Author Topic: Case study from High-Tax Netherlands  (Read 1584 times)

AtlasNL

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Case study from High-Tax Netherlands
« on: November 15, 2019, 05:57:33 AM »
Recently found my joy in cutting spending and become more frugal. Even "had the talk" with the wife (partially). Now, I am shocked about the insane salaries I see sometimes on this website -> I am amongst the top10% incomes in my country (which is one of the richest in the world), yet I don't even come close to some of the amounts I see. Nevertheless, I come by very easy every month.

Life situation: Married, wife works 3 days a week, I work fulltime. 2 kids (1yr old and 4yr old). Living in the Netherlands, 34 and 33 yrs old.
Gross salary: 96,000 EUR (me) & 38,500 EUR (DW, working part time already included), or 8,000 and 2800 per month. My wife also get's 8% holiday allowance per year and 7% end of year bonus.
Take home pay: 4525 EUR monthly for me, and 1825 EUR for my wife. This includes in her case all of our health insurance (equal to 250 EUR per month). The tax brackets here are slightly different than in USA...I pay 52% for all gross income above 68,000. My wife is at 40%-bracket.
Other income: tax return (mortgage interest deduction) 350 EUR per month
Childcare compensation: 500 EUR per month
Child allowance (or whatever I should call it in English): 133 EUR per month
Pension contribution me: 137 EUR "of my own" and 548.12 by employer
Pension contributions DW: 305.58 own contribution, 305.58 by her employer
Total net monthly income is thus 7.333 EUR

Expenses:
Mortgage = 782 EUR interest + 425 EUR principal
Studyloans: 162 EUR per month, all principal
Local taxes: 112 EUR
Internet: 51 EUR
Water: 20 EUR
Utilities: 0 EUR
Daycare (2days a week for our daughter, plus some after school for my son): 1,000 EUR
Groceries including diapers, soaps, detergents etc: 780 EUR
Car (full-loaded cost of depreciation, maintenance etc. against 40,000km per year): 664 EUR -> it's a brand new car, one of our less-fine moments but decided before I read MMM.
Car fuel: 150 EUR
Clothing: 200 EUR per month
Restaurants etc.: 100 EUR
Holiday (monthly put aside): 300 EUR
Misc. / one-offs: 300 EUR
Total spending including principal: 5,046 EUR
Total spending excluding principal: 4,459 EUR

Saving from income: 7333 - 4459 = 2,874 EUR & 2x 1700 EUR per year from yearly payments my wife gets)

Assets:
House: 500,000 EUR
Bank accounts: 15,000 EUR
Total: 515,000
(and obviously, 5 bicycles + a trailer for the bike, and one for the car)

Liabilities:
Mortgage: 410,000 EUR (200,000 against 2.38%, 210,000 against 2.17%)
Student loans: 11,000 EUR against 0.00% interest (but we need to pay it back unfortunately, but do it as slowly as possible).

Total net worth: 94,000 EUR excluding pensions.

Wrt the cars: I actually have 1 car, but it's a company car. So this one is for free, including unlimited kilometers. My wife is driving a new PHEV. We both do crazy long commutes, but combined there is one of us home almost every day as I work from home 2 days a week and she only works 3 days.
My son is going to elementary school next week (4yrs old), my 1yr old daughter is going to daycare 2 days a week. Deliberate choice, also for making friends and socializing and allowing me to get some extra work done.

We have no bill for electricity or gas, as our energy generation from the PV-installation is só big that we are net producers including the heating with gas.

In our Dutch system, paying off your mortgage is tax-free, but having liquid assets over 60,000 EUR is taxed. This meant until recently that a lot of our savings went straight into the mortgage. But thanks to the system of mortgage deduction, the effective tax rate is about 1% so there is no incentive to pay it off. We did some of the investments in making our house more energy efficient with a government-energy saving loan but paid it off completely this month.

Saving a big nest-egg however is a little bit problematic, as we'd need to pay a relative high amount of tax on it (1.2%).

For holidays, we spend 5,000 EUR per year on average. But in 2021 we will go on holiday by bicycle ;-).

Goal: we want to be FIREd at age 45 (end of 2029). The 'stash needs to be about 687,500 EUR to be relatively save to do it, as there are a lot of costs to be cut (day care for example, but also the groceries which can and will be halved next year). With our current savings, we'd end up at 37,888 per year of increased wealth, which partially (5k/yr) flows into the property.

We actually don't need to consider any income past 67, we live in The Netherlands. Our state-pension will be (assuming it keeps up with inflation) 20,296 EUR nett per year and our own pension fund will raise it to 80,000 per year or so (if we would continu to work until age 67 which we won't).

It's going to be a tough challenge...Anybody else in high-tax area's been able to do it? And sorry my friendly American friends: your taxes are close to 0, even in the highst tax brackets...

Roland of Gilead

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Re: Case study from High-Tax Netherlands
« Reply #1 on: November 15, 2019, 06:11:08 AM »
So you have a wealth tax of 1.3% but no capital gains tax or dividend tax?

I guess during up market years, you would come out ahead of someone in a country like the USA but in down years you would lag.

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #2 on: November 15, 2019, 06:31:30 AM »
I live in Norway and we have wealth tax. If we don't go into all the details, but equities and equity funds are counted at 70% of market value and cash/bonds at 100%. The tax rate is 0.85%. So for equities the rate is 0,7*0.85%  = 0,60% per year. Which effectively lowers the annual return by said amount.

However, I buy index funds in a special account that was introduced some years ago. As long as the funds or stocks stay in this account, all taxes are deferred. I can buy and sell and get dividends without being taxed. The tax bill pops up first when I have taken all the invested principal out of the account and start withdrawing capital gains. The "free" amount I can take up also is adjusted slightly upwards every year, effectively by the yield on short-term government bills, so in these days less than inflation. I do pay wealth tax on whatever I have in, however. So in this setup I could market-time by selling without paying capital gains tax as long as I don't take the money out of this special acount, then re-enter the market later. Not that I do it, but just to illustrate how it works.

