My 21 day makeover

[DutchGirl]

Maybe I didn't say it before; but I enjoy reading it too.

[frihet]

And me too, very much! Thanks for sharing your story.

[sterlingarcher]

Thank you guys, thats nice to hear

Day 12: Establishing a savings account

I will now lay out my accounts system. Any tips for improvement is most welcome.

Cash: 350
Daily usage account in bank - 0,1% interest: 300
Bills account in bank - 0,1% interest: 5.000
Savings account in bank #1 - 4,5% interest: 71.000
Savings account in bank #2 - 2,2% interest: 2.000
Rental property bank account - 0,1% interest: 6.000
Loan account in bank - 3,3% interest: -895.000
Stocks account at broker firm: 32.000

This is how it works:
I get paid on the 20th each month on a weekday. This reminds me I'm getting paid tomorrow, yay. Salary is 24.000. In May it is 60.000 (holiday money and extra time payment!) and Nov it is 28.000.
From that I immediately transfer 7.500 to the bills account. This is what is needed on average to cover bills every month. Not all months are the same. Electricity bill comes every 3 months for example. A year from now this average number will be reduced to somewhere between 2.000-5.000, and probably on the lower end of that scale.
Then I figure out how big my expenditure for food/household/other will be this month. I typically spend the last week before payday to think alot about this and how to save maximum. Usually it amounts to 3.000, sometimes less, more times more. This is what I remain with in the "Daily usage account". I usually withdraw atleast half in cash as I tend to be better at saving when using cash for shopping. At the end of the month the usage account tends to be empty but I try my best to remain with something and it looks like I succeeded with 300 this month.
So my expenditure is 7.500 for bills and 3.000 for food/household. 24.000-3.000-7.500 = 13.500. This is transferred to savings account #2.

On a yearly basis, the rental property that I bought in February will yield some 5.000-10.000 extra in cash. This is after all costs, interest and downpayments are made. I transfer that amount to savings account #2 as well.

From savings account #2 I will on occasion transfer a sum to the stocks account to buy stocks. I recently did just that which is why the savings account has only 2.000 in it. The stocks account is listed at 32.000 but is currently valued at 29.000 because my (oil) stocks have gone down.

Why not use savings account #1 you say? It has a yearly limit of 25.000 and I can only save for 3 more years (its like an advantageous savings program for young people to encourage saving). It also gives a tax deduction of 5.000 if you save the maximum. What I intend to do is add 25.000 to the loan balance in January and transfer it directly to this savings account. The difference in interest makes it profitable. The rent from the rental property pays down the loan with about 22.000 on a yearly basis, so in practice the loan will remain unchanged for the next 3 years while the savings account #1 which has a better interest will increase by 25.000+interest every year. In savings account #2 I plan to save 160.000 in 2015. 96.000 will be used to clear my student loan thereby reducing the monthly expenses by 1.500. I don't know what to do with the remaining savings. Do I risk it on stocks, keep it in the bank for now or pay down on the loan? In 2016-17-18 I will save 220.000 each year and clear the whole loan in 2018.

This became more elaborated than I had planned.

[sterlingarcher]

Day 13: Insurance

I support self-insurance. I'm lucky to be born in a country where health care is practically free. Thus I only have to worry about my stuff. Well I don't have a car and I'm renting where I live. The property I own is insured through the company administrating the apartment complex and the rent already covers that.
What remains? Insuring my stuff I guess, but I don't. I rather save those money and take the risk in case of burglary.

[sterlingarcher]

Day 14: Investing for early retirement – Part 1

First some information about me:
- I have a Bachelors degree in BA
- I grew up with zero focus on money/investment from my parents or friends
- My mum is very risk averse, my dad is opposite. I think Iam somewhere in between, slightly more on the risk averse side
- I do not have great talent in math but I take a great interest in economic sciences/topics, I follow the markets every day and try to stay as updated as possible

I wish I had more time and space to write my thoughts on investing. I don't have much practical experience with it because I never owned a substantial amount of money. As of now, I have put all my net worth into one single rental property, and will spend this post on sharing some of my thoughts on real estate investing.

I moved out of my family home 10 years ago and have rented in another city ever since. I have a pretty good understanding of the local market so in that sense I am an experienced customer of my own product.

