Author Topic: Case Study - Saving for a house or starting with investments? (The Netherlands)  (Read 8131 times)

Paulie

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Hi Everyone,

I found this blog a few weeks ago and it has already helped me a lot. I'm 25 years old, live in the Netherlands (but I'm using numbers in dollars), started working a year ago and I would like to increase my 'stash'. Here are my details:

Income
My net income last year was 36,000 USD after taxes (are high here; about 56,000 USD before taxes), which is 3000 USD per month

Current expenses
1000 on rent (incl. electricity/water/internet)
200   on groceries
110   on health insurance
25     on mobile phone
10     on other insurances
35     on sports
20     on newspaper
680   on all other things, including vacations (averaged over last year, was already less this month after I found this blog)

TOTAL: 2080 USD, which leaves me about 900 to save each month.

Assets
I now have about 24,000 in savings. I don't own a car, house or anything else of significant value.
I'm automatically saving up for my pension, but I have to admit that I have no idea how much, or how much I have right now. I can't get to it before I'm 67 years old.

Liabilities
I don't have any student loans or any other debts.

I can and will cut back on the 'other expences', those are a bit too high I think. I started tracking my money when I got my first job (1 year ago), but I just started really looking at my expenses after reading blogs like these.

Specific question
I'm now renting an appartment, but I would like to buy a house of my own in about 3-4 years. Currently my money is in a savings account, where I only get 1.5% interest. When I read about investing (I don't know a lot about it already, but I'm currently reading about index investing) they all say that you should think long term. So do you think it is wiser for me to keep on saving towards a deposit for a house in 3-4 years, or should I already start investing altough I do not have a lot of money already.

Thanks for reading!

Paulie

ps. Sorry for the possible grammatical mistakes.



daverobev

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If you are CERTAIN to buy a house in < 5 years, stuff the downpayment cash into the highest interest rate cash savings account you can (if it's 1.5%, so be it). If you will *probably* buy one in < 5 years I'd maybe slice it and put a percentage of the money in a standard couch potato portfolio (ie, low cost ETFs or mutual finds, split between stocks and bonds) - so if you're 80% gonna buy a house, put 80% in cash savings and 20% invested.

Risk vs reward.

Also, though, calculate how much home ownership will cost you - ie, do you want to own a house in NL, or is renting more sensible for you (financially, flexibility wise, etc).

I mean - how much house will you get for, what, 200k? Something in that region? How much will you have to commute? If the interest, maintenance and general hassle factor is greater than the cost of renting - stay renting!

Obviously you need to know how much you're saving for retirement. It's generally a bad idea to put all of your money into any one thing, so I would say: set up an investment fund and plug away at it, ASIDE from your house-buying stash. Just ignore it - set it and forget it, make payments when you get paid and have them happen automatically.

Sounds like you're going in the right direction, anyway - good luck!

meadow lark

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How much are houses where you want to live?  Forgive my ignorance but is interest on mortgages tax deductible in the NL?  What are the interest rates like?  And what percentage do you have to put down?  I am somewhat of a risk taker, I guess, in that I put all my money either in houses or an index fund.  I would figure, if the market goes down, I might just have to wait 6 or 7 years to buy.  If it goes up maybe I can buy in 3 or 4.  I make my risk taking less dangerous by being flexible.

daverobev

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How much are houses where you want to live?  Forgive my ignorance but is interest on mortgages tax deductible in the NL?  What are the interest rates like?  And what percentage do you have to put down?  I am somewhat of a risk taker, I guess, in that I put all my money either in houses or an index fund.  I would figure, if the market goes down, I might just have to wait 6 or 7 years to buy.  If it goes up maybe I can buy in 3 or 4.  I make my risk taking less dangerous by being flexible.

AFAIK the US is the only place that allows mortgage interest to be deducted! Never heard of it for any European country, that's for sure.

This is a UK website, so take it with a pinch of salt (not many would bother listing Dutch property here) http://www.rightmove.co.uk/overseas-property-for-sale/Netherlands.html?sortType=2&currencyCode=USD

enpower

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Don't pay for health insurance.

Self insure like I do.

Insurance companies have to pay their staff, advertising, etc and also make a profit. All on the premiums you pay every month.

Rienk

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Quote
AFAIK the US is the only place that allows mortgage interest to be deducted! Never heard of it for any European country, that's for sure.
It's very much real in the Netherlands, and in this case it would be deductible at a 42% marginal tax rate. Although the government is slowly reducing this deduction, it still means buying is preferable to renting here, but only if you intend to stay at your current location for at least ~5 years or so. So yeah, I would recommend looking into a place to buy if you intend to stay at your current place of living.

