FI with regular income?

[urgud]

ERE journal entry #0

Basic stats: 33, male, single, live in a cheap room in the capital city, work a regular unskilled job, probably earn a bit below median wage.

Goals: avoiding having a career including the stress and alienation associated with that, some kind of financial freedom around age 50, working on physical health.

I haven't really decided on the exact format for my journal, but I think I’ll stick with monthly stats and then whatever topics I feel like talking about.

I’ll briefly recap the last few months’ income, savings rate, and, for the sake of it, net worth, as well as a spending breakdown. Hopefully this will even turn into me doing charts over time.

Everything will be listed in EUR for reader convenience. Income, savings, SR and net worth will be presented in net terms.

For the sake of completeness, I have elected to include my employer-mandated pension scheme. This pension consists of 12% of my gross (i.e. pre-tax) salary, of which I contribute two of those percent and my employer 10. Because this pension operates on a pre-tax level, I have decided, with the help of a few kind strangers, to estimate a taxation rate of 39% on this part of my income, including what I have already accrued in this pension fund. In case this turns out to be a dud, conceptually speaking, I also present the numbers that do not include this mandatory pension scheme.

My income varies a bit more than the bog standard salary man due to the nature of my work (evenings, weekends, tiny performance bonuses, flexible spending account disbursements as part of salary package)

August 2023:

Stats including mandatory pension:

Income: 3062 EUR
Expenses: 1770 EUR
Savings: 1291 EUR
Savings rate: 42%
NW: 3333EUR cash + 9494 EUR mandatory pension fund = 12827 EUR total

Excluding pension:

Income: 2771 EUR
Expenses: 1770 EUR
Savings: 1001 EUR
Savings rate: 36%
NW: 3333 EUR cash

September 2023:

Including pension:

Income: 3895 EUR
Expenses: 1033 EUR
Savings: 2861 EUR
Savings rate: 73%
NW: 6194 EUR (cash) + 9524 EUR (pension) = 15718 EUR total

Excluding pension:

Income: 3488 EUR
Expenses: 1033 EUR
Savings: 2455 EUR
Savings rate: 70%
NW: 6194 (cash)

October 2023:

Including pension:

Income: 3191 EUR
Expenses: 1366 EUR
Savings: 1825 EUR
Savings rate: 57%
NW: 8019 EUR (cash) + 9498 (pension) = 17517 EUR total

Excluding pension:

Income: 2843 EUR
Expenses: 1366 EUR
Savings: 1477 EUR
Savings rate: 52%
NW: 8019 EUR (cash)

Some notes:

I want to calculate spending breakdowns as well. I might well add them retroactively for August-October in a later post. I’m entirely new to budgeting, so I just grabbed one of those pre-made ones, went through my bank statements and plugged everything in, down to the last dollar. Because my personal situation is relatively simple, I like doing this manually. It takes a few minutes each month, and it provides a good moment of reflection into/recollection of what the money was spent on. But I also want to summarize and visualize my spending, such as @singvestor has done, for example.

I’m ruminating on something I read on a personal finance subreddit a few days ago: how to psychologically account for “one-off” spending, i.e. the big ticket items, such as vacations, cars, major home improvements. The latter two are not in the cards for me, but vacations definitely are. I’m not going to sit around in my rented room during the 7.5 weeks of paid vacation I have per year. Basically I’m wondering if it makes sense, financially and psychologically, to set aside a monthly budget for vacations, e.g. 300 EUR, in order to make sure I stay within those limits. Generally I don’t want vacations to be dominated by the logic of austerity, but I think some kind of happy medium can be found. I’m just unsure whether allocating a monthly budget will actually result in increased or decreased spending, or if there is some smarter way of doing it.

Other topics I want to reflect on:

1) transportation hacking, (seriously, consider working for an airline/public transit operator)
2) the “freedom” of renting, (when you find a deal so good it’s sui generis, i.e. not readily replicable for others/elsewhere)
3) my investment strategy (boring cookie cutter index fund-style, optimizing a bit on running costs and taxes),
4) FI with a normal/low-end job in a welfare state (healthcare as mostly a non-financial issue; no need for massive cash on hand for sudden unemployment; easily able to reproduce similar income level incase of layoff)

If you’ve read all the way to this point, I have but one question for the jury: should I keep including the employer-mandated pension scheme in my monthly breakdowns or not?