I spent 6 months analyzing the real estate market and did calculations on possible investments. The calculations were done in home made excel sheets and I browsed the web to find prospects. The prospects you find in newspapers are typically way above my head. I could buy something at 1.400.000 maximum (4 x my income before taxes) as I only had 400.000 in savings at the time, which is in the very low end of the market. A couple or family of 3 will typically buy a 2-bedroom at 3.000.000, so I was competing with mainly students and singles in the bidding wars. I spent time in the market, seing different apartments, talking to real estate agents and placing bids on the ones I found to be decent investments and eventually got one at discount price. This was in February this year, our stock market had taken a hit and real estate markets where abit quiet. In my experience there is alot of pshycology in real estate markets, especially in a smaller country. The apartment I bought is up by more than 10% in value so far, judging from sales in the same complex recently. I bought it at 1.200.000 and it is closer to 1.400.000 now.

Im not relying on value increase to make it a profitable investment. I look at the expected cash flow. The rental income must cover all expenses, the whole loan interest every month and atleast parts of the loan downpayments. The cash flow is what determines how much Im willing to bid on it. In my case I placed an ad before bidding on the apartment, listing the very same apartment for rent. This way I learned what I could charge in rent, and it was enough to cover all the expenses including downpayments and in addition leaving a positive cash flow at the end. It has a yield of 8% and a net yield of 3%, which is pretty good in our market. Most net yields are closer to zero and investors rely on value increase to make the investment profitable. The return on my equity is 7% after taxes, meaning theres basically a 7% annual return to be made on my 400.000 investment.

Rental prices might come down in the future. Rent is quite high here, so are real estate prices. Interest levels are around 3% when taking up a mortage. This is where my last criteria comes in: location. It needs to be close to a university, grocery store and bus stop. Pretty much similar to Jacobs guidelines on housing. My city is filled with students and thats my target audience. The apartment I bought fulfills those criteria so the demand for my product will be there for a long time.

In the future I will probably have a mix of real estate and stocks. My main dilemma in these times is whether to gear up my investments getting another mortage to invest in another apartment because of the low interest levels, or to pay down all my debt to zero first and then start saving for more investments.

[sterlingarcher]

Day 15: The first two weeks of the make over

To be honest I've been adopting alot of the ERE mindset for more than two weeks. And I think Ive been fairly succesful. I'm so far failing on the social aspect of ERE, that is getting engaged and connecting stuff with neighbours. I think I might need some new friends. The few close ones I have are typical consumerists but the good thing is they don't seem to mind my take on life. There are events in the future I might miss out on because of the choices I'm willing to make. Like road trips, weekend trips around Europe, parties at clubs, cinema etc. I will still go for some of it and mainly keep it free or very cheap. I'm not seen as greedy or anything (yet). But on the other hand, there is nothing I don't have right now that I feel like I need, well except maybe more money. I had a savings rate of 50% this month whereas my target is 70-75% by the end of 2015. I think my maximum potential is around 80% but that will require some major changes in the way I go about my life: my living costs would be restricted to rent, food and internet and I'd have to boost my income by 10%. My main goal is 70% for 2015.

I talked with my mum about the way consumerism has gotten way out of hand amongst alot of people. She is a very typical 58 year old, having worked all her life and planning to retire in 10 years. Her main objection to my ideas was a simple question: "Don't you feel a sense of duty?" Duty, as in the context of working to create value and taking part in society. I argued there are many ways to take part in society and feeling a duty to be working for someone else makes me feel abit like a slave. I get her point, we all grow up being taught to work and take part in society this way so naturally many people feel a sense of duty. But she didn't seem to be open minded enough to get my point. Or maybe she got it but were too proud to admit it, I don't know.

When I talked to my father he totally understood. He's doing the same thing himself, although he is 57. He wish he thought of this earlier.

[sterlingarcher]

Day 16: The stuff you actually keep and use

I think the best strategy towards keeping and using nice things is to approach every purchase with two objectives in mind

Plan to keep everything you own forever(*)
Consider everything you own for sale at all times.
Minimize the use of resources.

Nice article. I came across a few dilemmas when decluttering.
"Do I keep these 3 spare pairs of outdoor shoes for another 5+ years for later use or do I donate them to someone who might need them now?"
"What do I do with these 15 T-shirts?"
"Does anyone need some murvins? I don't need them (yet)".

I ended up getting rid of most reserves and keeping what is harder or more expensive to replace. I still have more stuff than I'm comfortable with, but compared to the average citizen here I'm way below average. The apartment Im staying in, although in an old building, has a very simplistic style now.

I'm proud of my decluttering business. I'm 90% close to completely clearing the storage room in the basement and I'm trying to get my hands on a boxing bag and use the room as my winter gym.

