About paying taxes in Thailand

I got to admit, I don’t like to talk about taxes. Depending on where you live it is either a complicated, or very complicated topic with lots of things to know, to consider, and plenty of pitfalls. But of course, this is only the case because taxes are so important. Taxes can make all the difference when it comes to building wealth, and like it or not, it’s worth spending some time to learn about the challenges and opportunities that come with the tax code in your country.

I am living in Thailand and the tax code here is rather simple. For investors, it is a paradise. There is no capital gains tax, meaning that no matter when and how much I profit from trading equities, there are no taxes due at any point. Not today, nor tomorrow. There is a withholding tax on dividends in the acceptable amount of 10%. There are no loopholes or exceptions to avoid it, so the bank will deduct it automatically upon pay-out. There is no need to declare or report anything when you do your tax declaration. Simple and fast.

But there are hidden opportunities

I am mostly trading regular equities and ETFs and since the regulations are so easy, the tax part was never really on my radar. But I certainly should have invested more time to learn about it much earlier on.

I have learned by now that the government is actually actively supporting investors in building wealth through retirement funds. As an employee with regular income in Thailand, I can invest in mutual funds designated for my retirement, and receive significant tax benefits for doing that.

The so-called RMFs (Retirement Mutual Funds) can invest in either foreign or domestic equities or funds, and need to be hold for a minimum of 5 years before withdrawal. From your total annual investment, up to THB 500.000 per year can be deducted from your total taxable income. The tax code for personal income in Thailand in 2021 looks like this:

Taxable Income
(baht)
Tax Rate
(%)
0-150,000Exempt
more than 150,000 but less than 300,0005
more than 300,000 but less than 500,00010
more than 500,000 but less than 750,00015
more than 750,000 but less than 1,000,00020
more than 1,000,000 but less than 2,000,00025
more than 2,000,000 but less than 4,000,00030
Over 4,000,00035

Now here is how this works. Let’s say you have an income of THB 2,600,000 per year.
You will then pay:

THB 0 – on the first THB 150,000 (total 150,000)
THB 7,500 (5%) – on the next THB 150,000 (total 300,000)
THB 20,000 (10%) – on the next THB 200,000 (total 500,000)
THB 37,500 (15%) – on the next THB 250,000 (total 750,000)
THB 50,000 (20%) – on the next THB 250,000 (total 1,000,000)
THB 250,000 (25%) – on the next THB 1,000,000 (total 2,000,000) and finally
THB 180,000 (30%) – on the last THB 600,000 (total 2,600,000).

Your total tax will be therefore: THB 545,000 or 20,96%.

If you now max out your RMF contribution up to THB 500,000, you can deduct this investment from your total taxable income. This would reduce the total amount from THB 2,600,000 to only THB 2,100,000. Therefore your tax obligations for the last 30% bracket would also shrink, from THB 180,000 down to only THB 30,000. After your tax declaration you will get a refund of THB 150,000.

So on the one hand you get a tax benefit. But as an investor, I look at it another way: I receive effectively a guaranteed 30% annual return on my investment.

Do some reading

Every country has its own rules and regulations, but since we are all part of the same system, there are similar opportunities everywhere. Whether it’s the 401k in the US, the RMF in Thailand, or the “Arbeitnehmersparzulage” in Germany. Chances are that the tax code in your country offers you opportunities to boost your savings and investments. These can be quite significant and strongly support you in reaching your financial goals. So don’t be lazy. Do some reading, educate yourself, and grab the opportunities which have been designed for you to get the most out of the system.

5 Tips how to manage your time (and budget) now

These are tough times. The world is on lock-down. People are losing jobs or are getting pay-cuts. And the probably worst thing of all is that we don’t know when this is going to end. Therefore, now more than ever, it is important to manage the money we have in the most cautious and structured way possible. Frugal living and strict budgeting can’t be a hobby now. It’s a must. So here we go, 5 things that you should consider doing today to navigate your finances and your well-being through these difficult times.

black calculator near ballpoint pen on white printed paper

Photo by Pixabay on Pexels.com

1. Review your essential spendings

If you never had a personal budget, now is a great time to start. A personal budget plan sounds complicated, but it’s really a simple calculation of income and expenses. The more details you put into it, the more aware you will be about your essential and non-essential spendings. In a situation like now, this information is vital to make smart money decisions.

