DutchGirl's journal

[DutchGirl]

Hi Berninger. First things first: paying off the mortgage faster than required is probably not the best financial move. What's your interest rate like, after taxes? (Because often our Dutch taxes mean that you get some of the mortgage interest you paid refunded). So say you paid 4000 euros of taxes for your mortgage in 2017, but paying the mortgage and owning the house gave you a total tax refund of 1500 euros... then the mortgage interest is more like 2500 euros, which on a 121k mortgage would be something like a 2% interest rate. It's extremely, extremely likely that in the long run your investments will do much better than that on average.

So... if that is the case for you as well, I would pay the mortgage off according to the requirements, but not more than that. And I would instead start working on creating investments.

Of course, as you might already know: investments are volatile. Stocks are volatile and bonds (obligaties) also, although a bit less than stocks. So if you start investing, it's possible that you will see a reduce in value of your investments if the markets tank. However, keep at it. If you put money in diversified index funds, at some point the market will recover and so also the value of your shares will go up again.

I would focus on low-fee index investing. The Dutch companies to do that with, are Brand New Day, Meesman, Binck and DeGiro. Each of these offer decent index funds and ETFs for investing. Binck and DeGiro offer also a lot of other options, but I would steer clear of those.

I would also check whether you or your wife still have "jaarruimte" or "reserveringsruimte" ... these are Dutch words that mean that you still have some money that you can set aside in a tax-friendly way for retirement. This blogpost explains it well, in Dutch. If you have the option to set aside money in such a tax-friendly way, then this money will be a tax deduction for this year, meaning that you can deduct the money that you put in from your income, and see a much lower tax burden in your highest tax bracket. (So, if you're in the 40% tax bracket, then if you put in 500, you'll see 200 of that returned to you; if you're in the 52% bracket, then putting in 500 means you'll see 260 back next tax season).

Brand New Day offers a retirement account where you can put in these sums of money and invest them. Meesman doesn't, unfortunately. DeGiro does offer it too, but the fees may rise in the near future (they're going to add a mandatory "robo-advisor" and will ask an as of yet unknown fee for that). So personally, I'm with BND for this .

PS. I just read this book: "Miljonair met een gewone baan". It came out October 2017 and it's a nice introduction to the whole field of saving money, investing, reaching financial independence in the Netherlands. Maybe you can borrow it from the library? There's also a Dutch book called "Je geld of je leven", which can be found here for free. It is focused on saving and spending less and it's based on the American book "Your money or your life"; but Dutchified.

PS PS. Mannnn... is there a lot to tell about this Dutch retiring stuff or not? So ... the one other thing I wanted to tell you, is that you should also find out how much you've already saved for retirement. You probably have some AOW-rights already, plus you've probably already contributed money to pension plans or pension investments at work. Find out how much that is. This money will help you to pay your expenses once you have reached official retirement age (70 or so?). So this is good money to have, even when you can't use it when you're 40 or 50 or so.

[Berninger]

Hi dutchgirl.

Thanks for your respons. You have some very insightfull tips. It gives me a lot to think about.

Mortage
I understand what you mean. We went for paying of mortage because that seems 100% safe, and our monthly costs go down.
My wife has problems with investing. Because someone she knows has had bad experiences with it. However that person was taking risks and had some bad luck. Index funds seems indeed like a safer way to go.

Investing
I think we are going to start with BND next month. And we will see how it goes from then on.

Jaarruimte
I didn't know about jaarruimte, but i looked it up and we can use and invest about 4000,-. Definiatly someting to think about. But i also red that you still pay taxes when you get it back later (depending on your income then). And i have to figure out when i want to retire and use the money from my pension. Difficult to know right now. I hope to (be able to) retire somewhere when i am between 40 / 50 years old.

My pension
I also have a pension, and aow. My pension will be about 22k (netto/after taxes) when i retire at 67.
But i want to retire earlier. My pension fonds allows me to have it paid starting at 55 years. Then it will be 9k/year after taxes.