[DutchGirl]

Funny, your thoughts on "duty". I had almost posted a similar topic and then removed it again. Last weekend an uncle said to me: "Your job isn't very hard for you, is it? Aren't you currently wasting your talents?". I'm quite smart, and he knows that my current job isn't very challenging for me. I actually like it that way. I might have the brains to do more, but I don't have the desire nor the stamina to actually do more. And also, while it may not be challenging my intelligence, it is challenging my social skills, I guess that's a good thing

Anyway, I wonder how this uncle would react if I told him about my plans to quit working somewhere within the next ten years. That's surely a waste of my talents, isn't it? But for me, it feels like a waste of my life if I would continue working just to use my talents. Still, it made me consider it some more.

[sterlingarcher]

I know what you mean DutchGirl. The reasoning I use is that when you don't find challenges in your work, you will find them elsewhere in your life. If one wants challenges it is very easy to find it. I would personally get drained if there were challenges in every area of my life at once, hence I usually focus on one area at a time. The past few weeks it has been to change my life into a more minimalistic and less-spending way. It does require some effort. In the next few months there is a challenging time at my workplace (ask any accountant or bookkeeper about January-June period). At other times I may choose to focus my energy into workouts and improving in a sport, or be more-than-normal social with friends. As an introvert I get tired from too much interaction, especially if my energy is spent at e.g. work.

This is exactly why I wish to retire from 9-5 working. It would free up so much time and give me freedom to choose where I want to focus my energy.

[sterlingarcher]

Day 17: Maintaining and repairing things

One needs to repair and maintain things in order to spend less and stay efficient. This also requires buying things that can be repaired. I very much agree with this.

One of the major signs that we are in a "use-and-throw-away" culture is going into a clothing or shoe store. Every time I ask about the durability of what I'm buying I get weird looks. The staff is not used to being asked this. People generally just buy something based on the way it looks and throws it away prematurely because they find something cooler the next year.

I fixed my winter gloves during christmas. Did some sewing for the first time in 10 years. They have lasted for 5 years and will now last 5 more atleast. Iam now ready to fix anything that needs repairing. These are important skills to learn.

[sterlingarcher]

I am thinking of making a "1000 days countdown" type diary to help keep me motivated. According to my calculations I should be debt free in about 3 years and have a passive income catering for 50% of my needs.

Being that its 29th Dec today this seems like good timing. I will probably start the diary after this 21 day makeover and set Jan 1st as the first day in the diary.

[sterlingarcher]

Day 18: Join a challenge

I can think of many challenges that would fit nicely into my ERE plans but I have a hard time separating challenges and goals (aren't they really the same?). And I also believe its better to put more focus on less, which is why I usually operate with just a few goals at a time. For example, my goal for the past few weeks has been to declutter and rearrange everything I own. My basement is 90% cleared and the house too. I'm still in the process of selling a few things. The funny thing is, I thought I was 90% done two weeks ago. Then I found a bunch of stuff I could get rid of and I still feel at 90%. I wonder where this will stop.

Anyway, I won't be doing Day 18. Instead I focus on a few goals related to money, fitness and health. Instead of challenges I like to come up with different methods of doing things and changing my behaviour. For example, last year I had a month where I set up a rule that whenever I walked past my kitchen I would do 10 pushups, simply as a way to get more fit. Another thing I tried was shopping with cash only as a way to reduce spending. It worked.

[sterlingarcher]

Day 19: Getting rid of your TV (addiction)

I've been without TV for a month.

It's been a weird experience. At home I haven't missed TV at all. I will admit to watching a few movies every week on Netflix and playing a computer game but I thought it would be worse. Plus I wouldn't do less of that if I still had a TV. I have replaced the TV time with ERE-related activities such as bulk cooking, decluttering and fine tuning budgets. Now that I am slowly getting a good routine on those things I will have to find other activities to occupy my time.

Not having a TV leaves me silent in lunch conversations. I can't believe how important TV is in my workplace! Guys talk about yesterdays episode of Lilyhammer like nothing else was impotant. When TV is not the subject they talk about their kids. I don't have kids and I don't watch TV. But I read books, I enjoy discussing many topics and I work out. One would think this is good equipment for lunch conversations but not in my workplace.

During xmas I visited family. I spent on average 4-5 hours a day watching TV because thats what people do. Next year I will make sure to have enough books to read, bring my workout gear and have something to do instead of watching TV.

[sterlingarcher]

Day 20: Own classics

I have massive potential for improvement here. The process of decluttering and selling things have proved to me how costly it is to go for decent products at a decent price, because they are practically worth nothing after a few years. Either that, or they break down, forcing the need to buy replacements. The decluttering process also revealed how much stuff I have that I didn't know about. I think a good idea for my future would be to have no more things than I am able to remember off-head.