What do I mean by “essential” spendings? We are talking about survival here. So it’s the 3 basics: Shelter, food and health. Your rent, including electricity, water, and internet. Your spendings on food and drinking water. And your expenses to maintain your health.

Every non-essential spendings need to be put under review and you should consider cutting or minimizing them.

2. Plan ahead with weekly limits on your expenses

After having reviewed your budget, you will know the amount of cash that you have (or that will be available for spending), and how much you need to spend for your essentials. Now plan ahead and split your cash and/or income in a way to keep your essentials going for as long as possible. I guess it’s safe to say that the goal should be to try to sustain your expenses for up to 6 months.

Any remaining cash should be split into equal weekly amounts for the same total period of 6 months. Putting a strong limitation on your weekly spendings is a good way to ensure that you don’t overspend and keep track of your budget.

When I was a student and had hardly any money to live on, I had a very simple system which I still recommend: Withdraw cash for a month ahead for your spendings, divide it in 4, and put each amount in a separate envelope. Each one envelope is for each week of the month, and no matter what happens, be strict with yourself not to open any of the envelopes ahead of time. This method will greatly keep you aware of the money you have and what you can or cannot afford.

3. Get your family on-board

This point doesn’t apply for singles, but for anyone living with a family, this is a crucial one. The whole family needs to be on-board with this. It won’t help if you set up the most delicate and strict plan for yourself while your partner is clueless and keeps on living as if nothing would have changed.

If you have kids, this is a great time to teach them about the value of money. They might cry if they don’t get a toy or some ice-cream, but they will remember this as a “tough” time when the family had to stay strong together. Chances are that you will emerge from this stronger as a family. And it’s never too early to teach kids about the value of money. Trust me, the school won’t do it for you.

4. Consider a side-gig

Financial advisors are preaching to their customers the necessity of having an emergency fund, which should cover at least 6 months’ worth of expenses. The reason that this topic is coming up so often is that there are so few people who actually do it. And to be fair, even most companies don’t follow suit. Just take a look at the world right now: As our economies come to a halt, after only one or two months of missed revenues, millions of restaurants, hotels and even airlines are declaring bankruptcies or are in need of bailout money. They clearly didn’t have any emergency funds whatsoever.

So in case, if you are late on this and can’t see a way to make your finances work over the next 3-6 months, you might have no choice but to consider a side gig. The good news is that if you are reading this, it means that you have a working internet connection, and luckily, there are millions of jobs available online.

Check-out online freelance jobs through platforms like “UpWork” or “Fiverr” which may have jobs matching your skillset. But even if your skills are from completely different fields, consider teaching/tutoring English (or what else you speak), doing transcriptions or translations. There are lots of opportunities out there.

These jobs will hardly make you rich, but they can be of great support to prop up your finances and to get you through this difficult time. Another positive aspect of having a job will be that you won’t go mad while sitting at home doing nothing.

Last but not least, there is a good chance that you might end up keeping your side gig even when this crisis will be over and we get back to our regular lives.

5. Don’t slack off

And finally, no matter how long this may go, I recommend that you don’t slack off. You might relax a little for a week or two, but after that, get a routine in place. You don’t need to wake up at 6 AM, but you shouldn’t sleep until noon either.

Set a proper routine when you wake up, take a shower, shave, have breakfast, dress properly. Then work on your side gig, perhaps study a little bit. Coursera, EdX, and Udemy offer plenty of opportunities to learn some new things for free these days.

