Author Topic: 18k saving a year is enough for freedom?  (Read 1627 times)

Anton The Man

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18k saving a year is enough for freedom?
« on: June 02, 2019, 11:26:22 PM »
Recently I've decided to achieve Financial Freedom and now I'm thinking a lot how to do that.
Hopefully, I've found your forum and I believe I'll learn from you a lot.

I'm 26, Ukrainian, single. All savings are 4k$ now (lol, yeas?)
My monthly wage is 2k$ (yearly - 24$k)

If I cut my expenses to an extreme I can save 1,5k$ month, means 18k$ a year.
Extreme frugality means:
- renting a single room from a landlord in the very center of the city - 200$/m, 2,400$/y
- groceries - 250$/m, 3000$/y
- gym - 300$/y
- orthodontics - 1000$/y
- Travelling - 700$/y
- clothes - 500$/y
- gifts - 500$/y
Overall: 8,400$ (when I make 24k$ and I see that I have to cut something to really save 1,5k$, it help even writing this here).

I've decided that I'd like to have 2k$ of passive income.
Means that if I'm going to live on passive 4% a year in the future, and if during the accumulation period I will use again 4% compound interest a year, then:
I need 600k$, and I need 19 long years to do that. I'll be 46. Not funny.  (given 2% inflation and 4% compound interest, base 4000$ and monthly contribution 1500$)

The downside of being Ukrainian is I can't use American and EEA investment tools.
For now, available tools are only bank deposit in USD (3%/y), and in local currency (13%/y), a type of diversification (lol again).

What can you guys advise in order to shorten this period of achieving financial freedom?
« Last Edit: June 03, 2019, 03:57:45 AM by Anton The Man »

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Re: 18k saving a year is enough for freedom?
« Reply #1 on: June 03, 2019, 01:41:23 AM »
Hello and welcome to the forums.

I haven't seen anyone else from Ukraine here, so I'm afraid it's going to be difficult for you to get country specific advice - all we have are the general principles.  You do have a lot going for you in mustachian terms - you are young, you are earning, you are willing to be frugal and to invest your savings.

Your scope for changing things looks at the moment to be mostly about increasing earnings.  It seems to me that your salary isn't bad for age and location, but increases over and above inflation will have to come either from promotions as an employee or success as an entrepreneur.  Entrepreneurship is not for everyone: is it something you feel suited to?  If not, then looking for opportunities for bosses to see you as a more valuable employee either in your current organisation or in a new one is the way to go.

The biggest problem for you I think may be the lack of opportunities to invest.  Index investing in the USA, which is what MMM bases his theories on, means being able to invest in a wide range of the means of production in a stable and prosperous free market economy for a fraction of pennies on the dollar.  There's presumably not an equivalent part of the economic infrastructure of Ukraine which is available to you?  If not, then I think a traditional alternative would be investing in property: not just buying a home but buying property which produces income, either commercially or through residential letting.

Do of course look critically at what I've said above rather than just accepting it wholesale: I'm in the UK and so may be way off base talking about your situation!

jeroly

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Re: 18k saving a year is enough for freedom?
« Reply #2 on: June 03, 2019, 02:20:11 AM »


- orthodontics - 1000$/y
- clothes - 500$/y
- gifts - 500$/y

On the bright side, the orthodontia expense should go away in the next year or two, adding to your saving potential.
I'd suggest that you can probably cut back on the clothes and gifts too if you're shooting for 'extreme frugality.'  Thrift shops, handmade gifts, etc.

