European gall starting out to fill her treasury

[Treedream]

Hello beardlovers,

I just found the forum and the MMM blog and am curious to see what I can learn, especially regarding investing.

Treadream is 27, Female, single, located in HCOL area in The Netherlands (yes, probably the only place you know in NL)

Income before tax: €38.800 p/a (3000 p/m +8% holiday pay)
Pension contributions before tax: 4.7% with a 1.7% match
2019 expected net income after tax and pension deductions: €28.170 (€2.272.71 p/m + holiday pay)

Total monthly expense: €1.498,37

Savings €9.300

Pension: €740.33 (plus a small amount in an account in another country I currently have no access to)

Student Loan (@0.01% interest for the next year at least): €1.485,78

As you can see I have squirrelled together an emergency fund and a bit extra. I am quite tight on the money since I used to earn minimum wage when I lived in the UK and I was completely dependant on others before that (some things don't leave you). Over the past 2 years I have more than doubled my income and there is definite upward trajectory, although probably not at my current place of work. 

My goal by the end of the year is to have €15.000 in savings/investments excluding my pension. In my country I can't touch my pension until I am 68. I wish to buy a house (currently share house) within the next 2 years once I know better where I want to settle/get a job closer to family/in a more affordable area. Mortgage would not go over €175.000, but will require about €8-10K in expenses (tax and notary etc.)

Considering I have my EF funded and am on my way to being able to cover the house buying expense I think it is time I look into investments. As I am a complete newbie in this, advice is greatly appreciated :D. In NL we have decent SS, currently at €1.158.22 net p/m but with the way the system works this will likely be less by the time I am retiring. Currently the expected retirement age is 68, but this can still go up with the life expectancy, so I am assuming about 71 years old. Yeah, that is way old. No way. FIRE for me, even if it is a measly 10 years earlier.

• Is it wise to put extra money into my work pension?
• What division would you use between saving for house/paying house of earlier and investing? (I do not have high risk tolerance, investing at all already sounds like gambling after the global crisis in my teens
• How do I go about this investing?
• Is there a difference in expected return rates on investments in Europe compared to USA?

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[Spires]

Hi! Fellow Dutchman here. This is my take on it.

1. No, I wouldn't do this (if it is even possible, most employers don't allow this as far as I know). There is no way to access those funds until you are of retirement age. Which in your case is likely to be 70. If you want to retire early then they are of limited use to you.

2. Safe for the house first. A rule of thumb is that you will face about 10% in costs when buying a house which you will need to finance. You can go a bit lower perhaps (for instance, if you don't use a real estate agent, which saves 1 - 2 %). But for a 175.000 house, you can face 10.000 - 20.000 in costs which you need to cover. Once you have the house, don't bother paying it off faster (unless it helps you sleep an awful lot better). You'll have an interest rate of around 2% - 3% unless something very strange happens to interest rates in the next couple of years. You'll get around 40% of that back from the government in a tax rebate, so you'll have an effective interest rate of about 1.5% or so. Once you have the house and your emergency fund filled, invest the rest.

3. The best option for investing probably is to open an account at "De Giro". The have a set of ETF's which you can purchase for free once a month (called "de kernselectie"). Find the vanguard MSCI All world index fund and purchase some of that each month. They probably also have a bond fund which is lower risk, lower return. But I'm not familiar with which ones they have.

4. There are some differences between the EU and the US in terms of returns. THe past couple of decades, the US has performed better then the EU. But this has't Always been the case and there isn't really a reason why it should be the case going forward. Which is why I would go with an all world fund, which gets you both the US, the EU and some other countries.

[Hirondelle]

Hi Treedream!

Welcome to the forums. I know this post is a couple weeks old already, but I didn't see it at the time but thought I may have some relevant information anyway.

First of all, great job about getting your income up and growing your savings to where they are now. That's a good start at your age.