Having set times for breakfast, lunch and dinner is good for your inner clock. Set some time aside to exercise at home. Body-weight workouts are a great alternative to the gym. Any other hobbies you may have will keep your body and mind sharp and ready to get back on track immediately when all of this is over.

Planning the next year

Today is the last day of the first week of December and it’s about time to get serious about the plan for 2020. I have spent some sleepless nights on reviewing my personal budget for the next year, adjusting savings targets, expenses and thinking about upcoming opportunities.

Health

For 2020, I target a savings rate of “only” around 30% of my regular work income. This doesn’t include my other income sources from investments and dividends. The target is set lower than in previous years because I want to allocate some resources in the next year into another important asset which doesn’t generate income per se: Health.

Full body check-ups for the whole family, dental treatments, scans and whatever should come up that is better fixed earlier than later. Human bodies are not meant to last. We require maintenance like every other machine out there and every once in awhile a check-up and some preventive maintenance are required.

Passive Income

I will spend the next few evenings to make the first projection for my dividend income for the next year. I think it should reach a growth rate of 30-40% and thus reach about a third of my final target which would make me fully financially independent. Not rich, but independent.

It’s amazing to observe how the speed of growth is accelerating now just after 4 years of consistent savings and investments. The first two years were pretty slow, but in 2020 I will have a 3-digit passive income every single month of the year, and given the speed of growth, in 2-3 years it should get to 4 digits.

Travel

But all this would be pointless without some fun along the way. Therefore, while I was never able to afford it when I was younger, I am now planning a trip with my family to Disneyland Tokyo sometime in March. I promised my wife a trip to Japan almost 6 years ago and I just can’t delay it any longer. The vacation has been already approved by my employer and I am going to purchase the tickets today or tomorrow. We will plan 4-5 days for Tokio, 4 days for Kyoto and 4-5 days for the area around Fukuoka/Kyushu.

A little later on in June we will visit Europe. I didn’t start planning for that trip yet, because while this will be vacations, I have to discuss with my wife about the destinations in detail. We are seriously considering moving to Europe in 2021 or 2022 and plan to visit countries that may offer the best opportunities for us to do so. My wife worries about food and schools, I worry about taxes. So obviously we are not perfectly aligned yet.

Hard to believe that only 24 days from now it will be the year 2020…

A journey of a thousand miles…

…begins with a single step. There might be twists and turns, ups and downs, but once we start walking and frequently check our compass, step by step we get closer to the finishing line.

Reaching the goal of financial independence requires a substantial amount of money in savings and investments. Getting there is not easy and requires time, perseverance and patience. But no matter how hard it may seem, it’s not impossible.

Many of us are top-line millionaires

If you are blessed living in a thriving economy, you are most probably a millionaire – stretched over your lifetime. The math? It’s not too complicated. Let’s say you earn 2.000 Euros a month which is really not a high salary.

Not accounting for any bonus or extra payments, this comes up to 24.000 Euros a year. Put this into a context of 40 years of work and you have 960.000 Euros right there. Almost a million. No salary increases, no bonuses, nothing added to that.

Of course, there are taxes to be paid, living expenses, medical bills. Whatever. Your total income over those 40 years in this scenario is almost a Million Euros. In business, we call this the “Top Line”.

The deciding question is how we approach this top-line and what we do with it. All the expenses that we have along the way will reduce our top-line. The money that is left over is called “the bottom line” and this is basically the amount that we have to save and to invest.

It’s not about how much we earn

Having a high salary can help us to reach financial independence more quickly. And yet, during my short career in a bank, I observed that most people with high salaries were seldom the ones with the highest numbers on their bank accounts.

It was usually the quiet, medium-salary people who had the best credit scores and whose accounts would show the occasional million Euros. And I always wondered how that could be. How could someone with a very regular income of only 2.000 or 3.000 Euros a month amass a Million in their late 40s or early 50s?

The answer: They controlled their spendings, they invested regularly in the stock market or real estate, and they kept a comfortable but modest living standard.