I don't see this as a reason not to save in equities. The return is just a bit lower than it would be without the tax. Expected returns are still much higher than the alternatives. And you must not forget that you also get a decent amount of services for your tax money - there are significant costs you don't have which you would have in the US. Health care being the most obvious.

Also to me - property taxes are shockingly high in parts of the US. I own a detached house in the most expensive housing market in the country and I pay something like 0,3% per year combined in direct property tax (0,2% with a big deductible) and wealth tax (primary residence counted at 30% of conservative market value and the mortgage deducted in full). It's hard to compare tax regimes across countries as the systems can differ a lot as well as what you have to pay for and what is provided as a public service or at a very subsidized rate.

You should really do the math and start investing in something giving returns. And your own residence doesn't really count as FIRE net worth unless you are willing to move somewhere significantly cheaper and get the equity out. With interest rates at such low levels the last thing you should do is to pay it down in my opinion. Invest the money instead.
« Last Edit: November 15, 2019, 06:45:19 AM by habaneroNorway »

AtlasNL

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Re: Case study from High-Tax Netherlands
« Reply #3 on: November 15, 2019, 06:33:53 AM »
Indeed no capital gain tax, there is a 30% tax on an assumed 4% return. The actual return is irrelevant - hence the tax is 1.2% net (for all value above 60,000 EUR for a married couple).

Dividend tax is deductible somehow - but we're starting investment in those funds only this month as we just paid off the energy-loan (which was a great investment, energy bill went from 2.400 EUR per year to 0 EUR per year, for a 12k EUR investment, including 1 year of the actual interest paid) and I did a MSc study last year (costs: 40,000 EUR).

There is a way around the wealth tax, by investing in some particular green funds, but they yield very low dividends - but when we're at 60,000 liquidity we will re-calculate the situation. Paying off the mortgage is not very interesting with such low interest rates.

AtlasNL

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Re: Case study from High-Tax Netherlands
« Reply #4 on: November 15, 2019, 06:41:02 AM »
Thanks habanero, crossed each other exactly during posting. We are starting these investments as of this month. I cannot move to any part significantly cheaper of the country, as I live in a low-cost area of my country. Property tax is very low at 0.115% of the value of the property, so in my case 40EUR per month...

I realize I forgot to include insurances to my original post: 70 EUR per month.

And I am OK with paying tax: we have free schools, virtually free universities (tuition is 2,000 EUR per year for university), very good healthcare, free roads which are very well maintained, good rail roads, mostly underground utilities meaning I have never experienced a black-out in my 34-yr life, don't need to worry about income after being fired or bankrupted employers as the government pays 70% of your salary for max. 2 years, and we cannot be fired (as in the traditional meaning of the word) on short notice. My notice period is 2 months (counting from 1st day of next month), for my employer it's 4 months.

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #5 on: November 15, 2019, 07:12:35 AM »
And when you read all the rage about "the 4% rule" it isn't the 4% rule when you live in a country with wealth tax. The tax will be a drag on your returns every year regardless of what the global financial markets are up to. This will have a signinficant effect of the size of your nest egg when calculating the FIRE number.


Roland of Gilead

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Re: Case study from High-Tax Netherlands
« Reply #6 on: November 15, 2019, 07:22:11 AM »
And when you read all the rage about "the 4% rule" it isn't the 4% rule when you live in a country with wealth tax. The tax will be a drag on your returns every year regardless of what the global financial markets are up to. This will have a signinficant effect of the size of your nest egg when calculating the FIRE number.

It depends.   For the past 8 years or so, a person in the Netherlands who is withdrawing money from a stock account possibly is doing better than someone from a country like the USA with no wealth tax but a capital gains tax.

This year in the USA we will pay about $20,000 in capital gains on $100,000 of stock we sold.   In the Netherlands, you would pay $1,200 selling the same $100,000 of stock.

AtlasNL

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Re: Case study from High-Tax Netherlands
« Reply #7 on: November 15, 2019, 07:28:33 AM »
@habaneroNorway True- but I've been thinking. I could go towards 0 savings when approaching 67. Obviously 0 is too extreme, but the state pension + employer pension already provide >30,000 EUR net per year at age 67 if we would both stop working now (and hence have no further contributions into the employer-pension scheme).
So what would be the purpose of keeping the nest egg beyond 67, if my pension withdrawal is guaranteed until the day I die (which is essentially one of the great benefits of a high tax, socialist country).

Or am I making some error in my thinking here?

@Roland of Gilead No, that's not how the system works. It doesn't matter if you'd sell the stock or not. You pay it over owning the stock - including its appreciation. So a 100,000 EUR stock value would mean indeed a wealth tax of 1,200 EUR per year. All 8 years long in your example, or a little bit over 10k EUR including some compounding - regardless of income. From what I've read about the US-system, there would be a 15% capital gain tax in my case. There are no people (well, maybe 500 or so) in this country making over 434,000 USD per year.

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #8 on: November 15, 2019, 07:43:05 AM »
It depends.   For the past 8 years or so, a person in the Netherlands who is withdrawing money from a stock account possibly is doing better than someone from a country like the USA with no wealth tax but a capital gains tax.

This year in the USA we will pay about $20,000 in capital gains on $100,000 of stock we sold.   In the Netherlands, you would pay $1,200 selling the same $100,000 of stock.

If you have a wealth tax of 1.2% and fees at 0.2% you effectively own an index fund with 1.4% "fees". This will influence your compounded returns a lot over time. But for me it would be partly as you say, whenever I start drawing from my nest egg I can take out a lot of money before incurring any capital gains tax as I can sell the full principal amount invested before any taxes are payable.

Bottom line is regardless of where one lives it's important to understand the tax implications and which, if any, modifications will have to be made to the 4% rule.