Re: health insurance: this is mandatory in the Netherlands and also very cheap and government sponsored. I would recommend to go for the maximum deductible (850) if you don't have it already, unless you have a reason to expect health care costs.

In general though, the housing regulation situation here (I live in NL too) is a bit complex so it's hard to say how much you will actually need for a downpayment. The last I heard is that you can still get mortgages at about 105% of the house purchase price, so considering costs of moving and decoration etc. you would want to set aside maybe an additional 5% of expected house value in savings, or 10k for a 200k house. This would be something to check with a financial advisor or maybe a knowledgable friend though, as it's highly dependent on whatever the latest government plans are.

All in all, as a rough guideline I would suggest setting aside a 10k reservation for buying a house, 6 months of expenses in your emergency fund, and then invest the rest. At the moment there doesn't seem to be a lot left, but at your income/expenses you're saving pretty quickly. I also second the advice to look into how much you / your employer is/are contributing to retirement and see if it makes sense to supplement this with a separate retirement account ("aanvullend pensioen"). In the Netherlands the supplementary pension is very advantageous tax-wise, but it's very restrictive and can almost only be used for actual old-age retirement so it doesn't always make sense to max the contributions.

Paulie

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Thanks for all the responses!

Health insurance is indeed not a choice here, I have one of the cheapest (next year I'll pay around 90 dollars).

And as Rienk also says, we can deduct mortgage interest, one of the reasons why buying could be sensible. The houses I'm interested in are around 200k-250k, this is because I work and also would like to live in a big city.

I'm quite on the save side myself, so I like the approach of Rienk; keeping the money I have now apart, and maybe start investing 300 usd per month in 2014.

Thank you all for helping!

I like the

Alfred J Quack

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Thanks for all the responses!

Health insurance is indeed not a choice here, I have one of the cheapest (next year I'll pay around 90 dollars).
90 is way too much still. Take a look at a higher deductible (eigen risico), usually it's cheaper unless you expect to exceed the mandatory 380,-. To my knowledge Anderzorg is currently the cheapest with a high deductible.

Also, your cell-phone bill can go down depending on your usage. If you have a phone financed in your plan than get a sim-only at the end and save up the difference for when you need a new phone. Buying it up front is almost allways cheaper.

It would also be advisable to note that mortgages are currently only tax-deductable when you have an annuity or liniear based mortgage. This makes it easier to agressivly pay down your mortgage because other types are usually more complex with strict limits how and when you can pay down your principal. My advice would be to pay down as much as you are willing to at purchase (do keep a small fund though) and then save some each month while using the rest for additional payment. Using this method I went from 120k to 78k mortgage in a few years.

daverobev

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Well! You learn something new every day. Deductible in NL, interesting!

Daleth

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How much of a down payment do you need to buy a house in NL, and what's the interest rate? Also, is it possible to either buy a house that includes a separate flat (apartment) you could rent out, or buy a duplex (US word for a single building that contains two houses), or at least buy a house with an extra bedroom that you could rent, for example to a student?

Paulie

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Thanks again for the comments! I've been looking into some things and I'm trying to learn more about investing.

Wauske: 90 for health insurance is in USD, it is about 65 in euro's, which is one of the lowest I could get. Cell phone is allready a sim-only, it's for 17 euros a month (500 MB, 300 minutes, 100 texts) and the contract lasts untill the end of 2014.

Daleth: Definitely smart things to think about when buying a house. I do have to mention that my SO is not really into MMM and for him it would not be an option to rent out a room, nor do I have any knowledge about fixing things indoors or owning property, so I'm not sure whether I would want to get into these things.

I'm now thinking about investing with an investmentbank which only has indexinvesting. This one seems clearest to me. You can either start investing a monthly figure, or start with a minimum of 10,000 euros. I think I will be able to save about 11,000 euro's next year. If I start investing with about 700 euro's a month, then I'll save the rest (about 3,000) for a downpayment on a house and I'll still have the 17,000 I allready saved in my savingsaccount.

Plan 2014:
700 euros per month investing (8400 by the end of the year)
20,000 euros in total in savings (by the end of the year)

Rienk and Wauske: Do you have experiences with investing in the Netherlands? And which banks/funds do you use?

Thanks!


I think this is on the save side, but I guess that's what I like ;-).

Jappe

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@daverobev In Belgium you can deduct both your interest and your principal from taxes when buying a house. (Which results in a maximum net return of +-$2200 / year per person on a mortgage loan.) The amount goes up each year with inflation.