  • When they got their first salaries and started to develop their careers, they would immediately start saving and investing.
  • When they got salary increases, they would increase their savings and investments first, before thinking of buying non-assets.
  • They wouldn’t succumb to peer pressure and buying shiny things or branded clothes just to show everyone that they can afford it. They would rather buy just another asset to watch their portfolio grow.
  • They would seldom use credit cards or take loans for anything.

Some might live very frugally, trying to find hacks and get creative about how and where money could be saved or re-gained. Some might push for a stellar career and higher salaries. And there is nothing wrong with any of that. They might reach their goals earlier on.

But the point is that even with modest salaries, it is possible to save, to invest and to take our future in our own hands. The first step to get there is to learn to control our spendings.

You should have a personal budget, right?

One of the most common recommendations for solid financial planning is to have a personal budget in place. It can help you immensely to allocate your resources where they are needed the most, to analyze your expenses and to stay on top of your finances at all times. So it’s not surprising to hear this advice frequently. Personally, I also follow a very strict personal budget which looks almost like my companies P&L statement.

However, just because something helps one person, doesn’t mean that it’s good for everyone. Some people might not have the time to work on a personal budget plan. Some might hate Excel (or Numbers for Mac users), and others might just feel annoyed about micro-managing their financial lives. If you are one of those people, don’t despair. A budget is helpful, but I wouldn’t say that you need it to succeed financially.

Hitting your savings/investment target

What you actually really (and only) need is not necessarily a budget, but simply to hit your savings and investment targets.

Following a budget is a great exercise to learn how to control your income and expenses, but you could also go for a simpler and less micro-managed way. You could simply fix a target of how much you want to see yourself having saved up or invested in a specific timeframe.

Let’s say you want to see yourself having 100.000 Euros invested over a course of 10 years. This means that you need to save and invest 10.000 Euros a year on average – no matter how.

This is where you can stop, or expand a little further, it’s up to you. As long as you can hit this self-imposed target and it helps you to get closer to your end-target, you will be doing just fine.

I like to break ambitious targets into smaller, more reachable goals. 10.000 Euros sounds like a lot, but divide it by 12 to set a monthly goal and you will be down to a little over 800 Euros. Break it even further down by days and you will come down to just a little more than 27 Euros a day.

Now HOW you get those 27 Euros a day is completely up to you. Whether you save it on groceries or hot coffees, take it from your salary or take up a side-gig to increase your cash flow and to send the money into your investment account. It’s your choice. If you have some other passive income in place, like an annual bonus payment from your company, incoming dividends or interest from existing investments, or whatever will reduce your need for commitment, it counts.

This is another way to manage your money and it has some allure because it’s simple, less time consuming and it might not give you the feeling of restricting yourself too much and to still enjoy life (almost) to it’s fullest.

It’s all about your commitment

Working on our finances is similar to working out in a gym. You have to find the right way that works for you. You need to feel comfortable with the method you chose to ensure that your commitment to your goal never fades. As long as you got this in place, there is nothing to worry about and a budget might be not necessary.

Having said that and to stick with the gym analogy, if you got ambitious targets then you got to put a lot of effort into it to make it happen. A budget is just a tool that can help you to understand how the game works, but even a budget will not replace your commitment and efforts.

Investing Time

Time is your single, most important asset. It’s probably the only, completely undisputable truth that anyone can find and verify for himself in this world. Time is limited, and every minute, every second that is passed, won’t return.

It didn’t take me long to recognize this, subconsciously, but it took me a while to truly understand the meaning behind it. But more on this a little later on. To finalize my short series about the 3 most important topics for successful investors, I will write today about the importance of investing time to make informed decisions when it comes to investments. For those who would like to take a look at the previous articles, here the short-links:

The first two topics have something in common and this last topic is not different: It requires studies, practice, and experience to master all of them. Time plays, therefore, a crucial role here. Let me explain.

The difference between spending and investing time

You might think that when it comes to time, spending it is all we can do. You also might guess it already: You might be wrong on this one.