Hirondelle

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Re: Case study from High-Tax Netherlands
« Reply #9 on: November 15, 2019, 11:05:29 AM »
Hi Atlas! Saying hi from the North of the country. We even have a Dutch thread somewhere (it's in the meetups section although it's not really about meeting up at all).

Regarding the wealth tax; yes it sucks, but as mentioned by several folks it's hard to compare taxes so we just got to deal with it. You're still fairly far from that €60k so for now I guess your best option is to just start investing in index funds and once you get close to €60k see if you have better options (great decisions on reducing your energy bills!!). For investments look at DeGiro or Flatex. A good, low cost index fund option is VWRL but there's others out there too.

Also check out the "Financieel Onafhankelijk Blog", that's a person who's a lot further in his journey than most Dutch folks here on the forums.

To answer your question 'anyone else from here who's been able to do it', I guess from our Dutch folks we only have @Linea_Norway FIREing soon but she's been living and accumulating her wealth in Norway (speaking of high taxes..). I'm still early in the journey but NW is climbing rapidly as whatever the tax rate is, the principle of saving up money giving you more freedom to do whatever you pleases works everywhere!

Linea_Norway

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Re: Case study from High-Tax Netherlands
« Reply #10 on: November 16, 2019, 12:08:10 AM »
@AtlasNL Countries with high tax often have a progressive tax system. The lower earners usually don't pay high tax. While with a good income, you pay a big part of that higher part of your income as tax.

In our case, I think that we managed to save a lot through the years by making sensible life choices. We bought our first house outside the capital, and with a few features that would scare off other people (steep road). Therefore it was cheap. We stayed there for 15 years, even though we could have afforded another house after some years. When we started, the mortgage interest rate was 7,5%, so I was very motivated to pay down the mortgage any time I had some leftover money.
Earlier, when we had a train station near by, we took the train to work and owned only one car. We have noticed that fuel prices vary a lot, so we only fill up to full tank when it is cheap.
We have chosen not to have children. I think that might have contributed to our savings rate, but children don't need to cost a ton if the parents make an effort.
Further, we have not really developed expensive habits through the years, even though we both have good salaries. If I have money left on my account, I don't feel it burning to spend. I just put it in an index fund. We still spend the summer holidays camping in a tent, or hiking in the mountains where you can camp for free.

Now for our biggest financial mistake. A couple of years ago (shortly before discovering this website), we felt rich and decided to buy a clown house. We sold our cheap house, emptied the index fund, paid capital gain tax over the stock profits and bought a house for all the money we had (without a mortgage).

There are also a few Dutch early retirees. On this website there was once a Dutch truck driver who retires. And sometimes I hear it on the radio. Like some time ago in Kopspijkers (I listen to the podcast), there was a guy who had gone to the cinema every day for a whole year. He mentioned that he had retired and could do that because he spent very little money. The host, Dolf Jansen, just accepted that explanation. And I have heard similar Dutch people in several other situations, explaining that they live on very little.

A year or two later, I was able to calculate how much we needed to early retire. Like you, we don't need to save up more income after the age of 67. What we have built up in traditional pension in 20 years of working will be enough to live on. But we need the money that is in the house. Therefore, as we are quitting our jobs at the end of the year, we need to sell the clown house. So far no luck yet. We will try again a bit later next year.

The only thing with taxes that worry me a bit, is that they often increase the percentages from year to year, like the VAT, the capital gains tax, property taxes (not in my community, but very common elsewhere). That makes our yearly spending predictions a bit unpredictable. We we also think that in worst case, we can always work a bit and make some extra money. In whatever job, as low paid job also are in a low income tax bracket.

I think the difference about the US with lower taxes and a higher tax country is how early you can retire. We probably need a couple of years more. So what, that is still early retirement.
« Last Edit: November 16, 2019, 12:27:30 AM by Linea_Norway »

RogerOS

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Re: Case study from High-Tax Netherlands
« Reply #11 on: November 16, 2019, 12:44:16 AM »
As a fellow Dutchman I enjoyed your post very much, thanks.

It is interesting to compare monthly expenses with someone who lives in the same country, to see if I can cut back some more. The only thing that stood out to me was water utilities. I pay ~30/month for a 1 person household, but that is utility (verbruik) and tax (waterschapsbelasting) combined. I assume you put the tax under local taxes?

Now, I am shocked about the insane salaries I see sometimes on this website -> I am amongst the top10% incomes in my country (which is one of the richest in the world), yet I don't even come close to some of the amounts I see.

I strongly relate to this statement, absolutely shocked. I think there are two factors at play: (1) lots of Americans on this board, salaries can be much higher in the US than in the EU, (2) those who want to improve their personal finances are probably already above average in that department, so there is a selection bias on this forum.

May I ask what field you are in, as in finance, management (consulting), medicine, law? 8k/month is quit an incredible salary in the Netherlands at your age (and at any age to be frank), well done!

To me, this post also displays the dubious effect of our high tax system. Your gross income is almost double that of mine, yet net only 50% more (4300 gross, 3000 net). To reach your gross income would be almost impossible in my line of work, I would need to start freelancing or change fields. Regardless, it would require immense effort and taking on risk. Yet an additional 1500 euros per month would not improve my life, nor that of hypothetical children, in any meaningful way, largely because healthcare and education are so cheap here.