Books
Thanks for the book tips also! I will start reading this month.

[DutchGirl]

@Berninger,

So personally I plan my retirement in two stages: the first stage is before I can get to my retirement income, the second stage is when the AOW and the pension start paying out.

In your case, it seems like there may be three stages:

1. Retired, younger than 55 years old, fully having to live on your saved-up money
2. Retired, over 55 years old but younger than 67 years, living on your saved-up money and on the payouts from the pension fund
3. Retired, and over 67 years old. Probably you can now live fully on the income from AOW and pension fund payouts (NB you understand that if you have your pension start paying at 55, the distributions after age 67 will be much lower, too).

I think it's important to first make sure that the final stage is "done". So that you will have enough income after you're 67 years old. You don't want to come up short then and suddenly need to go back to work or something like that at age 70 or so. So right now you are still saving up for this stage because you're working and you're contributing more to your pension plan (I assume?). You can also fund this stage some more by using your jaarruimte, as that money will also be available to you after retirement age*. I would try to make calculations to make sure that this stage is covered (and perhaps to make sure, a bit more than covered) before you quit working.

Then there would be stage 2, where at the beginning of that stage you'll need enough money to cover your expenses for the next 12 years, minus what the pension pays out (NB pension payouts will be taxed!).

And then there would be the first stage, where you would need to have enough money to pay for all expenses during that stage, and to have enough money left at the beginning of stage 2 to fund that stage.

*Yes, you have to pay income tax when you're 67 years and older. You will pay income tax on all of your income (AOW, pension fund payouts, and retirement investments). But the percentage of income tax is lower after age 67. Say that your income is 22k euros after retirement, then you pay 14% of taxes on that. If you put money away right now, you skip paying taxes in your highest bracket, which is probably the 40% tax bracket. So you can save 40% of your money now, but will have to pay 14% or so later on. Oh, and also, in the meantime, you won't pay any "vermogensbelasting" (asset tax) on this money. So still a big win, tax-wise. The big issue with using the jaarruimte is that indeed the money is locked away until official retirement age, you won't be able to get to it sooner. So if you need more money to fund your stage 3, do so. If you already have stage 3 covered completely by AOW and your pension fund payments, then it will probably still be better to invest your money in a taxable investing account and not use the jaarruimte.

[DutchGirl]

August results: income 2900, expenses 2170 euros.
Total income after taxes for 2018 so far 29,700 euros. Total expenses so far 21,130 euros, so a savings rate for the year of 29%.

Income was a bit lower than expected, I had hoped that with the increased work hours the monthly paycheck would go over 3k. It didn't. Oh well. Now I know. Expenses were a bit higher than planned with 190 instead of 100 euros going to transport (but I did travel for work and should get reimbursed for most of that), 200 extra euros going to charity as a one-time thing, and 180 euros instead of 100 going to "other" expenses.

[niemand]

How is the house coming along? Are you getting closer to the "perfect house" state, ie are you done? I found that it took ages until DW and I reached that point and the final leg of this journey really became a drag. But the joys of home ownership may be different from person to person, I suppose

[DutchGirl]

Well, niemand, the ceiling came down. They stripped it now (the parts that hadn't come down yet), but we're still waiting for them to come back and put new plaster up; which they are going to do for free because they messed it up in the first place roughly 9 months ago (we paid them a lot of money back then to plaster all the rooms including the ceilings; and apparently they put it up on the ceiling over an old layer of paint, and that's all coming down now). However, they're not communicating in the last couple of weeks, so we may need to contact our legal insurance-people (rechtsbijstandverzekering) to help deal with this. Sigh.

In the meantime, the top floor is not usable. I had my study there, and now I feel like all my paperwork is everywhere and nowhere in our house. I want that room back.

So, yes, such fun, being a house owner.