Quote
I've decided that I'd like to have 2k$ of passive income.
Means that if I'm going to live on passive 4% a year in the future, and if during the accumulation period I will use again 4% compound interest a year, then:
I need 600k$, and I need 19 long years to do that. I'll be 46. Not funny.  (given 2% inflation and 4% compound interest, base 4000$ and monthly contribution 1500$)
- You are thinking in terms of $24,000/year.  However, if that's in 2019 dollars, you need to factor in the inflation of the intervening years.  So that would be $35,000 in 2038 dollars, requiring $875,000 not $600K.
- On the bright side, if you are good with spending only $8K/year now, why will you need $24K/year after retirement? If you can really get by on $8K/year, you'd only need $9,750/yr in 2029 dollars or a stash of $244,000, and would achieve FI in only ten years!  Moreover, presumably in retirement you don't need orthodontia or as many new clothes, and your extreme frugality spending level is really only $7k/year or less in 2019 dollars - you could get to there in 8 1/2 years!

- You can also view this as needing $244,000 (in 2029 with a spending level of $8k, or $206K in 2027 with a spending level of $7K) to reach FI but wanting some higher amount for a more comfortable early retirement.  You could gradually work up other streams of passive income, either starting now or after FIRE, to boost your available spendable $$$.

nereo

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Re: 18k saving a year is enough for freedom?
« Reply #3 on: June 03, 2019, 07:49:54 AM »
Quote
I need 600k$, and I need 19 long years to do that. I'll be 46. Not funny.  (given 2% inflation and 4% compound interest, base 4000$ and monthly contribution 1500$)

Adding to what jeroly said: 
Your assumptions on future returns are fairly pessimistic. I understand that you are in the Ukraine and I know little about the tax structure & investment opportunities there, but most people estimate annual returns of 4-6% after adjusting for inflation.  For reference, the US Stock market (i.e. SP500) has grown on average about 7%/year after adjusting for inflation.  While you might not be located int he US, hopefully you can invest in global equities that includes both Europe and the US.

Hirondelle

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Re: 18k saving a year is enough for freedom?
« Reply #4 on: June 03, 2019, 10:17:08 AM »
Welcome Anton!

I'm in Europe although not in Ukraine so like the others I cannot help you too much with the investment issues. The things you mention mostly sound like regular savings accounts or CDs. Do you have any opportunities to invest in stocks (either Ukrainian or international stocks). I think there's a reddit page somewhere out there that has a section for every European country, I bet there's some information on Ukraine. Also don't be too focussed on US-based investing, maybe you don't have access to Vanguard funds, but you may be able to invest in other big international ETF funds. Search around for options online!

Your income sounds fairly good and your expenses are low. They do seem a bit odd though given that your groceries, clothes and gifts seem on the high end (what do you wear?!). Groceries may include eating out as well, that would explain $250/mo better. Also the orthodontics are a lot of money, but is that a permantent or just a temporary expense?

On the other hand I don't see any expenses for 'stuff' (furtniture, electronics etc), transport, phone plans.

JLee

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Re: 18k saving a year is enough for freedom?
« Reply #5 on: June 03, 2019, 10:24:44 AM »
Can you focus on increasing your income as well?  With such low expense, an increase in income will be even more effective than it is for most people.

BicycleB

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Re: 18k saving a year is enough for freedom?
« Reply #6 on: June 03, 2019, 10:41:47 AM »
@Anton The Man, if your income in US$ is $24000 per year ($2000 per month), that is huge for Ukraine according to the link below. Are you earning about 640,000 hryvni per year, meaning about 53,333 UAH per month, after any income taxes? If so, congratulations on your high earning!

https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:UKR:BLR:MDA&hl=en&dl=en

Like others, I am not closely familiar with Ukraine. I learned about the Ukrainian hryvnia with a quick Google search. For those who are not familiar:

https://www.google.com/search?q=ukraine+currency&oq=ukraine+currency&aqs=chrome..69i57j0l5.3546j1j7&sourceid=chrome&ie=UTF-8

I do have the perception that the investment markets there are less deep and accessible for small investors, with the additional complication that political instability could cause economic issues or interfere with particular investments. Also, I have the perception that different areas of the country vary in their degree of Russian influence, and possibly could have different futures. I don't know how to evaluate different investment options, but suspect that the wisest path is to diversify among local and portable/international assets if you can. That way if the local area rises in prosperity, you will benefit in place, but if tragedy requires you to move, you would have the means to do so. Assuming that you stay and that conditions vary from time to time, a diversification strategy could pay off in that case too. So I support your approach.