The negative effect of our high tax system is that it does not create a strong incentive for me to work much harder or take on more risk. This incentive would probably be much stronger in the US. The positive effect is obviously that despite an enormous gross income difference, we both enjoy a high quality of life. This is nicely illustrated by our countries gini index, which is 0.56 before taxes, but only 0.29 after.
« Last Edit: November 16, 2019, 01:16:02 AM by dave-it »

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #12 on: November 16, 2019, 03:09:14 AM »
While I'm not dutch I think you underestimate the salaries obtainable around in the European worklife. There are plenty of high-paying jobs around, but it generally involves staying out of the public sector and getting into lines of business handling large sums of money or providing some high-valued service to corporate clients. Typical examples are private law firms, investment banking, management consultancy and so on. There are probably also quite high-paid jobs for various senior engineers etc around in companies. And regardless of pay and taxes one should really look at net cash left after life's necessities are paid for. When I see a figure like 1000 Euros or dollars / month  for day care for a child my eyes start rolling - I pay about 300 Eur pr kid pr month fom day care and roughly the same for after-school care when they start at school. Kids generally quit the latter when they are 9-10 years old.

For daycare for 1 kid @ 1000 Eur pr kid per month paid for with after-tax money I would need to make 14.000 EUR / year before taxes to cover that difference. If you have 2 kids and they each spend 9 years in day care / after school care that's a total of about 250.000 EUR extra pre-tax income needed over 9 years.

RogerOS

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Re: Case study from High-Tax Netherlands
« Reply #13 on: November 16, 2019, 08:04:03 AM »
While I'm not dutch I think you underestimate the salaries obtainable around in the European worklife. There are plenty of high-paying jobs around, but it generally involves staying out of the public sector and getting into lines of business handling large sums of money or providing some high-valued service to corporate clients. Typical examples are private law firms, investment banking, management consultancy and so on.

I think my estimate is quite accurate. Those are the exact same fields I listed. Law and management consultancy are highly skewed fields, the top firms (e.g., MBB in consulting) pay fantastic, but the other 90% not so much. The jobs that you listed have something in common: they are extremely competitive niche jobs, which you either get after graduating university, or not at all. Quite the opposite of 'plenty' really!

The fact that the topic start is in the top 10% with 8k is telling.

For daycare for 1 kid @ 1000 Eur pr kid per month paid for with after-tax money I would need to make 14.000 EUR / year before taxes to cover that difference. If you have 2 kids and they each spend 9 years in day care / after school care that's a total of about 250.000 EUR extra pre-tax income needed over 9 years.

The cost doesn't increase linearly with each additional child. Above a certain amount it becomes profitable to hire a full-time nanny or au pair. I would say around 1200 euros/month. This has the additional benefit of making the second partner available for full-time employment again and greatly reduces stress in case one of your kids gets ill.

But yeah, this is another example of Dutch government regulation that discourages working more. Often staying at home and losing income or working more, but paying more daycare result in roughly the same financial outcome.
« Last Edit: November 16, 2019, 08:13:15 AM by dave-it »

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #14 on: November 16, 2019, 08:29:45 AM »
The fact that the topic start is in the top 10% with 8k is telling.

8k Euros / month or 105.000 USD / year would put you in the 87th percentile in the US so that doesn't really tell that much. 10% of the dutch work force is what? 1 million+ people? So there are lots of people making that much and more in Holland as well. Most of them are probably not in the start of their careers, however. The mentioned 8k EUR / month would also put you well within the top 10% in Norway and still I know plenty of people who make more than that, but since I went to engineering school and has moved over to the business side of things my circle of reference is naturally quite skewed towards the high end of the distribution.

Most people on this forum don't have extremely high salaries. Some do, some make quite little and many are somewhere inbetween.

But the European pay structure is a lot flatter than the american, especially in both ends of the distribution, but if you are within the right fields and good at what you do and have some luck there is quite big money to be made over here as well, but most people don't get those jobs - that's why they are in the far right end of the income distribution. Same goes for the US - you have to be in the right field, at the right time and in the right place as well to make 3-400k USD / year. Most peope make way, way, way less. If you make 300k USD / year you are in the 98th percentile, 400k USD / year puts you in the 99th.

Imma

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Re: Case study from High-Tax Netherlands
« Reply #15 on: November 16, 2019, 09:48:18 AM »
There are plenty of people making €€€ in NL too, although incomes over €200k are fairly rare. But it's not like most Americans make that kind of money. You make a decent amount of money for someone of your age, but it's not like earning 6 figures is extremely rare among highly educated people. It's not just doctors and dentists making that kind of money. In NL it's just hard to guess what someone makes because it's not in our culture to brag.

I don't know if you have any specific questions or you just want some general advice. You already mentioned your grocery shopping could be halved - I agree with that. I think you also spend a lot of money on clothing for 2 adults and 2 very young kids. Kids at that age need lots of clothes of course, but it's very easy to get them for free (ask friends/relatives and you'll probably get bags and bags of clothes that were worn twice) or nearly free (I have friends who buy big boxes of kids' clothes from MP). For adults, clothes aren't as expensive if you don't want to follow the latest trends. As a couple in the same age category, I don't think we spend €50/month, and I'm in a job where I can't just show up in casual clothes.

Your can almost certainly find a cheaper internet subscription, or is this including phones? I don't see phones listed seperately. €50 for home internet and two phones is fine.

Your holiday spending isn't adding up, there's €300/month in the budget but you say you spend €5000/year which is €415/month. Or is part of that hidden in the one-off category?

You have very little savings for someone who says they can save €3000/month, is that because you used it on a new car and the MSc and to pay off your mortgage? I would aim for a little more savings in your situation before starting to invest. If you live LCOL part of the NL that means you must live in a pretty fancy house, which means maintenance is probably expensive. I don't see that budgeted seperately, is that under the one-offs category? I live in one of the bigger cities and for €500k you'd get a semi-detached, 4-bedroom home with a garage and a garden. If you are in one of the cheapest parts of NL (deep south or north? ) for that price you're likely in a much more fancy place. That's a personal choice of course, and I don't know how many more children you are planning to have, but an easy way to release cash is to sell and move into a smaller home. It's a big plus that your home is so energy efficient though. That saves a lot of money.