[Will]

I guess one of the most underestimated skills you can have when purchasing goods or services is the ability to nag. If I would be in your position, I would just call them every day, literally, until the issue has been fixed completely. Though I really hate to do this, this strategy has almost always worked for me in the past. (The only exception was a real estate agent which - in my opinion - still owes me money. I will come after him when I find the time though)
It works even better if you can get another person (a friend or relative) to act as a contact person for your end of the discussion. They should say something like "I am taking care of mrs xxx's business". Companies will think you are paying them to do this, and for some strange reason usually take them more seriously.

Good luck with your ceiling, I hope it will be fixed soon. Now please excuse me, I have an insurance company to call for refusing to pay back my medical bill.

[RealPerson]

So... if that is the case for you as well, I would pay the mortgage off according to the requirements, but not more than that. And I would instead start working on creating investments.

Very good points on the mortgage. The prepayment of a mortgage has been debated many times. If you compare prepaying a mortgage with buying stocks, on average your stocks would go up more than the mortgage interest you save, which is what you were alluding to.

I prepaid my mortgage many years ago. It gave my wife and I a great sense of happiness. We owned the roof over our head, without worries that the house would ever be taken away. The emotional return on investment was huge, as I still remember the feeling when I wrote the very last check.

Nobody knows what the stock market will do this coming year. But there is general agreement that the valuations are quite high. The probability of fast growth in the market is much less than it was 10 years ago. So to compare returns on investment, it may be fair to compare prepaying the mortgage to safe investments such as a savings account, money market, CDs or government bonds. I don't know the interest rates in the Netherlands, but you may well find that the guaranteed return on investment from prepaying the mortgage is higher than the guaranteed ROI from bonds etc. That is especially valid in the case where the spouse is risk averse and does not like the stock market.

On the topic of index funds, Jacob recently wrote some posts on the systemic market risk created by these funds. I am almost exclusively invested in them, but his posts really made me think. Perhaps index funds are not quite so safe anymore, since they exert their own influence on the market. This was a discussion between IlliDave and Jacob and it was quite eye opening. I would not do Jacob's writing justice by trying to summarize it, but I highly recommend reading those posts.

DG, I have really been enjoying reading your journal. Thanks for writing it. I hope that ceiling gets fixed soon, without litigation.

[DutchGirl]

@RealPerson... with a mortgage with a fixed 2% interest rate (after taxes) for the next decade or two, it's a pretty safe bet that the stock market will do better over that time period. When I pay down my mortgage, it's going to be hard to get such a good deal on a loan ever again.

In my case there is an extra reason to just keep the mortgage going, and that is the fact that I am borrowing this money from my parents. This is a construction that is possible in the Netherlands and it can be favorable for both parties ("familiebank"). In my case, my parents indeed get a higher interest rate than what they would have gotten in a savings account. And I get the best mortgage provider that exists, with a helpdesk that's available day and night and with a lot of flexibility on possibly making extra payments... or not.

[Forskaren]

Are there any downsides for you parents with this kind of arrangement? Do they have the same protection as a savings account or do they have a slim risk of losing their money?

[jennypenny]

I'm sorry about your house troubles DG. There are days I love the feeling I get from owning our home, and days I want to burn it to the ground. Luckily, the former outnumber the latter. Hopefully you'll get there too, and soon.

[DutchGirl]

@Forskaren... Yes, things could go wrong. If I were to stop paying the mortgage back as agreed on, then they would be able to sell my house to recoup some or all of their money (like a bank has that right too, if you stop paying your mortgage). In our specific case, that is not going to happen (I mean: I'm not going to stop paying as promised).

But of course, there must be combinations of parents and children in the Netherlands where things have happened like the children not repaying the parents on time and the parents NOT wanting to take legal action (and thus losing their money), or the same but with parents who in the end did take legal action and sold the house of their children.

If there are several siblings, it can be important to make this a fair deal for everyone - for example, it could feel unfair if the parents created such a mortgage with one child, and then another child wants the same thing but the parents don't have money for that.