I also applaud your objective of saving for a higher income than your current spending. This might give you the capacity to start a family, and/or withstand variances in costs or investment returns. Overall, my guess is that you are making very rational plans.

By the way, if you achieve your goals, it appears that you will achieve an income similar to my own or perhaps slightly higher, and will do so at almost the same age that I achieved it. Hopefully when you do, I will still be alive to congratulate you!!

Do explore opportunities to buy international securities if you can, but if you can't, keep doing what you can do. Perhaps accumulating cash-like assets now will enable you to buy international securities in the future if conditions change. In the long run, "freedom" from an MMM perspective depends in part on societal stability and health. I hope for all of our sake that the long term trend is towards more stability and more societal health, in all countries.

Best of luck. Keep us posted on your adventures and decisions, whenever circumstances permit.

PS. After some more Google research, I found the following link re hryvnia inflation:
https://www.google.com/search?q=ukraine+currency&oq=ukraine+currency&aqs=chrome..69i57j0l5.3546j1j7&sourceid=chrome&ie=UTF-8

If it is correct in saying that hryvnia inflation is between 8% and 9%, the interest on local investment is 13.3%, the local investment appears to provide a higher return than the one denominated in US$. Because US$ has inflation of close to 1%, US$ real return is probably about 1%, while local investment seems to provide about 5%. But is the local investment as reliable? I don't know. Will you achieve 4%/year? I don't know. Yet the results will have a big effect on your plans.

Based on the above two paragraphs, again I applaud your idea to diversify among the options that you have. Do you pay income tax on the interest from each of the two investments? If so, what is the tax rate?
« Last Edit: June 03, 2019, 11:19:37 AM by BicycleB »

MrThatsDifferent

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Re: 18k saving a year is enough for freedom?
« Reply #7 on: June 03, 2019, 03:47:11 PM »
Itís great that youíre focused on this now at such a young age. I think a little perspective is important. If you can retire at 46 on $24k a year, thatís incredible! Youíll be ahead of most people. I didnít even discover this until around that age. Thatís still very young, although it wonít seem so to a 26 year old. All you have to do is keep to your plan, while continuing to find better and better jobs. Maybe youíll find a partner who is on the journey with you? 19 years isnít a death sentence. Donít be jealous of others who have done it sooner, they are very rare. Just stay focus and commit, youíll get there.
« Last Edit: June 09, 2019, 08:08:57 AM by MrThatsDifferent »

msministache

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Re: 18k saving a year is enough for freedom?
« Reply #8 on: June 04, 2019, 09:54:30 AM »
Hello! I want to add that some investment options into American stock market are open to foreigners (I believe that would include mutual funds and ETFs). You will need to register with IRS though.



P.S. Привет из России)

Jon Bon

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Re: 18k saving a year is enough for freedom?
« Reply #9 on: June 04, 2019, 10:09:07 AM »
@Anton The Man , you are going to be just fine....

Sounds like you already have a great head on your shoulders and are absolutely miles ahead of your peers. I can't help with how to invest in Ukraine but I am sure you should be able to find something. I think they only thing you should think about is trying to find some sort of side hustle or small side job that you can do to increase income.

Think about what you are good at, or what you might like to learn how to do. Figure out how to make a few hryvnia doing that job and put all of that side income towards your early retirement goals.

You are doing great, and are even ahead of most of the folks on here you just dont know it yet!


Anton The Man

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Re: 18k saving a year is enough for freedom?
« Reply #10 on: June 09, 2019, 03:11:09 AM »

Your scope for changing things looks at the moment to be mostly about increasing earnings.  It seems to me that your salary isn't bad for age and location, but increases over and above inflation will have to come either from promotions as an employee or success as an entrepreneur.  Entrepreneurship is not for everyone: is it something you feel suited to?  If not, then looking for opportunities for bosses to see you as a more valuable employee either in your current organization or in a new one is the way to go.