I think it's absolutely possible for you guys to retire in 10 years from now. You earn a lot of money and you're at an age where your income is likely to increase over the next couple of years. You are spending €55-60k right now and I think that could easily be lowered by at least 20k/year. If you add that 20k/year to the 37k you can already save now, you will make your FIRE goal in 10 years even with the Dutch wealth tax. If you choose to downsize or if your income increases and you put that money towards investments, you could even FIRE earlier.

AtlasNL

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Re: Case study from High-Tax Netherlands
« Reply #16 on: November 18, 2019, 12:48:31 AM »
Thanks for all the replies - my kids had their birthdays over the weekend (both of them, 35 EUR on gifts, baked the cake ourselves).

@RogerOS I am business development director in a hightech-startup in Eindhoven, before that I was strategic buyer in automotive industry. I absolutely don't complain about the salary, especially considering that my car is for free. I make about as much money as our CTO, all others (including the lead engineers) get paid less (but still well).

Good to know it is possible to FIRE & to consider at this moment already the wealth tax. I don't think we have a capitals gain tax in the Netherlands but I will find out. So far we've invested in education and solar panels.

For the internet subscription: it's television and internet (ziggo), which is also the only choice in my neighborhood. Wife is not ready to give up television anyway. Phones are not listed as we don't have mobile phones ourselves, only subscription from the employer.

We put aside 300 EUR a month for the holiday (as my holiday allowance is paid monthly) and use my wife's holiday allowance as addendum. Usually we don't spend that much but this year (well, 2020) we are going to make a trip through Norway with my parents-in-law and we are paying for them too. This is a big "Thank You" to them for helping us refurbishing our house.

Savings are small indeed due to 40k MBA course and we just spend 70k EUR on refurbishing our house (non of the refurbishments are in the mortgage, it's all from our own money), from which we received the keys in August. With the low mortgage rates, my cost of living in the house is 400 EUR on the interest monthly (800 EUR interest per month, minus deduction, roughly). We have no electricity or gas bill. Yes, it is rather fancy for Dutch terms I guess, living in a smaller house would not really speed things up (0 on the energy bill remains zero, the rest is not so expensive) and would mean I probably would have neighbours under my roof. That's not going to happen.

Maintenance is not expensive because, like MMM himself, there is hardly anything in and on the house which I cannot do myself. Only plastering I leave to somebody else, the rest I do myself.

I'll look into the clothing department a bit more, thanks. I already assumed we could do much better - most of the costs are not in the children's department per se...

One expensive thing is the childcare (kinderopvang). In case we would earn less money, we would get more back from government. That's why I added the tax-break at income and the gross bill in expenditure. We do realize my wife is working virtually for free, but she enjoys it a lot - and she hasn't studied for 10 years to be a stay-at-home mom, but unfortunately public sector pay is not nearly as interesting as private sector (she works in a hospital as child psychologist).

Linea_Norway

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Re: Case study from High-Tax Netherlands
« Reply #17 on: November 18, 2019, 01:29:54 AM »
If you say the clothes you buy are mostly for the adults, then realize that adults often keep the same size for years (hopefully). They don't need to buy new clothes for the new season. Think of the environmental impact the clothes industry has by suggesting everyone should buy the newest fashion. Just wear up whatever you have in the closet and only replace clothes that get holes in them. And when you buy a new garment, buy something timeless. You could also consider buying garments at the thrift store.

AtlasNL

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Re: Case study from High-Tax Netherlands
« Reply #18 on: November 18, 2019, 01:49:50 AM »
We are not very much into fashion - although I used to buy Van Bommel shoes for under my suits. Now, I've stopped wearing suits on daily basis, only when on business travel, so I can cut down on this easily. My 2 winter coats should also keep me warm for at least 10 years :-).  I recently also convinced my wife that we can do with a whole lot less of clothing. Let's see how much we can cut it in the upcoming years! (Same for groceries, restaurants, holidays, etc).
Thanks Linea!

UncleX

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Re: Case study from High-Tax Netherlands
« Reply #19 on: November 18, 2019, 02:24:40 AM »
Hi and welcome.

I don't think we have a capitals gain tax in the Netherlands but I will find out.
We don't.

But VRH will change as is already discussed here:
https://forum.mrmoneymustache.com/meetups-and-social-events/any-dutch-mustachians-here/msg2454461/#msg2454461

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #20 on: November 18, 2019, 03:04:36 AM »
You need to look a bit into what's the most tax-efficient way of investing. The most common is capital gains vs dividends. It's quite common that dividends are subject to tax when distributed, but if they are reinvested (like in a fund) tax is delayed until you actually sell. If the latter is the case it makes a massive difference due to the effect of compounding.

Don't know how it works in Holland, but it's important you know how it works and also react if there at some point in the future is a change in how taxation works. And also as you get wealthier the optimal strategy might change.

Tax is a cost, and like other costs it should be minimized and delayed for as long as possible.

bigchrisb

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Re: Case study from High-Tax Netherlands
« Reply #21 on: November 18, 2019, 03:11:06 AM »
I'm posting to follow, as I'm currently in the Netherlands as an expat, but from Australia. After being here 18 months, it's clear to me that the Netherlands is a high tax and transfer country. However, the size of transfers means the actual effect of high tax is lower than you first think.

It also means that fi is more state reliant and less diy. Personally, I prefer to have individual control, but I can see that it gives the general population a good standard of living.

I'm interested to see what comes in your thread in terms of strategy. I'm still Australian based for tax residency, but want to understand my options!
« Last Edit: November 18, 2019, 04:13:37 AM by bigchrisb »

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #22 on: November 18, 2019, 03:59:33 AM »
In most tax discussions everyone talks about income tax, but hardly anyone talks about consumption taxation such as VAT. As a source of public revenue, consumption taxes are generally much higher than income tax - in 2017 for OECD countries 32,4% of revenues came from consumption taxes vs 23,9% from income taxes.