[ertyu]

What's wrong with earmarking 300 euro per month for vacation and then saving that with the understanding you don't have to spend all of it? Save it, and by the time vacation rolls around, you might've come up with ideas that allow you to have the experience you want even cheaper than expected.

Working for an airline sounds fun. Why not.

[Veronica]

I’m ruminating on something I read on a personal finance subreddit a few days ago: how to psychologically account for “one-off” spending, i.e. the big ticket items, such as vacations, cars, major home improvements.

If you’ve read all the way to this point, I have but one question for the jury: should I keep including the employer-mandated pension scheme in my monthly breakdowns or not?

Welcome!
There's no right way to keep a journal; but putting it here can help you benefit from the "wisdom of the crowd", and help to see your own progress over time.
I include all my investments/debts/liabilities in net worth, but that's a decision that is ultimately up to you.

My current approach to big ticket items is probably unconventional and counterproductive from a monetary planning perspective.
I've recently starting doing what Tim Ferris calls "Lifestyle Design" in his book 4 hour workweek.
Essentially, I make a list of those exact things that I want to own (or pay for access to), then i go out and find out what the going market rate is for those things. Then, whenever I have the excess savings to purchase something on that list, I do so.

In theory, I will eventually be "done" with purchasing things and already living my ideal life.
As long as I can avoid the temptation to continue adding to the list!

[delay]

Expenses of 1770, 1033 and 1366 EUR. That's 1389 on average, well done!

Generally I don’t want vacations to be dominated by the logic of austerity

If you add 300 you are spending 22% on vacations. That's a large expense. You may gain useful information by experimenting. A week with higher and a week with lower daily spending. That helps clarify the value of each additional euro. There are many ways to travel and sleep. Aligning your spending with your priorities pays off.

should I keep including the employer-mandated pension scheme in my monthly breakdowns or not?

A pension scheme's payout and starting age are subject to change. The payouts may be smaller than expected, sometimes shockingly so. A pension is not a big help to reach financial independence at 50. I would exclude it from the breakdown. If I were young again, I'd look for a way to opt out.

[Ego]

Other topics I want to reflect on:

1) transportation hacking, (seriously, consider working for an airline/public transit operator)

A friend of mine is a retired attorney who works part-time (10 hours a week) as a gate agent for a large airline. As an employee, he flies for free and gets access to lounges for himself and a companion. Yesterday he told me that he has worked for the airline for seven years. If he continues for three more years, he gets free flights and lounge access for life for himself and a companion. Seriously considering this myself.

[Seppia]

That sounds pretty amazing Ego.
While diving in Turks and Caicos I met a retired firefighter that was doing the same. Worked for JetBlue as a flight attendant, he mentioned he had to work something like 14 days per month, so he would work for a month non stop, and then fly for free to dive in TCI for 20 days, then back in NYC where he shared a 2 BR apartment with two young guys (he was single).
Pretty sweet setup

[DutchGirl]

A pension scheme's payout and starting age are subject to change. The payouts may be smaller than expected, sometimes shockingly so. A pension is not a big help to reach financial independence at 50. I would exclude it from the breakdown. If I were young again, I'd look for a way to opt out.

I'm in the same country as Delay, but my opinion is the opposite: I would definitely include the pension in your plans!
It's true, its value could be slightly lower than what is promised now. But completely ignoring a pretty solid European pension will mean that you will stay in your job for way to long, squirreling away euros for the very unlikely event that you won't ever get any amount of pension.

So what I personally do when planning my retirement is split it in two stages: during the latter stage, after official retirement age, I will cover my expenses thanks to my national pension + work pension + the remainder of my personal savings/investments. (Also, I only plan with 75% of the projected value to give a buffer in case the pension value does decrease). During the earlier stage I can't access pensions, so that stage needs to be fully funded by personal savings/investments.