@former player
Thanks for your reply.

Entrepreneurship is still frightening me.
I've just dived into IT sphere after leaving my public service low wage job and I try to get good at it. A year ago my salary was 5 times lower than now. 
But I think I'll become an entrepreneur sooner or later.

I've just finished the book "The simple path to wealth" and it's sad I can't user index funds being Ukrainian...

Commercial real estate is cool, but I need to save for four or five years to buy something even little.

And by the way, of course, I want my own apartment, and at the moment, I live in a rented room. And the dilemma is buying my own apartment is not going to be a real investment. (it will save me only 300$/m if I buy it and stop renting a room). And an apartment will be about 80k$.
« Last Edit: June 09, 2019, 03:14:59 AM by Anton The Man »

Anton The Man

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Re: 18k saving a year is enough for freedom?
« Reply #11 on: June 09, 2019, 03:16:46 AM »
@msministache

So Ukrainian and Russian people cannot invest in index funds...
And that is sad :(

Anton The Man

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Re: 18k saving a year is enough for freedom?
« Reply #12 on: June 09, 2019, 03:38:46 AM »
@Anton The Man

If it is correct in saying that hryvnia inflation is between 8% and 9%, the interest on local investment is 13.3%, the local investment appears to provide a higher return than the one denominated in US$. Because US$ has inflation of close to 1%, US$ real return is probably about 1%, while local investment seems to provide about 5%. But is the local investment as reliable? I don't know. Will you achieve 4%/year? I don't know. Yet the results will have a big effect on your plans.

Based on the above two paragraphs, again I applaud your idea to diversify among the options that you have. Do you pay income tax on the interest from each of the two investments? If so, what is the tax rate?

@BicycleB
Thanks for your comprehensive reply.
Inflation is insane, that is why interest rate so high.
Yes, it is very risky to invest even in Ukrainian central bank bonds here, the biggest banks' deposits accounts are very risky too.
The tax is 20% of the profit.

So I am eager to find better options.

My goal is to get stable passive income and be able to live anywhere in the world (I don't like winter and traveled only to Turkey and Germany, so I'd like to be able to be free and travel the world a bit).

I've just finished "The simple path to wealth" and I'm sad and I can't use Vanguard and similar index funds.

There is also a dilemma to buy or not to buy my own apartment.
Renting an apartment (not a room as I do now) is 300$/m, buying a flat is about 80k$.


BicycleB

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Re: 18k saving a year is enough for freedom?
« Reply #13 on: June 09, 2019, 03:46:56 PM »
I agree, you have a dilemma. More than one, really.

Your investment options are not nearly as numerous or encouraging as those in countries with more open, stable economies. Local currency can suffer inflationary collapse, so an apartment might be better. But an apartment may have very low returns after inflation, or even lose value too, especially if the national economy weakens. There is no obvious way out.

In other countries, sometimes people invest in international currency or investments under the table, so to speak, but that always involves many risks; I cannot simply recommend it.

Saving and investing is probably a lot better than not saving. Perhaps your savings will prove very very valuable someday. But because instability in the local economy can destroy savings sometimes, it may be hard to obtain the type of reliability that MMM describes.

I guess that investing in more than one type of investment where possible increases your odds that at least one investment will retain value. Perhaps in future, you will be able to harvest large gains when rare opportunities arise, thanks to your savings and mental preparation. Keep going, and best of luck.

frugaldrummer

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Re: 18k saving a year is enough for freedom?
« Reply #14 on: June 09, 2019, 06:54:07 PM »
What about investing in residential real estate? Either buying a larger home that you could rent rooms to lodgers to help pay it off, or buying a second apartment to rent out? If you're handy at all with home repairs you can also make sweat equity by buying a home that is selling for a low price because of superficial cosmetics defects that you can then fix by painting, adding new flooring etc.

It seems to me that owning rental property might give you a hedge against inflation and currency issues.