The "beauty" of consumption taxes is that they can to a large extend be avoided simply by consuming less goods and services. For a Mustachian tax on consumption is way preferable to tax on income in the accumulation phase, while it is the opposite in the spending phase as consumption taxes drive up the sticker price for essentials as well as wasteful spending.

havregryn

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Re: Case study from High-Tax Netherlands
« Reply #23 on: November 18, 2019, 04:34:05 AM »
While I'm not dutch I think you underestimate the salaries obtainable around in the European worklife. There are plenty of high-paying jobs around, but it generally involves staying out of the public sector and getting into lines of business handling large sums of money or providing some high-valued service to corporate clients. Typical examples are private law firms, investment banking, management consultancy and so on. There are probably also quite high-paid jobs for various senior engineers etc around in companies. And regardless of pay and taxes one should really look at net cash left after life's necessities are paid for. When I see a figure like 1000 Euros or dollars / month  for day care for a child my eyes start rolling - I pay about 300 Eur pr kid pr month fom day care and roughly the same for after-school care when they start at school. Kids generally quit the latter when they are 9-10 years old.

For daycare for 1 kid @ 1000 Eur pr kid per month paid for with after-tax money I would need to make 14.000 EUR / year before taxes to cover that difference. If you have 2 kids and they each spend 9 years in day care / after school care that's a total of about 250.000 EUR extra pre-tax income needed over 9 years.

I think they are mostly referring to the fact that, based on some case studies here, it doesn't seem particularly impossible for someone working in a lucrative field in a HCOL area to be earning several hundreds of thousands of dollars per year just being some kind of a fairly senior employee, which, I think you'd agree, is fairly rare in Europe.
I also think that it becomes obvious in these forums that people in the US can have the privilege of being able to make relatively high salaries without actually having to live in very HCOL areas, which I also think is much rarer in Europe. It's actually those examples that tell me it's probably easier to become FI there than here, even though I guess it gets a bit evened out by the fact that European LCOL areas are in fact remarkably cheap to live in while maintaining a decent quality of life, while I'm not so sure that all LCOL areas in the US work that way (access to health care, quality of public services etc...).

Unfortunately, people from Scandinavia are very spoiled in terms of childcare. In many other parts of Europe you need to choose between keeping a parent at home and paying half of their salary for childcare and people are in general not very "woke" about how messed up that is.

If we put three kids in full time care at our full time income (so that we don't get subsidies from the state) here in Luxembourg we'd be paying around 2500€ per month for that privilege. And that is WITH the fact that there are some subsidies even for high earners when there is more than 1 kid. Market full price would be about 1600€ per kid per month.
In Sweden we'd be paying at most 300-400€ for all of them.

Especially this part of Europe (Benelux) seems to be quite blind to the need to provide affordable childcare, and it seems very, very common for women to work part time only (I think Netherlands is a champion of this). We are using the same approach even though we are losing more on my salary than we'd be paying in extra childcare, but I have high job security and I like spending time with my kids so it works out. But if I had a less "fancy" job to begin with I'd probably drop it completely until kids are all in school. In Scandinavia that is ludicrous but here it is fairly rational. As you can see even the OP is aware his wife is mostly working for free but it's a rewarding job so it works out. Pretty sure if her career options were working in customer service somewhere she would be better off at home. These are different societies than the Nordics.

bigchrisb

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Re: Case study from High-Tax Netherlands
« Reply #24 on: November 18, 2019, 05:45:53 AM »
Childcare is nuts in the Netherlands! We pay €1300/ month for 3 days of one kid, and fall between the cracks on subsidy due to residency. Thankfully, I'm working as a zzp at a high daily rate, so we come out ahead. But if we had multiple kids, it would be hard too justify.

habaneroNorway

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Re: Case study from High-Tax Netherlands
« Reply #25 on: November 18, 2019, 06:05:30 AM »
Yeah - that is indeed nuts. As mentioned we pay around 300 EUR / kid / month (some discount applies from 3+ children). If I recall correctly the "true" cost is something like 1500 EUR / month so the subsidy is quite big.

UncleX

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Re: Case study from High-Tax Netherlands
« Reply #26 on: November 18, 2019, 06:21:09 AM »
@AtlasNL, are there any specific questions you have?

Taxes on capital are not really difficult to calculate, if you need help just let us know. I'm sure there are some Dutchies here wo are willing to help. With the proposed 2022 rules you can even save (not invest) almost 900k as a couple without paying any VRH at all, but investing becomes more expensive. As I understand this is not definitive yet.

For simple world index investing you might want to look at Meesman, they are cheap and are able to reclaim a part of withheld dividend taxes.

Linea_Norway

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Re: Case study from High-Tax Netherlands
« Reply #27 on: November 18, 2019, 06:23:06 AM »
<snip>

Especially this part of Europe (Benelux) seems to be quite blind to the need to provide affordable childcare, and it seems very, very common for women to work part time only (I think Netherlands is a champion of this). We are using the same approach even though we are losing more on my salary than we'd be paying in extra childcare, but I have high job security and I like spending time with my kids so it works out. But if I had a less "fancy" job to begin with I'd probably drop it completely until kids are all in school. In Scandinavia that is ludicrous but here it is fairly rational. As you can see even the OP is aware his wife is mostly working for free but it's a rewarding job so it works out. Pretty sure if her career options were working in customer service somewhere she would be better off at home. These are different societies than the Nordics.

I know several people in the Netherlands where both of a couple have chosen to work part time, so that they need childcare only 2-3 days a week. According to my family members it is totally normal that men work parttime now as well (probably because they have to, because of the expensive child care).

Roland of Gilead

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Re: Case study from High-Tax Netherlands
« Reply #28 on: November 18, 2019, 07:20:03 AM »
Curious, have any of you thought about opening a childcare business in the Netherlands considering how lucrative it sounds?

Imma

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Re: Case study from High-Tax Netherlands
« Reply #29 on: November 18, 2019, 04:18:47 PM »
Curious, have any of you thought about opening a childcare business in the Netherlands considering how lucrative it sounds?