But because that state & work pension is "coming to the rescue" in later years, it means that I don't need 25 times my expenses in "free" investments. That means my FI number is smaller and I can quit earlier. (By the way, personally I've also found that I still will have some income even after quitting my job, so that is something that you might take into account in your plans as well).

A website like https://firecalc.com/ can help with this planning; it can take account income streams that start in a specific year in your total plan. If you know your way around a spreadsheet, you can also make a quite solid plan that way.

[urgud]

What's wrong with earmarking 300 euro per month for vacation

That's still a ton of money So, I'll have to experiment and continuously check what my priorities are. And honestly I should probably do real budgeting for vacations as well instead of just a budget line called "vacation". To save money, it is probably easier to do regular accounting for travel/vacation as well.

@Veronica: I guess I am mostly thinking of major vacations, and those I have to schedule a bit in advance due to work. Plus, they're not really one-off, more like regular occasions once or twice per year. Sometimes I feel like I should get a really nice bikepacking bike, but then I calm myself down and realize I can just use my existing one.

@delay: My living expenses can be trimmed much more. I haven't even taken a serious look at what could be cut away, so I will evaluate each line item, ideally in a future post on here. I am working on the experiments for cheaper vacations, even as I tend to revert to less frugal options when I am stressed or feel sick. Hopefully, in the medium term (2-7 years) the travel urge will be replaced by working on a allotment/cabin-type situation I'm working on bringing into existence. Regarding my pension: Well, basically it's just a pool of money that'll be disbursed over 10-30 years, as I choose to see fit. It cannot be opted out of, except for if I were to become a day laborer. It is what it is. At some point I'll have to build a big spreadsheet to model when I can use different pots of money (employer pension, public pension, private pension and regular investment savings).

@DutchGirl: that is exactly my thinking. Basically the stash doesn't have to be sustainable forever, just until the "official" pensions kick in. In my case, there might also be some sense to not having too huge a nest egg, because that could mean deductions in the public pension. I'll try playing around with firecalc. Overall, I still have to factor in some uncertainty though in terms of long-term housing. As I mentioned in my introduction post, I am blessed with an unusual living arrangement that is priced well below 50% of what people pay for an equivalent amount of space in the same location (Walkscore: >100). In about 2 years, I'll know whether this is viable as a long-term option.

@Ego and @Seppia (as well as anyone else interested in transportation benefits): https://www.seat61.com/rail-staff-priv-travel.htm for European rail staff. Naturally air tickets can theoretically be almost free depending on your flexibility, so that's hard to compare to. But trains are nicer to travel in plus the whole environmental angle. As mentioned in the link, rail staff typically also get free train travel in their home country, which can in many cases obviate the need for a car.

Immediate conclusions:

1) Keep tracking SR both with and without pension.
2) Research existing calculators for FI in my country or start building my own.
3) Do detailed spending breakdowns, including for holidays.
4) After doing (3), think more about cutting stuff like union dues and unemployment insurances.

[ertyu]

That's still a ton of money

You can save 300 a month in a fund called "vacation" but this doesn't obligate you to spend all of it on going on vacation. Have 3600 at the end of the year AN THEN decide whether you want to spend it vacationing and if yes, how much of it. Between now and then, train yourself to live on the lower expenses and research non-standard ways to vacation that might still be fun but will cost less. Problem solved.

[delay]

Thanks for your reply!

Regarding my pension: Well, basically it's just a pool of money that'll be disbursed over 10-30 years, as I choose to see fit.

That's a fairly romantic concept of a pension. But a pension is really a financial product. As with all insurance products, a pension's story comes from Sales and payouts are done by Claims. With pensions you discover the difference when you reach pension age. This makes it a good idea to talk to people who have experience with the Claims department. Perhaps an older relative.

1) Keep tracking SR both with and without pension.
2) Research existing calculators for FI in my country or start building my own.
3) Do detailed spending breakdowns, including for holidays.
4) After doing (3), think more about cutting stuff like union dues and unemployment insurances.

These points read like abstract thinking about the future or the past. Calculations or reports will not change who you are. To improve your financial health focus on the present. What can you improve this month? This week? Today?