Coming to work on Monday, your co-worker or your boss might ask you, how you spent your weekend. What he or she is really asking you is actually this: What did you do with the time you had available, out of your regular work?

Now to be perfectly frank, most people don’t really care about the answer. For one, because, well, most people don’t really care much about others. But secondly, even more importantly, most people do nothing productive on weekends. Watching a movie in the cinema or visiting the new, fancy restaurant in town, going with your kids to a theme park, or just sleeping through and going for a lazy-in-bed-Sunday… it’s all good stuff, and time (probably) well spent.

But if you want to get out of the rat race, you need to re-think the idea of what you do with your time out of regular work, which includes after hours and weekends, holidays and basically every hour you can spare on doing something productive.

Talking about investing time is a different issue, and you may not like it at first. Coming back to the previous question about how you spent your weekend, a more accurate version of this question from someone who might be actually really interested would have to go along something like this: How did this weekend help you to reach your goals in life?

Now that’s a deep question, but in my opinion, a pretty good one. Not only because I wrote it, but because this question shows a genuine interest in enquiring about your actions, that you were able to do while having some time on hand, to work on your life goals.

Investing time includes spending it. But while the time we spent is usually just time that passed, investing time means, that we perform actions that we expect to have a beneficiary middle- to long-term effect on the goals we set in our lives.

Investing time for FIRE aspirationals

If you are reading this blog, you know that it’s all about FIRE – Financial Independence & Retiring Early. Investing time can have a different meaning for every single individual, depending on the goals we have, but for me and for every other FIRE follower, here is a list what you should be doing whenever you have some time on hand:

  • Reading. Expanding your knowledge is a crucial element when it comes to making investment decisions, and the single most important point in this blog post. Understanding how our economy works, how things relate to each other and being able to grab hints and read between the lines when markets change directions or new products are being introduced, can have a significant impact on your success.
  • Side hustling. Even the smartest investor won’t benefit from his knowledge if he/she has no cash on hand to actually start investing. I was recently reading an article, that saving only 5 EUR a day for 30 years might be already enough to become a millionaire. The math behind it, with an average 7% return on investment year on year, is, of course, depending on market conditions. But it has a clear point: Even small investments in combination with a dedicated follow-through will lead to success. If your current job doesn’t offer you enough support to hit your goal OR if you want to hit your target as early as possible, then it means that you got to invest time to make it happen. Luckily, it’s 2018 and there is an almost unlimited amount of jobs at our fingertips. I will write more on this next week.
  • Budgeting. I spend about an hour every weekend, to go through my month-to-date expenses and to adjust my annual forecast, which is closely and accurately calculated and aligned to my goal of retiring early. You don’t need to do it in such a super detail as I (or many other FIRE followers) do, but it is truly helpful to reflect after a week on your spendings and savings and to understand what happens with your money. The more you learn about the process, the easier it will be for you to control your money.

Now, this may sound like a lot. But it’s actually not. Start slowly and dedicate 2 hours each weekend. 1 hour should be for reading and the other hour for whichever one of the other tasks you feel up to.

I can’t emphasize enough how important reading is. One part should focus on economic and political news. When you got through it, I recommend reading news about specific companies that you are interested in, to follow a blog or a specific investment website or to subscribe to an online course that might cover some basic financial topics. Reading about industries that you would consider to invest your hard-earned cash and about the people behind the companies. It’s a huge puzzle and tons of information to cover, but thanks to the internet, it has never been easier to find all these information.

For beginners, I recommend following The Motley Fool. As some of my readers may know, I am frequently writing for the German subsidiary, The Motley Fool GmbH, which is my side-hustle. This online magazine greatly helps to provide information on the daily things that happen on and around the stock market, in a simple and non-fuss manner. It’s easy to read and a perfect weekend lecture for those, who don’t have too much time on hand.