@Paulie I was in a similar situation a couple of years ago. Saving for a house to buy within 2-4 years. I would advice to just keep it on a savings account with the highest % return. You should be able to get higher than 1.5% normally. Just make sure you're in a "safe" bank with the 100.000€ guarantee. If possible with roots in The Netherlands.

Not sure how investing is in The Netherlands, but here in Belgium you always pay some broker costs when investing in trackers, funds, stocks,... both when buying and selling. The initial cost of 1% / 7-12€ / whatever hurts on small amounts and short periods. Although buying now and selling them again in 3 years might still give you a profit, you are better off knowing how much exactly you can put down for a house beforehand when you go bank-shopping for a loan. Also, 2-4 years is not long term when it comes to investing, especially the past years. it can go up by 10% but also down by 10%. In the long run it will (should) balance out in profit but on a few years it might fluctuate.

That's how I did it. Then after I bought the house, I built up my "safety amount" back on my savings account and this year I started investing in funds and trackers for long term. Just my 2 cents, but perhaps my vision is just too defensive :)

(edit: I use Binck at the moment for investing, I know it also has a dutch division but no idea if it is the best in fees in The Netherlands).
« Last Edit: January 03, 2014, 07:48:26 AM by Jappe »

Rienk

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I started my own investing with ING bank simply because I had my checking account there, but currently in the process of moving to Binck because it has lower fees. Both ING and Binck give access to buying all sorts of ETFs, but ING has a yearly fee of 16 + 0.24% of assets. Binck only has transaction fees and no other costs so that's why I'm switching, to my knowledge it has the best fees for a passive / long term investor.

Alfred J Quack

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Plan 2014:
700 euros per month investing (8400 by the end of the year)
20,000 euros in total in savings (by the end of the year)

Rienk and Wauske: Do you have experiences with investing in the Netherlands? And which banks/funds do you use?

Thanks!


I think this is on the save side, but I guess that's what I like ;-).

Looks like a solid plan :)

I have some pre-MMM investing experience (lost about 1k in SNS bailout) but have revised my options since then. At the moment I've got an investment account at ING to participate in Vanguard. The cost might be a bit of a deterrent, I olny set it up to test the waters (and to convince the wife). You might want to look at www.meesman.nl, they are a Vanguard alternative with the cheapest index I could find over here (0.3% cost and 0.5% transaction fee). I think they might actually invest in Vanguard...

Also, when I upscale (after I'm done with the mortgage) I'd probably go something like this:
60% desposito long-term
30% Index (Meesman, 50% bonds and 50% pure index)
10% Cash savings (possibly split into savings account and short term deposito)

I'd also consider something like the poor-man's investment return garantee:
5k savings example
Put 4600 in deposito for 5 years, @2% you'd have 5080,- at the end. (if the interest is higher, say 3% you could go 4300-700, just calculate the difference based on the current interestrate)
Invest the other 400 in stocks or indexes, after 5 years the result is your profit. If you lose money then the interest of the desposito is your "insurance". This example does not cover inflation or calamity though.

Hope this helps :)

Paulie

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Great, thanks for making things more clear!

@Jappe: thanks for your comments. I like being on the safe side as well, but I'm also inspired by the thought of 'letting the money work for you'. I think that if I have about 20-25k on a savings account that could be enough for a downpayment on a house. Later on I can than still decide if I want to make larger payments to get rid of a mortgage faster.

@Rienk and Wauske: I looked at both Binck and Meesman, and I decided to open an account at Meesman. Because they have nice opportunities to monthly contribute. As of February I'll be an invester ;-)!

Good suggestion by the way on the deposits, I'll look into that more closely!

markbrynn

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Just a note on "You don't have to buy a house"

You need to look at the numbers yourself, but buying is not guaranteed to be better than renting. In the Netherlands (where I also live), I think this is especially true.

Strictly in terms of owning versus renting:
If you buy for 250k at 5% for 15-30 years fixed, then you're looking at about 600/month in interest on your mortgage (after taking into account interest tax deduction). If you figure in closing costs, insurance, property tax, maintenance costs, etc. then you can probably afford about 1000/month in rental to break even. This would be without the risks of ownership, which include a real estate market (the Netherlands) that I keep hearing/reading is overpriced, so you can't even rely on long term appreciation.

Don't forget the other limitations with buying:
1. You cannot move city/country without extra costs.
2. You cannot up or downsize your house without extra costs.
3. You are responsible for new roofs, floors, appliances, etc.

Financial upsides to owning a house:
1. Possible long term increase in the value of the house (no guarantee).
2. Forced savings.
3. Equity not subject to 1.2% wealth tax in Netherlands.