Why not check out the Early Retirement Extreme book? It has some good pointers.

[urgud]

November 2023

Including pension
Income: 3203 EUR
Expenses 4160 EUR
Savings Rate%: -30%
Net Worth: 10339 EUR (Pension) + 1200 EUR (Investment) + 4829 EUR (Cash) = 16338 EUR Total.

Excluding pension
Income: 2942 EUR
Expenses: 4160 EUR
Savings Rate%: -41%
Net Worth: 1200 EUR (Investment) + 4829 EUR (Cash) = 6029 EUR Total

Big vacation, all of November basically. Had to fudge the numbers a bit to account for delayed withdrawals from vendors. Actual bank account cash holdings appear to be slightly higher (5544 EUR at present), but right now I'm too lazy to figure out where I went wrong.

Edit 1: My investment was pretty boring. 17 shares of an MSCI ACWI ETF.

[DutchGirl]

How was your holiday?

[urgud]

@DutchGirl: It was great: warm weather, nice people, good books and food. I spent a significant part of it reading this forum. No regrets

[urgud]

I've been thinking more and more about what @jacob once wrote on here about him probably extracting 3-4 more value out of a dollar compared to a random US person, as well as money use representing the last bits of inefficiency in problem solving. The dollar not spent appears increasingly powerful, especially in a high-tax environment.

[urgud]

December 2023

Including pension
Income: 3409 EUR
Expenses: 981 EUR
Savings rate: 71%
Net worth: 10637 EUR (Pension) + 1260 (Investment) + 9185 (Cash) = ~20092 EUR total.

Excluding pension

Income: 3111 EUR
Expenses: 981 EUR
Savings rate%: 68%
Net worth: 1260 EUR (Investment) + 9185 (Cash) = 9455 EUR total.

Not too shabby, it being Christmas and all.

[DutchGirl]

Yup, that's pretty good! Net worth with pension passed the 20k milestone, net worth without it will probably pass the 10k milestone, soon? Nice!

[urgud]

As many here have pointed out, including locked pension funds doesn't make a whole lot of sense, even if it is a type of individual retirement investment account. Therefore future numbers will exclude pension fund numbers.

Income: 2819 EUR
Expenses: 943 EUR
Savings rate: 64.53%

Liquid net worth as of Jan 31st: 7437 EUR (cash) + 1610 EUR (liquid investments)

I am still in two minds about whether to even include the investment account I am currently contributing to. There are no penalties or restrictions on withdrawals, so the funds are fully available. However, it is a contribution-capped (approx 18k EUR), tax-advantaged account that has certain benefits in case of disability or retirement. The rational choice is thus to consider it a type of retirement account. In either case, it'll take me just about all of 2024 to fill this account. For now, I'll include it for motivational purposes, but I might end up resetting the invested net worth counter again in January 2025.

My current spending strategy can be summed up as:

60% into liquid investments
15% for holidays/travel (or who knows, some other major hobby at a later point in life)
25% regular living expenses (rent, groceries, insurance, what have you)

This strategy was something I kind of based off of some napkin math I did last year, but this year I want to try to living according to it. It might end up that some of the numbers have to be adjusted. I have a slightly variable salary, so I based it off of an expectation of a 2667 EUR net salary, 400 EUR vacation fund, 667 EUR monthly expenses, and 1600 EUR monthly investments. I deliberately low-balled the salary a bit to introduce some slack into the system (= realizing that I would probably not be able to maintain my living expenses at just 667 EUR/month).

Overall, I am happy with the system so far. It strikes a balance between long-term future orientation (significant but not radical savings rate), near-term future orientation (traveling two months out of the year) and a comparatively fun and painless daily existence.

I count myself lucky to live with very frugal people. The average cost of my social interactions is probably close to zero.

February challenge: seeing if I can actually keep total monthly spending under 667 EUR.

[urgud]

Income: 2763 EUR
Expenses: 772 EUR
Savings rate: 73.87%

February challenge failed, but still relatively close.

[RoamingFrancis]

What country are you in?

[urgud]

Denmark