I don’t promise anything, but you might rather quickly recognize, that investing time will make a huge difference in reaching your goal of escaping the rat race. It’s Sunday. Why not start today?

Guilty pleasures

We all have some guilty pleasures. The movie, that everyone hates, but that you secretly enjoy watching over and over. The song, that you would never admit to your friends to have it on your playlist, but that you just have to listen to every now and then. The fast-food burger, that everyone know is not only bad for your health but also bad for your waist, but that you crave for after every work-out.

For someone who wants to retire early, guilty pleasures are even more of a concern. Because they include any not necessary spendings. Drinks or food on the go, online-shopping, giving into promotions and special offers, simple home improvements or even just that monthly Netflix charge, can quickly start feeling like a guilty pleasure. Because you know, that every Euro spent, is a Euro which does not make it into your savings or investment account, and thus will ultimately delay your dream of early retirement from becoming true.

But here is the thing. Being overly strict with yourself, can prove to be a counter-productive strategy.

The strategy to early retirement is actually simple: Spend less than you earn, save and invest what is left at the end of the month, and repeat the process until you hit your target. When it comes to determine how much one should save every month, the easiest answer is therefore of course: As much as possible. The more and the faster you safe and invest, the earlier you can retire.

Some financial planners or advisers might tell you to start by setting up smaller targets, like 10% of your monthly income. You might have already guessed it: This won’t work for an early retirement plan. Saving 10% a month might work well for a social security top-up-plan. But for early retirement and to escape the rat race, you need to get really aggressive and put as much as you can, as soon as you can to work. The power of compound interest, dividend and stock-price growth can only truly unfold it’s beautiful wings when it has enough time to do so, thus every delay, every wasted Euro and every wasted day does count and can have a significant impact, no matter how small.

You might hear or read stories about people who go as far as to save up 50% of their monthly income. While it may sound crazy, it’s definitely not impossible. The only real question is, how much you truly want it.

The yo-yo effect

However, no matter how determined you are, you are also a human. Humans have a soul, feelings and needs, that often go beyond rationale. Not surprisingly, while it can happen that following a super-strict regiment will get you to a saving percentage that will make your jaw drop, there is a high chance that you get either tired, annoyed or over-confident and without even noticing, snap back to your previous spending habits. Very similar to the famous yo-yo effect, as we know it from people who are trying to lose weight.

It’s not just about saving more – it’s a fundamental lifestyle change

I would say that reaching this goal of a 50% savings rate is definitely achievable, and it is actually something to really strive for. But you don’t need it from day one.

Your financial planner might be not wrong after all, and starting with 10% while learning about investments, understanding your spending habits and learning how to budget, track and adjust your money matters is actually probably a very good idea. This way you may lay the track for a step by step approach to adjust yourself and to slowly start shifting into sustainable changes to your lifestyle.

I have detailed budgets since 2014, and my savings rates looked like this:

  • 2014: 37,32%
  • 2015: 36,06%
  • 2016: 18,10%
  • 2017: 31,16%
  • 2018: 35,56% (expected)

My daughter was born by the end of 2015, so the majority of the initial baby-costs and family related matters kicked in a little later on in 2016. And of course I also needed to bring her and my wife to Europe so my parents will see their first granddaughter, so this was another factor and a few thousand Euros spent. But other than that, I got pretty hooked up between 31-38% year on year. While these numbers are not bad, they are for me a little bit frustrating to look at, especially since my salary has also grown during that time – significantly.  In 2018, I am earning almost 3 times what I was earning in 2014. This means, that I should be able to actually save significantly more.

Well, that’s not how life works and different circumstances required adjustments. Getting married, having a daughter and starting a family life definitely had a large impact on my overall lifestyle and spending habits. Also, it took me quite a while to bring my wife back from the dark side (of spending habits) and to get her aligned with me on our financial targets as individuals and as a family. This should start bearing fruits by 2019 and I think I am going to break through the 40% barrier by that time.