Regarding your questions;
1. I agree with Spires that this is not possible. However, if you're above a certain income threshold you can add money to the third 'pension pillar' as our government calls it. This one you can build up seperate from AOW and your job pension. However I would really look into this as, to my knowledge, you can only get the money out once you're above a certain age and if you will get sufficient from your SS + job pension + investments it may not be useful to have FIRE money locked up there. I think it's been discussed in the Dutch thread as well before (that thread is in the Meetups section) and if I'm correct @Imma is investing some money this way.

2. I'm an avid renter for now as I think single me is best off living in an as cheap as possible place with roommates and I'm not planning to stay in my current area long term. I think I would make sure to have the amount needed for the closing costs etc and if you need a downpayment to start splitting the money between investments/downpayment in a way that makes sense with your desired timeline. Also realize that you can always get your money out of your taxable investments if needed, so it is not like this money is out of reach. It would just suck if that happens during a dip in the market ofcourse.

3. As Spires said, check out DeGiro. Also check out the 'financieel onafhankelijk blog' (or sth like that), he has several suggestions for index funds. VWRL is a good option.

4. This depends on your investment choices. I have seen some data on other countries before and they often had lower SW rates, yet these studies assumed that one would invest all its stocks domestically, which is unlikely. A VWRL stock would be about 50% US-based and 50% international if I'm correct. Other funds will have different ratios. For The Netherlands however it is essential to take into account that we have a wealth tax, so once you hit €30k you'll have to start paying a small percentage of that in taxes every year. This affects the withdrawal rate/returns. On the other hand we do not have a capital gains tax and a much, much better healthcare system so I guess in the end it's hard to compare and it will depend on your specific numbers.

One last thing; you post this as a case study yet do not specify your expenses. They don't sound unreasonable considering where you live, but sharing them might give you some options for reduction and at your income/savings level even $50/month can make quite a difference!

[Treedream]

thanks Hirondelle and Spires! Good to know there are more Dutchies around here :) I am looking into using De Giro. I will probably start slow with the investing while I get my bearings on all things investing.

For now, I don't have enough stability to buy a home, but I do want to move up to ownership and having my own place. But frankly in A'dam that is not affordable. In the time it takes me to get to that level of surety about location etc. I will build up the necessary funds.

To break down my expenses:
Rent: 680
Groceries: 150
Transport: 55
Entertainment: 100
Personal (includes gifts, hair, make-up, clothes, household goods etc): 150
Holiday SF: 150
debt pay-off: 45.41
health insurance SF: 100
miscellaneous: 25

Total: 1455.41

Let me know if you see room for improvement, I think it is pretty bare within my personal limits. These are approximate values, of course.

cheers! :)

[Hirondelle]

Thanks for sharing!

Most of your expenses look very decent. Not a bad rent for A'dam actually :)

The only category that I think you could reduce is probably the €150 'personal'. The rest is fairly similar to my own except that my rent is about half that :p.

[efree]

I also live in Europe and I buy my ETFs on ETFmatic.com because it's a robo advisor and I don't know much about ETFs so I like the fact that I don't have to pick them out myself. I just set it to 95% stocks and everything else happens automatically.

Then there are also P2P loans. I have more than 60% of my investments in them, interest rates varying from 10% to almost 20%. It's riskier than stocks but not that much riskier if you diversify properly over several platforms. I hope this asset class is here to stay because it would make my time to FIRE so much shorter! First, because the money would grow quicker, but mainly because I wouldn't have to use the 4% rule, I could use an 8% rule instead.

[habanero]

You also have to decide if you want to buy an all-world-fund on a currency hedged basis or not. Currently about 60% will be denominated in USD (as the US is by far the biggest equity market), about 30% will be in EUR and then some bits and bobs in GBP and JPY etc. You can argue for both sides, but I have landed on not buying currency hedged (even more relevant for me living in a small country and pretty much all investments denominated in foreign currency). My rationale is that while my income and expenses are in local currency a significant part of my long-term costs are directly or indirectly influenced by FX rates. Travel and imported goods being the most obvious.

[Imma]

Hi Treedream!