Actually, many childcare businesses are on the verge of bankruptcy. It's not a lucrative type of business because it's so labour intensive. Childcare is usually around €7-8 per hour per kid, but for babies you need one member of staff for every 3 kids (1:6 for toddlers, 1:12 for school children). So one group of 6 toddlers brings in less than €50 per hour, but you need to pay the staff, the rent, the cleaners and you need to keep the lights on.

Many of my friends don't enroll their children in formal daycare centers but hire nannies that also do light housework, some of them probably under the table. Some have student babysitters and in my neighbourhood lots of people have au pairs. I can imagine that if you have several children even hiring a nanny and doing it the legit way is cheaper than enrolling them in daycare.

But it's not fair to say that the mother 'only works to pay the daycare' as many Dutch people say. Daycare benefits both partners because it allows them both to have jobs. Many highly educated men now work parttime for a while or take parental leave, but it's not as common for men with a lower education. For women with higher education it's the other way round: they are less likely to drop down in hours after having a child (but often don't work fulltime to start with). Honestly many women with a lower education work boring retail or callcenter jobs and I totally understand they'd rather be home with the kids.

I guess it's also fairly unique in NL that you usually don't start to work fulltime and then drop down to parttime when you have children - many employers first offer someone a parttime contract and then might give you extra hours if they are happy with you.

MrUpwardlyMobile

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Re: Case study from High-Tax Netherlands
« Reply #30 on: November 18, 2019, 04:27:42 PM »
Recently found my joy in cutting spending and become more frugal. Even "had the talk" with the wife (partially). Now, I am shocked about the insane salaries I see sometimes on this website -> I am amongst the top10% incomes in my country (which is one of the richest in the world), yet I don't even come close to some of the amounts I see. Nevertheless, I come by very easy every month.

Life situation: Married, wife works 3 days a week, I work fulltime. 2 kids (1yr old and 4yr old). Living in the Netherlands, 34 and 33 yrs old.
Gross salary: 96,000 EUR (me) & 38,500 EUR (DW, working part time already included), or 8,000 and 2800 per month. My wife also get's 8% holiday allowance per year and 7% end of year bonus.
Take home pay: 4525 EUR monthly for me, and 1825 EUR for my wife. This includes in her case all of our health insurance (equal to 250 EUR per month). The tax brackets here are slightly different than in USA...I pay 52% for all gross income above 68,000. My wife is at 40%-bracket.
Other income: tax return (mortgage interest deduction) 350 EUR per month
Childcare compensation: 500 EUR per month
Child allowance (or whatever I should call it in English): 133 EUR per month
Pension contribution me: 137 EUR "of my own" and 548.12 by employer
Pension contributions DW: 305.58 own contribution, 305.58 by her employer
Total net monthly income is thus 7.333 EUR

Expenses:
Mortgage = 782 EUR interest + 425 EUR principal
Studyloans: 162 EUR per month, all principal
Local taxes: 112 EUR
Internet: 51 EUR
Water: 20 EUR
Utilities: 0 EUR
Daycare (2days a week for our daughter, plus some after school for my son): 1,000 EUR
Groceries including diapers, soaps, detergents etc: 780 EUR
Car (full-loaded cost of depreciation, maintenance etc. against 40,000km per year): 664 EUR -> it's a brand new car, one of our less-fine moments but decided before I read MMM.
Car fuel: 150 EUR
Clothing: 200 EUR per month
Restaurants etc.: 100 EUR
Holiday (monthly put aside): 300 EUR
Misc. / one-offs: 300 EUR
Total spending including principal: 5,046 EUR
Total spending excluding principal: 4,459 EUR

Saving from income: 7333 - 4459 = 2,874 EUR & 2x 1700 EUR per year from yearly payments my wife gets)

Assets:
House: 500,000 EUR
Bank accounts: 15,000 EUR
Total: 515,000
(and obviously, 5 bicycles + a trailer for the bike, and one for the car)

Liabilities:
Mortgage: 410,000 EUR (200,000 against 2.38%, 210,000 against 2.17%)
Student loans: 11,000 EUR against 0.00% interest (but we need to pay it back unfortunately, but do it as slowly as possible).

Total net worth: 94,000 EUR excluding pensions.

Wrt the cars: I actually have 1 car, but it's a company car. So this one is for free, including unlimited kilometers. My wife is driving a new PHEV. We both do crazy long commutes, but combined there is one of us home almost every day as I work from home 2 days a week and she only works 3 days.
My son is going to elementary school next week (4yrs old), my 1yr old daughter is going to daycare 2 days a week. Deliberate choice, also for making friends and socializing and allowing me to get some extra work done.

We have no bill for electricity or gas, as our energy generation from the PV-installation is só big that we are net producers including the heating with gas.

In our Dutch system, paying off your mortgage is tax-free, but having liquid assets over 60,000 EUR is taxed. This meant until recently that a lot of our savings went straight into the mortgage. But thanks to the system of mortgage deduction, the effective tax rate is about 1% so there is no incentive to pay it off. We did some of the investments in making our house more energy efficient with a government-energy saving loan but paid it off completely this month.

Saving a big nest-egg however is a little bit problematic, as we'd need to pay a relative high amount of tax on it (1.2%).

For holidays, we spend 5,000 EUR per year on average. But in 2021 we will go on holiday by bicycle ;-).

Goal: we want to be FIREd at age 45 (end of 2029). The 'stash needs to be about 687,500 EUR to be relatively save to do it, as there are a lot of costs to be cut (day care for example, but also the groceries which can and will be halved next year). With our current savings, we'd end up at 37,888 per year of increased wealth, which partially (5k/yr) flows into the property.

We actually don't need to consider any income past 67, we live in The Netherlands. Our state-pension will be (assuming it keeps up with inflation) 20,296 EUR nett per year and our own pension fund will raise it to 80,000 per year or so (if we would continu to work until age 67 which we won't).

