H1-2019-financial update

Halfway the year, our first financial overview of the year is long overdue! One of the reasons not to write about our personal finances is that the road to FIRE is a marathon and we are just steadily moving forward. Our incomes are stable. We set up an investment system and we stick to it. Very effective but very boring. Still good to see our lines are moving up north steadily!

Our savings rate

is at an impressive 44.54%, well above the 35% annual target. We have had a few helpful events that boosted our savings rate. The costs of remortgaging are tax deductible. So our yearly tax refund was bigger than usual. I ditched my worst insurance ever. I had a one-off side hustle that paid out 700 euros in January. No surprises are expected from expensive holidays either in the remainder of the year. Our next holiday flights have been paid with KLM flying blue points. This severely dented our points total, so if you want to sponsor our travels, have a look here how and why you should get an AmEx flying blue credit card as well 😁. Or just click here to get one.

The mortgage

is boring. With a 1.8% interest rate fixed for over 9 more years there is no need for extra payments. So in H1 we simply paid our monthly instalments, resulting in a slightly lower remaining debt. We have paid off 32% of our mortgage by now.

FI percentage
is over 22% now. A stock market going bzrk is really helpful and is only getting more helpful now that we are playing the game with 6 digits at stake.

It's all relative
It is very hard to lower the amount of cash locked up in our house; 54% of our net worth currently. Putting substantial money into VWRL every month does not seem to help much. This calls for drastic measures! I added a new category to the inset of the figure. No money is in it yet but that might chance very soon. We'll keep you posted!

Financial update 2018

Another year has passed and the stock market stopped gradually moving up in Q4 of 2018. At the moment the market is volatile and intraday swings of up to 5% are not uncommon. Swings are more down then up and as a consequence stocks have lost around 20% of their value. Let's see how this impacts our journey to FI.

Savings rate

Our monthly savings rate has been 35% throughout the year. We simply pay ourselves first. On top there is the once-a-year lump sum consisting of holiday money (2x), an end-of-the-year bonus and tax returns. We aimed to simply save 35% of all this as well to keep our yearly savings rate at (surprise!) 35%. However, we miserably failed this year and spend it all. 

We paid a substantial fine to lower our mortgage interest rate for the coming 10 years to 1.8%. This will save us money in the long run (see here) but is hurting our savings rate for 2018. We love our holidays and they are worth every penny. Our holidays are getting even more expensive as we are mostly forced to travel in the peak season due to our school-aged daughter. To top it all of we prepaid a holiday that is coming up in January and with that the full lump sum has gone with the wind, leaving us with an annual savings rate of 30%. 

The mortgage...

is boring. In Q4 we simply paid our monthly instalments, resulting in a slightly lower remaining debt. We have paid off 31% of our mortgage by now. With the new interest rate our monthly payment will now go down, while a larger percentage of the payment goes to paying off the house (rather than interest). Pretty neat, eh?

FI percentage

Our FI percentage is stuck at 16% for Q4. In fact our net worth is down a tiny bit in Q4, despite throwing more money into ETFs at least once a month. It's all part of the game. You can't be on FIRE if you can't stand the heat. We'll stay calm and stick to the plan. Markets will always recover in the long run. Plus we are buying cheap at the moment, we love discounts!

It's all relative

Our house still represents over half of our net worth (inset of the Figure). This will get even more dramatic when the new higher valuation comes in soon ("WOZ waarde"). We did manage to increase our ETF percentage a bit by throwing in some extra money to buy discounted stocks. 

We are happy campers and hope to keep up the good work in 2019! Many things will change this year, more on that later. For now we'll continue saving 35% of our income every month.

Financial update Q3 2018

With the blog launched and Q3 ending, it is time for the very first update on our personal financial status!

Savings rate

How we calculate our savings rate is explained in this earlier post. Our monthly savings rate has been steady at 35% in 2018. Great to see we invest 1 out of every 3 euros in our future rather than stuff we don’t need. Considering the non-regular money coming in, we used the holiday money for holidays and the tax return is still parked in a saving account. We probably will “invest” the tax return in a mortgage hack that I will blog about in the near future (UPDATE: see here). If we do so the yearly saving rate will drop below 35% but will certainly stay above 30%.

The mortgage

As reported here we have been investing in paying off the mortgage with most of our money until the beginning of 2018. We have paid off approximately 30% of the initial mortgage by now. See a great post here doing the math of mortgage down payments vs. index fund investing. We have reached the tipping point. Our mortgage payments are comfortably low and include annuity payments anyway. The mortgage will take care of itself in the coming 26 years. The money locked up in the house is not included in the journey to FI number, it just helps to keep the FI number low as a future paid-off house will mean we need less money for a comfortable life.

FI percentage

Dedicated investing in the low-cost exchange traded fund VWRL will be the way to go from here! Our FI number consists of our emergency cash fund, VWRL and my defined contribution (DC) pension. Have a look here why I feel I can include my DC pension in the FI number. That being said, our current FI percentage hovers just above 16%. With the bull market raging for a decade now some head wind would not be unlikely in the years to come which would only make the journey more interesting to follow. 

It's all relative 

The inset of the figure above presents the relative amounts of our net wealth in real estate (house WOZ value – mortgage), our cash emergency fund and ETFs. We are aiming to get the ETF percentage up but the booming housing market is not helping 😉

How we calculate our savings rate & FI number

Let's have a look at the math behind the two most important numbers on our journey to FI; our savings rate and our FI number.

What's in?
Your savings rate is simply what you have left at the end of the month divided by what came in at the beginning of the month. Our net income consists of 2 (after-tax) salaries and child support (in Dutch: “kinderbijslag”). 

We do not consider the subsidy for the daycare bill (in Dutch: “kinderopvangtoeslag”) income, as this amount is directly coupled to a specific expense. We have an annuity mortgage which will make sure we have paid of our house in 30 years. Hence, we pay the bank interest and a down payment that lowers the remaining mortgage debt every month. The down payment combined with the portion of our income we don’t spend, is our monthly savings rate. 

We also keep track of a yearly savings rate that includes the non-monthly extras  (annual tax return, extra salary payments). However, we like the simplicity of the monthly number as there is no reason why that would vary. We use part of the extras for larger non-monthly expenses (typically maintenance of the house & holidays) and save at least the monthly savings rate on it to keep that number afloat.

Are we there yet? Are we there yet? 
Not surprisingly, we calculated our FI number based on our anticipated spending after retirement using the 4% rule of thumb. We plan to retire at the same age, not the same point in time. This means the first 7 years of my retirement the lady of the house still brings home a salary. In fact we are half FI for that time period. 

By the time we are both FI there is around 15 years left to bridge to my pension payments starting to kick in. We might like our jobs longer than the numbers require or start a side hustle that brings in cash we don’t need. Taken together, the 4% rule feels very safe to us especially considering that the time span we both fully depend on this passive income source is relatively short (the original Trinity study looks at 30 year retirement periods, the update even longer periods). 

Anyway, all the 4% rule does is provide us with a number to work our way up to, we’ll sort out the details when we get closer to FI.