Regarding your questions;
1. I agree with Spires that this is not possible. However, if you're above a certain income threshold you can add money to the third 'pension pillar' as our government calls it. This one you can build up seperate from AOW and your job pension. However I would really look into this as, to my knowledge, you can only get the money out once you're above a certain age and if you will get sufficient from your SS + job pension + investments it may not be useful to have FIRE money locked up there. I think it's been discussed in the Dutch thread as well before (that thread is in the Meetups section) and if I'm correct @Imma is investing some money this way.

2. I'm an avid renter for now as I think single me is best off living in an as cheap as possible place with roommates and I'm not planning to stay in my current area long term. I think I would make sure to have the amount needed for the closing costs etc and if you need a downpayment to start splitting the money between investments/downpayment in a way that makes sense with your desired timeline. Also realize that you can always get your money out of your taxable investments if needed, so it is not like this money is out of reach. It would just suck if that happens during a dip in the market ofcourse.

3. As Spires said, check out DeGiro. Also check out the 'financieel onafhankelijk blog' (or sth like that), he has several suggestions for index funds. VWRL is a good option.

Sorry, I missed this as I was on holiday before. Welcome! :)

Hirondelle is right. I worked for several years at a company that did not offer any kind of retirement options. In my current job I am enrolled in a work pension. Every year, the BD decides how much money you should reasonably set aside for retirement (jaarrruimte). Most company pension schemes max this out, which is why you can't usually put extra money in your work pension. If you have no or a very bad company pension, you still have leftover jaarruimte (see calculator on BD website). You can open a blocked investment account or savings account (bankbeleggen/banksparen) or choose an insurance option (lijfrenteverzekering) and you can deduct your yearly contributions from your income tax until you've maxed out the jaarruimte. On top of that, the money isn't included in your box 3 wealth and it doesn't contribute towards your taxable wealth. If you have been contributing for more than 5 years, you also don't have to use this money to live off if you ever need to apply for any means tested benefits (bijstand etc) in the same way that you don't have to cash in a company pension.

So there are advantages to doing this. The big disadvantage is that you can't touch the money until 68 and it's not really that much. You can still use jaarruimte until 7 years after the tax year you gained it, so all in all I will be able to invest about €4500 through this - unless I quit my current job with pension of course. I contribute €100/month right now (which is tax deductable so about €60/net) and when I've maxed it out I'm just going to forget all about it until I'm 68, or 70 or 75, who knows what the retirement age is by that time. I sort of hope these type of accounts will be easier to access in the future. The money in this account is not gone if you pass away before retirement age, it will be part of my inheritance.

Now, if you already have a good pension through work, you can still put extra money away in a blocked account (excedentpensioen) but I wouldn't recommend that to anyone who's on MMM. I know a lot of people through work who do it because they are terrible with money and it's at least a better option than wasting the money on luxury trips and expensive cars. The money doesn't count towards box 3 wealth, but the contributions are not deductible from your income tax (in return the annuity you eventually get is tax-free). You can't access anything before retirement age, but you'll get an extra high pension when you're really old. Some people do it to shelter wealth from the wealth tax but the tax is actually pretty low. You're much better off having the money in a taxable investment account that you can access anytime.

I am personally a big fan of being a home owner. I hadn't thought I enjoyed it this much. But I would never recommend it to anyone living in A'dam. If your rent is €680 now (inclusive) and you'd want your net mortgage payment to be lower than, say, €500 you'd be looking at a roughly €160.000 mortgage and I figure that + savings would just about pay for a studio in a bad area. It's a nice enough city but imho it's massively overpriced - wages aren't significantly higher and there are very good commuting options into the city if your job is based there. I travel to Amsterdam maybe twice a month from the other side of the country and it takes me a little over an hour on a direct train.

Our house is in that price range but it's an actual house with several bedrooms, we used to rent out one room too. If you're buying at some point and you're close to a university that's always an easy way of making money and it's not a big shift if you've always lived in shared homes before. Also, you should also keep an eye on how much you'll pay in local taxes because that varies widely. Someone we know owns a property in the same price range as our home, but in a different city, (Hirondelle's city, actually!) and they pay almost twice as much as we do.