No regrets

But having said all that, you should not think that I would regret any of the Euros that didn’t make it into my investment account yet. Having a wonderful, understanding and supportive wife and a beautiful little daughter makes my days on earth truly worthwhile and I wouldn’t want to exchange any moment we had together for any of those “lost” amounts. It was actually absolutely not a loss of whatsoever, but probably one of the best investments I have actually done.

So my point in all of this is: Don’t hang up yourself if you don’t hit your magical savings and investment numbers immediately. Keep it up as your target and try your best to work towards it, but don’t forget that you still got a life to live. Living frugally is only enjoyable when you set your priorities right and allow yourself to enjoy the moments that truly matter. Even if they do cost some money sometimes.

What to do today?

The world is full of great, smart and amazing people, who have or had the gift to understand and connect some of the dots that happened in their lives, and to turn them into truly powerful statements. Some of these statements turned out to be true not only for them but also for others. Thus, when people read or heard those statements, they connected them to their lives and if helpful, spread them further in the hope and with the purpose to give guidance to others. This is my definition of how quotes become popular.

I like reading quotes and have my own collection of some which I consider more useful than others. Most recently, I stumbled upon this one:

“What you do today can improve all of your tomorrows.” – by Ralph Marston

Such a short sentence, and yet, such a powerful message.

Having an idea or dream is usually the first step for all of us to find a purpose. And yet, while one would imagine that all of us require a purpose and would, therefore, do their best to follow up on their dreams and wishes, the truth is that most people do not find the strength, courage or conviction to be actually able to do what they like.

Too often we find constraints and barriers that seem too hard to overcome and sometimes, things require sacrifices that we are not willing to make. But no matter what your personal reasons may be, without even taking the first step in the right direction, you will certainly never see your dreams become true.

Everything starts with a plan

The first step to reach any goal is to have a plan. Putting some structure into your idea, formulating what you want and how it should look like will give you the guidance you need to establish long- and short-term goals that may lead to your success.

While this blog is all about finance, this applies to any target one would want to set up for oneself. As another accurate quote says:

“Nobody ever wrote down a plan to be broke, fat, lazy, or stupid. Those things are what happen when you don’t have a plan.” – Larry Winget.

In financial matters, this plan is called a budget.

Knowing and understanding how much money comes into your account and how much is gone by the end of every week, month and year are crucial to help you to regain control over your financial situation.

Don’t wait for this. Sit down, take a paper and a pencil and start writing. Be honest with yourself. If you can’t, ask someone to assist you. And after you have done that, start thinking which areas require changes to help you to have a better tomorrow and to reach financial independence.

Have a plan

It’s funny how humans deal with their own aspirations, and I don’t mean it in an entertaining way. One would assume that having an exciting goal or target ahead of us would already offer enough inspiration and motivation to do everything possible to get there. But for most parts, people tend to keep dreaming rather than actively working on achieving their targets.

A goal without a plan is just a wish
– Antoine de Saint-Exupéry 

No matter what you would like to achieve in your life, having a plan is surely helpful. You may pray for luck or good fortune, and it may even indeed come true. But your odds increase greatly if you actively work towards it and to set up a plan is the first part of doing so. This could not be truer when it comes to financial independence.

Investing can be a gamble. There are hundreds of companies out there that can create or destroy wealth within the trading time of just one day. But if you think that your odds of winning the lottery are not good, then there is no need to go for a similar approach with the stock market. It makes much more sense to set up a solid strategy and to execute it step by step. Following this simple rule will help you not only to “sleep well at night” (SWAN), but also increase your chances for a comfortable, and possibly even early retirement.

Setting up a budget and a target

Everything starts with understanding the situation you are in and for this, you need to create your first budget. The word “budget” alone makes some people shiver, but for the sake of just start things rolling, keep it as simple as it gets:

+ Total income per month
– Total expenses per month
= Available cash to save/invest

Congratulations, now you know what you are dealing with. If the available cash to save is any positive amount, then you are ready to set your first financial target. For each month, and for the total year.