[DutchGirl]

My boyfriend now has a project where he earns a lot of money, but he also has to work five days per week. It's a bit draining on him. He used to work four days per week on average in his previous projects, but right now at his current project they really want him to be there Mon-Fri and for roughly 8 hours each day. (Luckily for him, he doesn't have to be there at 9 sharp each day).

So... he is now coming around to this whole idea of earlier retirement. As I mentioned before, I keep track of his numbers as well as of my own, and so he came to me and asked me when I thought he could retire. He even said that he wanted to have 18k euros/year to spend after paying off his half of our house. I made some calculations, and given that he already has a pretty stash and that he will also qualify for some pension income after retirement age, I think that he will reach "his number" in the next two to three years. Coincidentally, that's also when I will reach my number. So I have some hope that in two years time, we will run off into the sunset together

I increased my working hours from 28 to 32 a couple of months ago. For me this is tough, also because I work irregular hours. So for example yesterday I came home at 10 PM and had to leave the house again at 7 AM today. That leaves little time for things other than sleep. Also, during the week the house becomes a complete mess. Normally I had more time off during which I would tidy up a bit. Now, when I see a pile of dirty dishes or of laundry, I think: let's do that on Saturday. And the boyfriend isn't in the mood to do anything either (sadly). I think I'll give this 32-hour-workweek thing another shot until the end of this year, but if by January I'm still not happy about it, I'll ask for a reduction to 28 hours again. Perhaps that's my "sweet spot", and perhaps the extra money isn't worth it. (Working a few months longer but in a more relaxed way could be better for me).

I've been in a not so good mood these last few months, but my impression is that it's improving now.
I also know that things could be much, much worse. So I try to keep thinking about all the good things.

[niemand]

Well, niemand, the ceiling came down....

Sorry to hear about the ongoing house trouble, hopefully you will be able to get the issue fixed for good soon and without too much inconvenience.
I had water leaking from the balcony down into the garage ceiling forming mould, which required a large patch of the ceiling to be cut out and the house to be fogged. My house is still under warranty, but we are struggling now to get the original builder to go on and fix the leak and repair the ceiling... I agree with @Will that the skill to persistently nag is not to be underestimated.

Great news on the BF starting to see the light (or should I say FIRE?). It'll be so much easier with the two of you on the same page. And with the ability to decrease your working hours you can coast to FI alongside him...

[CS]

That would be awesome if you were both done at the same time.

[DutchGirl]

Yup, it would. A new part of life opening up for both of us, where work is just optional. I'm curious what it'll look like.

Today I told someone about my plans to quit work in 2-3 years time; or at the very least to reduce the workload a lot. Perhaps do some parttime or seasonal work. It was weird to tell someone other than my BF about this. It was hard to come clean about my plans, I was scared for criticism and disbelief. But it was funny, he was quite enthusiastic about it and congratulated me. This is someone who is in no way related to my workplace, so hopefully they don't hear about it until I'm ready to tell them about it (will probably be around half a year before I actually make a change; that's okay in my field of work and in the NL - plus by that time getting fired would just be a minor inconvenience and not a disaster).

So, that was something fun and different.

Moneywise, September was a pretty good month. My tax refund from 2017 arrived. (It was 1000 euros roughly; do I go back to 2017 and recalculate my savings rate? Or do I use this as "income" for 2018?). My paycheck was also a bit bigger than usual due to a refund of some business expenses.

September results: income 3100 (excluding the tax refund), expenses 2790 euros.
Total income after taxes for 2018 so far 32,800 euros. Total expenses so far 23,920 euros, so a savings rate for the year of 27%.

We each put 400 euros extra towards the household expenses due to buying (admittedly, nice) rugs for the living room. I pay almost a 1000 euros/month on the mortgage, however, around 400 euros/month is for paying down the principal so you could see this as (forced) savings.

The ceiling guy has promised to come next Wednesday... Fingers crossed.... This is becoming a saga. Or maybe a bit more boring than that, like a bible story like the ones where they start by listing someone's heritage until the 30th parent-of-parent.