In an attempt to recognize my own things, here is a list of the classics I own and plan to keep for now:
- super nintento from 1992 in good condition
- leatherman knife
- army boots
- Bergans backpack
- Moccamaster coffee maker

Thats pretty much it. My next item in line for purchasing is a bedroom lamp. I will make sure to try find a classic.

[sterlingarcher]

Day 21: Investing for early retirement – Part 2

I shared some thoughts on real estate investing in part 1, but I will probably rely on other types of cash flow as well when I retire. The Dogs of the Dow strategy is something that would fit me well I think. I would probably want to invest abit in my own country using the same strategy and maybe some US stocks as well.

Ideally my cash flow would be coming from 3 areas:
1) Rental income from property
2) Stock investments
3) Hobbies or part time work

I am making no 1) my first priority being that Im focusing on becoming debt free which will happen in about 3 years. At that time I am cashing in 5000 a month from rental income, which will cater for 50% of my living expenses here. If I continue to work full time for a couple more years I think the cash flow from no. 2) will start to come as well.

This concludes my 21 day makeover. I have started a private journal and I might choose to share some notes from it on here.

[steveo73]

And also, while it may not be challenging my intelligence, it is challenging my social skills, I guess that's a good thing

I've been working for close to 18 years in the same company. I've had lots of different jobs and some have challenged my intelligence or better put my analytical ability a little bit but its predominantly been all social skills. Its like 98% social skills and 2% analytical skills.

Writing this down makes me realize why I want to quit work. I play chess a bit and I'm pretty poor at it. Chess though gives me an outlet to learn something that is hard to do mentally and I think suits my natural temperament more. The way that work actually ends up being is one of the reasons that I really want to move towards FI and then probably RE.

This is a good journal. On TV I'm really not a fan and I haven't ever really been. I've always preferred reading.

[sterlingarcher]

The anti-work movement

I just briefly looked through my journal to see if any of the posts covered work, but it seems ERE focuses more on the expenses side of things rather than finding ways to increase ones income.

During the past couple of years I have become pretty demotivated and lazy at work. I show up at 9, leave at 5 and stay for extra time when it is expected. But I am rarely productive. I would estimate that I am about 25% productive, that is I put in a couple of hours of work at a very high efficiency rate and then stay lazy the rest of the day. I work on personal projects, like doing research on real estate, finance, budgeting and other things that interest me. Or I make sure to do daily chores at work so that I don't have to do them at home, e.g. paying bills, booking doctors appointment or calling my parents. Sometimes I even find myself staring out the window daydreaming and there have neen occasions where I have been alone in the building and dosed off for a minute or two.

The manager is onto me and I have gotten negative feedback on my efficiency rate. Infact she made the statement that my productivity is not supporting my salary and I should work on improving. This is of course not new to me. If paid according to productivity, my salary would be half of what it is at best. I've been ineffective for 2 years. I was only effective the first 6 months at this company in order to establish my position. I've been in relaxation mode for quite some time now. It's as if I am only productive when the pressure is on, but I don't like the stress that comes with it. I save my energy at work as much as possible in order to make my time worthwhile when I come home. This often results in me dreading to go to work every morning. On some days I even dread going to bed because I know the next thing will be for me to wake up for work. And so I stay up late and end up being sleepy and tired at work, further driving me towards relaxation mode when there. Iam fine with it though, time passes and relaxing at work is nice.

There are times I am 100% efficient the whole day, but it is usually followed by several days of inefficiency. I can also be 100% productive for several weeks or even months in a row, but I usually make up for it by relaxing for an equal amount of time afterwards. It all depends on when the pressure is on. It seems I am pretty much free to do as I please as long as I get the job done (bookkeeping). The end result of my labour is either low quality because I did it so fast or didn't concentrate, or delivery behind schedule. The consequence is negative feedback, but no paycuts or danger of getting fired. At least not yet. Not even a single warning, although it feels like I have been close at times. Maybe its just guilt speaking.

It doesn't feel justifiable and I know Iam cheating some people of money they paid for my labour. At the same time I don't identify with the work I do, it feels meaningless and I have been perfectly fine continuing to do what I do (or don't do), and the people I supposedly cheat are perfectly fine doing what they do so what difference does it make it the end?

I'm not lazy by nature though. Had it been my own business my productivity at work would be higher, however I would probably spend fewer hours at work.

I read some articles on anti-work and could highly relate to it. Some of them are very amusing.