It's going to be a tough challenge...Anybody else in high-tax area's been able to do it? And sorry my friendly American friends: your taxes are close to 0, even in the highst tax brackets...

Does your country tax overseas assets?

AtlasNL

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Re: Case study from High-Tax Netherlands
« Reply #31 on: November 19, 2019, 12:48:56 AM »
Daycare is a lot of money but not expensive as Imma already pointed out. The amount of rules regarding safety etc. is considerable...And don't forget, in terms of costs: there is a part in my income stated as tax break. The less you earn, the more you get back. Getting a nanny defeats the purpose: My kids are in daycare to socialize, not to be raised by unknown people. They don't get attached to the employees at daycare as what I do think they do with a nanny. I'd rather cut my working hours to not need a nanny. Why work both fulltime and have a nanny to take care of the kids, even as I can afford it?

I'm starting working from home 2 days a week as of next week, so that at least my son (4yrs) can go back to home directly after school (my wife is also home 2 days a week and 1 day is for the grand parents).

And yes: overseas assets are taxed as they are counted in your wealth. There is no capital gain tax.
« Last Edit: November 19, 2019, 12:50:49 AM by AtlasNL »

Linea_Norway

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Re: Case study from High-Tax Netherlands
« Reply #32 on: November 19, 2019, 12:51:35 AM »
Curious, have any of you thought about opening a childcare business in the Netherlands considering how lucrative it sounds?

Actually, many childcare businesses are on the verge of bankruptcy. It's not a lucrative type of business because it's so labour intensive. Childcare is usually around €7-8 per hour per kid, but for babies you need one member of staff for every 3 kids (1:6 for toddlers, 1:12 for school children). So one group of 6 toddlers brings in less than €50 per hour, but you need to pay the staff, the rent, the cleaners and you need to keep the lights on.

Many of my friends don't enroll their children in formal daycare centers but hire nannies that also do light housework, some of them probably under the table. Some have student babysitters and in my neighbourhood lots of people have au pairs. I can imagine that if you have several children even hiring a nanny and doing it the legit way is cheaper than enrolling them in daycare.

But it's not fair to say that the mother 'only works to pay the daycare' as many Dutch people say. Daycare benefits both partners because it allows them both to have jobs. Many highly educated men now work parttime for a while or take parental leave, but it's not as common for men with a lower education. For women with higher education it's the other way round: they are less likely to drop down in hours after having a child (but often don't work fulltime to start with). Honestly many women with a lower education work boring retail or callcenter jobs and I totally understand they'd rather be home with the kids.

I guess it's also fairly unique in NL that you usually don't start to work fulltime and then drop down to parttime when you have children - many employers first offer someone a parttime contract and then might give you extra hours if they are happy with you.

The way you describe the child care situation is like Norway was, like 10 years ago. Kindergarten was very expensive and lots of people has legal or illegal private nannies. At some point there was a reform that put a maximum price (for the parents) on private and public child care, and promise of full child care coverage. This caused a flourish of new private kindergartens. It seems to work fairly well. The change happened when a left winged party came in the government. But it is a benefit for society that parents don't need to worry so much about child care.

havregryn

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Re: Case study from High-Tax Netherlands
« Reply #33 on: November 19, 2019, 01:22:23 AM »
Daycare is a lot of money but not expensive as Imma already pointed out. The amount of rules regarding safety etc. is considerable...And don't forget, in terms of costs: there is a part in my income stated as tax break. The less you earn, the more you get back. Getting a nanny defeats the purpose: My kids are in daycare to socialize, not to be raised by unknown people. They don't get attached to the employees at daycare as what I do think they do with a nanny. I'd rather cut my working hours to not need a nanny. Why work both fulltime and have a nanny to take care of the kids, even as I can afford it?

It's because you clearly have very flexible hours and are able to have kids at home if you work from home. If you're a couple without that, it doesn't work, unless you leave your kid at daycare for 11 hours a day, at which point it's no longer casual socializing, it's torture for both of you.
I am thinking of getting a nanny when I have three of them (I am due to give birth to 3rd in a few weeks, the older ones are 6 and 3) if I go back to work full time (doubtful and will only happen if I find a better job and/or decide to take a 7 figure mortgage for a house in Luxembourg) because I don't see a scenario in which both husband and I work full time and kids can be dropped off much after 7:30 and picked up much before 18:30. 

I can work from home but I can't have children at home with me, maybe the 6 year old but even that is then only under assumption that he will be glued to Nintendo Switch while I work. I mean, it is even a demand of my employer to not use work from home as a substitute for childcare, I doubt they'd go around and check but I have tried before and it is very obvious I cannot do my job with the children present.

A nanny is a much more convenient solution for people with high and unpredictable workload as daycare comes with the added trouble of pick up and drop off, will not take your kids when they're sick and the minute kids are older than younger toddlers, they pick up on the gloomy vibe of being left there for way too long.
But yeah, if both you and your partner work part time and take kids home while working from home there is no point in having a nanny for sure.

Imma

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Re: Case study from High-Tax Netherlands
« Reply #34 on: November 19, 2019, 03:07:34 AM »
I had a nanny growing up and I loved it. My mother worked fulltime when I was little, which was controversial back then in our area (not very far from where AtlasNL lives I think) and there wasn't even a daycare in our village. My nanny was middle aged with teenage children. Due to the nature of my parents' work I even stayed the night with her family sometimes. Eventually my mother caved in to the pressure and became an unhappy housewife. Yes, I did bond with my nanny and her family but I don't consider that to be negative. We're still in touch to this day. For social contact, she'd take me to playgrounds, play groups, and we visited both mine and her family in the village.

I don't think there's anything wrong with daycare centers a few times a week, it's good for social contacts too (now most mothers work playgrounds are often empty) but I think childcare at home is better if you need a lot of hours of care.