[herp]

Yup, it would. A new part of life opening up for both of us, where work is just optional. I'm curious what it'll look like.

Today I told someone about my plans to quit work in 2-3 years time; or at the very least to reduce the workload a lot. Perhaps do some parttime or seasonal work. It was weird to tell someone other than my BF about this. It was hard to come clean about my plans, I was scared for criticism and disbelief. But it was funny, he was quite enthusiastic about it and congratulated me. This is someone who is in no way related to my workplace, so hopefully they don't hear about it until I'm ready to tell them about it (will probably be around half a year before I actually make a change; that's okay in my field of work and in the NL - plus by that time getting fired would just be a minor inconvenience and not a disaster).

So, that was something fun and different.

Very interesting! I've actually never told anyone IRL about my plans, I suppose partly because I have decades to go (planning for FI rather than ERE). I definitely share the expectation about pushback if one were to voice their plans.

Moneywise, September was a pretty good month. My tax refund from 2017 arrived. (It was 1000 euros roughly; do I go back to 2017 and recalculate my savings rate? Or do I use this as "income" for 2018?). My paycheck was also a bit bigger than usual due to a refund of some business expenses.

I personally view income and expenses on a transaction basis. So I would treat the tax refund as income in September this year, as that's when the transaction took place. Keeps things simple.

Good luck with the ceiling! Don't forget to nag

[DutchGirl]

Well. Currently I'm working. I'm at home and I'm on call, and when the phone rings I have to pick up and give answers or advice. But in the meantime, I'm lying here on our bed, listening to the washing machine in the next room cleaning some of our clothes, and enjoying the autumn sun streaming inside. So I really should not complain too much about that job of mine, even though sometimes I do.

Still, of course not being on call and being able to be out and about would be even more awesome.

Ah, phone call.

The ceiling has been repaired now. It needed to dry (almost done now), and now it only needs to be painted again, which will happen some time this week or next week by the company, and then we can put the furniture and the stuff back. I am looking forward to that. Progress.

Netflix here has an English series on getting rid of your mortgage. I watched the first episode this morning, and it was fun. People finding creative solutions to not having to get a mortgage at all, or to pay it off quickly. And some gorgeous alternative living arrangements like a boat or a tiny house or a converted church. I wouldn't want to live myself in each and every one of the options presented, but I can recognize that some options can be ideal for others even when they aren't for me.

I've paid down my own mortgage this year from 150k to 145k. Hurray! But as said before, my situation is special in that I'm borrowing from my parents. They get a good interest rate from me, much better than from the bank, and I still get tax deductions for having a mortgage. So as far as I'm concerned, I'm keeping this mortgage for as long as I can (it'll be 19 more years according to our plan), and my parents will enjoy a steady stream of "income" over the next 19 years as I pay interest & principal, and I will enjoy a steady stream of tax benefits over that same time period. (And if the tax system is going to change radically in that time period, I also have options to for example pay the mortgage off).

[DutchGirl]

The ceiling's back in place and the furniture too. Only issue is that I still need to unpack some boxes with documents, but they can wait a bit.

October went okay. Income 3100 euros, expenses 2640 euros.
Total income after taxes for 2018 so far 35,900 euros. Total expenses so far 26,560 euros, so a savings rate for the year of 26%. (This is pretty baaaad... damn).

Oh, PS, a bit of a saving grace might be that I also paid down my mortgage by roughly 5k - and that 5k is included in my expenses which it perhaps shouldn't be. Then we get to expenses of "only" 21,560 so far, and a savings rate of 40%. Hmm, that's a bit better...

Net worth went down by a few thousand euros due to the stock market correction. I was inching closer to 150k euros, but that'll be postponed a bit, perhaps.

[marcdemar]

That's a long running journal you have there @DutchGirl! I still have 26 pages to go before reaching your level

I'm new to the forum, late starter as far as FIRE is concerned, but committed and dedicated nonetheless. And..oh yes... Dutch as well. But left the country during the previous century.