Hello - and what parts of ERE are useful for me?

[vuYHwNgaaW]

Hello there.

Please excuse me if my message is offtopic for this forum — I haven't found any "meta" forums, only the ones concerned with particular topics.

I have stumbled upon ERE recently, and am interested to see what parts can I apply.

Some background:
- I work from home.
- I can vary my work load from 30 to 60 hours a week as I see fit.
- I live in a country where services are relatively cheap by EU standards (€5/h for cleaning, ironing, etc).
- My wife is a stay-at-home mum.
- I work as a contractor on long-term contracts (3-4 years). It does not take a lot of time to find another client.
- Our income is ~€160K/Y, if I chose to work 40 hours/week.
- We've got two kinds, in elementary and middle school.
- Our monthly expenses are ~€3800, including expensive private school (approx. 1/3 of all expenses). We're quite happy with this school, and wouldn't change it to homeschooling. Public (free) schools are awful.
- We have no debt.
- We live in an apartment bought for cash.

This is a state we have reached now. Due to many factors (playing "life" on a "hard" level—being born in a 3rd world country—has many disadvantages) we don't have much investments or savings (less than one yearly income), so our sole source of money is my contracting gigs, and our past income and expenses were dramatically different.

As I was reading through ERE book, I tried to evaluate every new piece of information and see how it applies to my situation. i had to drop quite a bunch of them:

- ditching the car is not an option for a country where one easily gets a sunstroke from walking (temperature outside reaches 30ºC already in April, 40º in July), biking is dangerous, taxi are relatively pricey and public transport is abysmal.
- learning furniture making is useless: market for local furniture maker is quite low-priced, so one can source a good-quality furniture cheaply, and it does not provide for any useful income
- same goes for other trades and professions (except for maybe lawyering, but that's regulated, one may not just pick it up and start earning money).

So, should I skip everything and beeline for "Making money work for you", or are there other parts useful in my situation?

Thanks for your insights!

Cheers, vuYHwNgaaW.

[wolf]

Welcome vuYHwNgaaW! (I had to copy&paste your username) What is the story behind your username?

Your income is quite high. That's a big factor when considering ERE.

Therefore I think the focus leads directly to your expenses.
Your expenses (excluding private school) is around ~2500€ p.m.
You should have very low housing costs, if you bought your home with cash. How much are your utilities? Low, right?
Maybe you can break down the ~2500€ p.m. Then I guess, you will see potential for improvements by yourself.

Also important is IMHO, that your SO has the same vision/dream of ERE/FI.

[vuYHwNgaaW]

What is the story behind your username?

That's just a randomly generated identifier.

Now, my dilemma is: should I concentrate on decreasing expenses, or should I concentrate on properly investing ~70% of yearly income that can now be freely disposed of?

On the one hand, €2500/m includes quite a bit of slack (~€400/m take out food and restaurants alone), and can be reduced significantly if one puts effort into it.

On the other hand, one hour of my time is worth €80 and I bill per hour, so I can earn extra.

Would one hour of reducing expenses bring more money than working this hour and investing €80? Obviously there are diminishing returns in expense optimization. Also obviously investments don't bring diminishing results until one reaches the size of Berkshire Hathaway.

P.S: My SO is actually quite ahead of me, she has lived in one of Scandinavian countries for peanuts for a decade.

[DutchGirl]

On the other hand, one hour of my time is worth €80 and I bill per hour, so I can earn extra.

Would one hour of reducing expenses bring more money than working this hour and investing €80? Obviously there are diminishing returns in expense optimization.

The good thing about reducing expenses is the following thing:

Say that when retired you will be spending 45,000 euros per year currently. Say that you can reduce your expenses to 35,000 euros per year and still live comfortably.

If you want to have 25 times your current expenses in net worth before you retire, then you'll need 1,125,000 if your annual expenses are 45,000; but only 875,000 if your annual expenses are 35,000.

The difference is 250k (of course, because it's 25 x the annual 10k difference). That 250k is something that will take you a while to earn. So not having to earn that will lead to being FI sooner.

Thus, it can definitely be worthwhile to look at your expenses and cut the crap.

But of course in your case it is also worthwhile to find out about investing (where can you invest in the desired index funds for the lowest fees?) and to set up a system of investing. You'll probably need hundred hours or so to learn more about investing (within your country and taking into account your tax system). Read books, read websites, talk to your tax man, etc. My estimate is that someone starting from the beginning would need less than a hundred hours of study to understand at least the basics of investing within your own country, and that would be enough to get a good start.

[vuYHwNgaaW]

Hello DutchGirl,

Thanks, that makes sense.

Let me see if i get that right: €80 invested with 4% annual return after reinvestment is €3.2 annually. Hence one hour of work increases my yearly passive income by €3.2.

Therefore one hour of decreasing expenses that cuts more than €3.2 business expenses or ~€2.4 domestic expenses yearly is worth pursuing.

So the situation when diminishing returns start to kick in is quite far, and I definitely should spend some time getting rid of superfluous spending.

There is third activity I might want to pursue: improving investment yield. This is of more open-ended nature and of less certainty of outcome. However it does not take much time, and can be done in parallel with cutting slack.

[Lenticularis]

That's a cool way of looking at it. I like it! It offers new perspective without requiring any FI or ERE concepts.