 (could/should be lower, budget recently separated from ‘going out’)

Personal Care: €15 (things bought at pharmacy)

Sports: €20 (sports attributes, now low because the gym is below office (free))

Tech: €150 (this is too high, also a bit of a catch-all of websites, but includes new phone, laptop, etc – some/a part also gets reimbursed by work)

Gifts: €30 (actual was €42 last year)

Vacation: €500 (also quite high budget, but only for this year (2 months away, and ski, and with friends 11 days – normal budget is €250)

Donations: €250 (will probably be higher soon)

Books: €20 (actual was €4, so a large portion disappeared in the ‘tech’ category)

Pension: €300 (I’m saving this per month via BrandNewDay for my pension)

Savings: €50 (what is left after the rest – this excludes some money from my girlfriend for the house, the large vacation budget, and possibly higher income – but overall it’s quite balanced as a basis)

Or in other words, in this budget, I spend €2950 per month. Some of it comes back through taxes on the donations and pension. I estimate that the total out-of-pocket expenses in this budget are €2745 per month (€32.940 p/y).

What if I lived just as a bachelor, without a girlfriend but with a social life. Then I expect that I will not spend €2950, but only €1942 per month (€23.304 p/y). Most of the savings come from the lower vacation budget of ZERO. Or €1392 (€16704 p/y) without donations and pension (which now already are partially deductible).

Or even massaged further, to see what I could theoretically live on if the house is paid off and I live alone (but of course you could live for the same amount together), the total ‘necessary’ spending (also lowering tech a bit) would be €932 per month (€11.184 per year).

Cheap Bachelor expenses
Mortgage € 410,00
Repairs € 125,00
Improvements € 20,00
Electricity € 65,00
Water € 15,00
Sewer € 80,00
Phone € 7,50
Internet € 34,00
Insurance € 105,00
Medical € 10,00
Groceries € 130,00
Clothing € 40,00
Mobility € 40,00
Pets € 80,00
Going Out € 60,00
Sports € 20,00
Tech € 100,00
Gifts € 30,00
Vacation € –
Donations € 250,00
Books € 20,00
Pension € 300,00

Appendix 2 – Real Estate

This applies to The Netherlands, and specifically to me. So, you know, do your own research.

A second mortgage, to buy a house to rent out, is virtually impossible. No lender will approve the loan, or you can only do it if you pay the lion’s share of the house (I imagine 50%+).

The rent (percentage) will also be higher (more risk), and even then, you will probably have a line in the agreement that you can’t rent out the house (so only use it as a second home).

And, because you’re not staying in that house, you can’t get the mortgage deductible (‘hypotheek rente aftrek’).

But, if you’ve paid off the mortgage on your primary home, then buying a second home would be possible. You can then get a ‘renters mortgage’ where you only have to pony up 20-30% of the house in cash (downpayment).

The rent can be a bit higher than on a ‘normal’ mortgage, but not too much.

The friend I worked on this with thinks you could get a 9% ‘rent’ on the cash you would have paid). This includes the monthly fees, but excludes repairs and initial costs of the transaction (buying the house). It also excludes bad renters and property damage, so yeah.

Buying a house to rent it out will probably not be the way to go. Maybe one day if/when I plan to live outside the city, then renting out the (fully bought) house here could be an idea. That would, however, take another 6-7 years at the fastest.

Sources

Most sources are linked throughout the article, but here are some more great links.

• The Intelligent Investor – Benjamin Graham (Book Review)
  • Buy a portfolio of stocks, hold onto them
• A Random Walk Down Wall Street – Burton G. Malkiel (Book Review)
  • You can’t predict the market, stocks go up over time
• Early Retirement Extreme – Jacob Lund Fisker (Book Review)
  • Align your goals, make money work for you
• The Most Important Thing – Howard Marks (Book Review)
  • Smart money management advice
• Capital In The Twenty-First Century – Thomas Piketty (Book Review)
  • Big-picture overview of capital/labour, inequality
• Poor Charlie’s Almanack – Charlie Munger (Book Review)
  • Life (and money) philosophy by a calm billionaire
• What Money Can’t Buy – Michael Sandel (Book Review)
  • Morality of money
• Billion Dollar Whale – Bradley Hope & Tom Wright (Book Review)
  • Money can’t buy happiness
  • A crazy story that dwarfs Wolf of Wall Street
• Socially Responsible Investing (EA discussion notes)
  • Notes of Effective Altruism Meetup

Finally getting that six-pack

I’m thinking more seriously about losing a little bit of weight / having a slightly lower percentage of fat (which is the real ‘problem’, weight is perfectly fine – it just should be muscle).