Take what I say with a grain of salt, as I'm trying to figure out the best investment choices in the Netherlands myself (and I "made the mistake" of buying a house). I just think that people the world over still conclude way too quickly that buying a house is a good idea, even after the many good articles written that show that it isn't a good investment in many circumstances (which I can't find to link to now). If the numbers are in favour of buying, then go for it, but make sure you look at the total picture and don't just assume buying is a good idea.

Paulie

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Hi Markbrynn, thanks for your reaction, sorry I noticed it so late. Definitely true that you don't need to buy a house. The upside for me would be to have a place that's really yours. I know that it could maybe not be the best choice in financial terms, but I would really love to own a house someday. I'm also interested in potentially buying a house with a lot of maintenance problems, so it's more easy to add value. But these are things that I have to take a better look at in a few years.

markbrynn

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Yeah, the emotional factor tends to be huge. If you get into a situation where you're spending a lot of time and money fixing things that keep falling apart on a house/apartment that you own, then the emotional side may turn from positive to negative (I've been dealing with leaks for a while).

Funnily enough, this emotional factor crops up in some other important life decisions, like getting married and having children. We have been powerfully brainwashed to want certain things. It's difficult to overcome. Not that there's anything intrinsically wrong with buying a house, getting married or having kids...

train_writer

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Hi Paulie.

I am also a Dutchie of 25 YO and first of all, your saving rate and stash are impressive for our age! I also think we as Dutchies have to approach FI a little different tweeking your goals while you go.
E.g. I personally think that the state retirement age will go up to 70. Also, working part time is quite common here and might be something you pick up 'after retirement'.

On buying versus not buying a home: that is not only a financial choice, but a very personal choice. I have bought a house last summer, together with my SO.

The house is in a bigger city and it needs some repairs ~ 5k-10k in the next 10 years. It was a good choice for us as my SO is skilled in renovation himself and we very much like this neighbourhood. I can imagine that it would be a good choice to rent instead, depending on your lifestyle! I can also see ourselves renting out this place in a couple of years.

Would be interesting to hear about investment opportunities in the Netherlands as well!
« Last Edit: November 28, 2015, 01:33:59 PM by train_writer »

Paulie

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@markbrinn, sorry to hear that you're dealing with these house-related issues.

@train_writer: congrats on buying the house! 140k is realy nice! I'm also not sure yet as how to approach FI. I don't know exactly how much I pay towards my pension, and I certainly have no idea how the pension plan will be in 45 years, but I guess no one knows that. Have you been working for a long time? I'm not an expert on investment options, I did some research but not that much. This is a blog I found http://econowiser.wordpress.com/, which is from a dutch woman and she is more advanced I think. I started investing with Meesman (at least, I opened an account and I will start next month). Do you already have a goal in mind?

train_writer

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I am a bit late to respond. How is your savings and investment thinking? Did you learn something new?

My current investement actions are as following

  • - I set up an account at Binck with my spouse, where we invest 140 per month atm
    - I set up a personal account at Meesman, thanks to your suggestion actually, where I invest 150 per month
    - I have also invested in 2 businesses I think reliable. I already did this 2 years ago, but I have given out another loan this month of 750 euros at 8 %.
    - I have a minimum of 25k in savings, because of the new house. Now we are living here since almost 1 year, I am thinking of lowering my number in savings, yet I have difficulties to estimate which number I should put in the mortgage and in investments and keep in an emergency aka unemployment fund.
    - We have a shared savings account for house expenses, currently replenished at 10k

My goal is to be able to retire in phases:
phase 1: Now, working fulltime, stashing, investing, partly or completely paying off the mortgage.
phase 2: Sabbatical, working parttime or seasonal. Maybe 1 or 2 kids.
phase 3: Full retirement meaning doing the things I love without worrying about creating an income. Writing, gardening, music, slow travelling, wood work.

I have to figure out how long each phase will be, I guess i will be flexible! At the moment, I like my job a lot, just not that it is more than fulltime.

Paulie

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Hi Train_writer, just found your post. I started investing this month! Since I already have quite some savings on a savingaccount, I decided to send almost all my savings to an investmentaccount. I'm currently investing about 1050 per month in a Meesman account (spread over 3 funds). I'm still looking into Binck (do you like them?).

I'm currently reading the blog of http://econowiser.wordpress.com/. But seeing all those numbers and percentages and tax rules; it just dazzles me a bit sometimes. So I'll keep it simple at first I think.

I really like your phases! We are also thinking about maybe taking a year or half year off to travel in a few years. And I think it is more likely that we will start working parttime (and therefore prolonging FI) at some point.

phred

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This is an easy one to answer.  Talk to the elderly at the assisted living facility.  Ask them what they had wished they had done differently.  You'll gain some great perspective