For that reason, I’ve read How Not To Diet, HNTD (and because Michael Gregor is just really good at communicating science and doing so much research). Based on that book, and some other recommendations, these are the tweaks I plan to add to my daily (food) routine.

You can see more about the (normal) food routines in this post – Eat for Health & Energy.

13 Tweaks

• 0 soda drinks
  • Even 0 calorie drinks mess with your system and make you ‘sweet’ sense messed up, so just carbonated water from now on
  • Hot situation: when going out this is the most important time to say no and drink ‘spa rood’ (sparkling water) (and a beer sometimes of course, not that that’s good either)
• 0 energy drinks
  • For the same reasons as above, and it’s quite the waste of money versus coffee at home
  • Hot situation: when in the supermarket I sometimes get an energy drink (and at 6.30 pm that is a good time for one), but instead I should just make a coffee at home if I really want that caffeine boost
• 20 minutes eating
  • Spreading out the meal over 20 minutes should have a good effect of making you more satiated (even if eating the exact same amount of food)
• 2x p/d weigh myself
  • This should not really do something besides making me more conscious about my weight (and if you miss one time, you still have the other time)
  • This is morning and evening (fun to see what the difference is)
• 1 min cold shower
  • Have a cold shower (last minute) to activate brown fat (located in shoulders/back)
  • Brown fat is the one that burns/eats the other/passive fat
• + Cardio
  • I will add 30 minutes of cardio (or more if suitable) to my workouts
  • Not HIIT, but just steady-state cardio burning some more calories
• + Barn
  • When making bread I will add some barn (pieces of whole wheat, instead of milled whole wheat), because the fibers are less broken/ground-up and thus is better for your gut/health
  • (someday soon I will publish the bread recipe here)
• + Carniferous Greens
  • Because that is one of the few recommendations from Gregor that I’m not consistently (daily, now 2x per week) following
  • This means leafy greens will be added (almost) daily, and that will be in a smoothie (see below)
• + 2 tbsp of apple cider vinegar
  • Because it revs up the metabolism and is good in general (I guess the same goes for all/most of the points below, I defer to the book)
  • And they all go in the smoothie (most probably)
  • (could also be other type if this really isn’t bearable)
• + 1/4 tsp black cumin
• + 1/4 tsp garlic powder
• + 1 tsp ground ginger
• + 1/2 tsp cumin (normal – kurkuma in Dutch)

The More is Less Smoothie

As mentioned above a few times, I will add some ‘good’ and metabolism stimulating greens/herbs to a smoothie that I plan on drinking every day (at breakfast). It will be a small (shot-size) smoothie and not a full (long-drink) smoothie per serving.

• Spinach (400g bag of fresh leaves)
• 4x the herbs/spices/vinegar as mentioned above

Appendix 1 – Counting Calories?

Based on food research earlier I’ve calculated the number of calories I would need. I think this is a useful first step, but after reading HNTD I think I’m not focussing on these numbers.

The main reason is that the ‘science’ is not that precise as we would like to believe. That relates both to how many calories are in foods (mislabelling), and how we process them in our body (earlier in the day – less calories absorbed, and for some food (with a lot of fibers) we poop out a significant 20% of the calories/food). And there are many more variables at play.

What I most want to focus on is knowing what I eat, if those meals are good and don’t allow/encourage me to snack in-between (aka cheat) and let me be healthy and full of energy.

That all being said, here are the calculations:

At about 500 calories in deficit (eating for instance 2800 calories) I would lose about 500 grams per week (MayoClinic).

(Fitbit update: Fitbit thinks I burn about 3600kcal per day, so that is even higher)

Or if you spread that out over a week it might look like this:

• Monday: 3000 kcal
• Tuesday (no sports): 2000 kcal
• Wednesday: 3000 kcal
• Thursday: 3000 kcal
• Friday: 3000 kcal
• Saturday (no sports): 2000 kcal
• Sunday: 3000 kcal

The total would be a deficit of 4100 kcal or 585 kcal per day.

Appendix 2 – Sports at Home

Because the gym is closed (COVID-19). This is my new sports schedule:

Monday – Wednesday – Friday

General warmup and stretches. Three times the following.

• 8 Halos (each side)
• 10 Goblet Squats
• 8 Overhead Presses (each side)
• 15 Kettlebell Swings
• 8 Bent Over Rows (each side)
• 6 Front Rack Reverse Lunge (per side)

Tuesday – Thursday – Saturday/Sunday

• Hiking (2 hours plus), or
• Running (30 minutes plus), or
• Outside workout (airsquats, pushups, burpees, etc) (15 minutes plus)

Next to this I will do a lot of stretches and hope to make my mobility better during this time. I will also continue to do some weightlifting practice, but alas I only have a PVC pipe at home (no barbell or weights – and live on the first floor so that is for the better).