If the available cash is not a positive number, then it would be advisable to expand your budget slightly to see where the problem is. You might want to break it down like this:

  • +Income
    +Salary / Wages
    +Other Income
  • -Expenses
    -Housing
    -Utilities
    -Mobile/Internet
    -Food & Drinks
    -Other
  • =Available cash to save/invest

There are only 3 possible options: Either your income is too low, your expenses are too high or both. Playing with those numbers and finding ways to optimize your expenses or to increase your income (revenues) is basic budgeting and an essential part to reach your target of financial independence.

The deeper you dig into the numbers, the more details you add and the more accurately you start tracking all your money movements, the more experienced and professional you will become. You will develop a sense of understanding of where your money goes, how it comes in and what you need to do to really reach your target. All without a lottery and without prayers in dark church corners.

Your first target must be to have cash available by the end of each month.

This is the part where your commitment has to start and it needs to begin without any compromise. No matter what happens, but you need to ensure having enough cash on hand by the end of each and every month. There are few points that need to be prepared before you start investing, but to get there, you need to have cash available – every – single – month. Reaching aspirational and challenging long-term goals is all about commitment, consistency, and dedication to the plan. Of course, there must be some flexibility in certain circumstances, but this one single point is non-negotiable.

You might have to start small with as little as 25 EUR per month. That’s equivalent to only 4 packs of cigarettes or 3 cocktails in an average bar in Berlin. But this will already open up your first door towards your long-term target.

As mentioned in the beginning, one needs a lot of motivation to get started and motivation comes from inspiration. While I will seldom quote actors or wrestling stars, nobody could say it better than The Rock – Dwayne Johnson:

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Many of us dream about spending their retirement traveling, spending time with our children or grandchildren and catching up on all those things that we missed when sitting in an office to hit some KPI targets that someone else in another office considers important for life to keep rolling.

I got to be brutally honest with you: When the time comes that you can actually retire, you may find that your health deteriorated, and your social security alone won’t suffice to pay for these simple pleasures. This is not to scare you, but for many, this is already a reality and the trend is not turning to the better for future generations of retirees.

Investing is a first step to dodge this bullet. The sooner you start, the more relaxed you will live towards your retirement. What other inspiration do you truly need?

Frugal living basics

Before we get to the point that we can talk about saving, investing, passive income and ultimately, early retirement, we need to have cash on hand to work with and no matter your circumstances, whether you are a top paid executive or a day-to-day worker: If your expenses are higher than your income, then you got a problem to solve.

One of my first career steps was a vocational education in one of the largest banks in Europe and what I learned early on really astounded me: People with great salaries, expensive cars, amazing apartments or houses were often those with the worst bank accounts. They usually had great salaries, but their monthly expenses would eat up most of the money even before they could have any chance of withdrawing anything.

Therefore, one of the first and most important recommendations for any financial planning is to have a budget. But before we even get to that, today my top 5 recommendations on the most basic tips for a frugal living that require no effort whatsoever except for dedication on follow through. Here we go:

  1. Don’t have cash or credit cards on you. It is really as simple as it gets: You can’t spend money if you don’t have access to it. And vice versa, the easier the access to money, the sooner it’s gone.

    This is in fact not only a personal financial advice but also one that is followed through by many companies. All the rules and regulations that you have at most workplaces set up by your accounting department will make it really difficult to proceed with any kind of payments. They will set up systems that consist of purchase requests, purchase orders, and payment vouchers so everything needs to be double and triple checked before any money goes out from the companies account. While some employees might consider it very annoying and slow (nothing ever gets done), it is, in fact, the most simple and most effective system in the world to control cash flow.

  2. Don’t go to a grocery store when you’re hungry. Not just a fun fact, it is the truth: The hungrier you are when entering a grocery store, the more your basket will be filled up at the cashier counter and the less you will care about it. NOTHING is more important than satisfying our most primal desire of avoiding thirst and hunger and we will seldom feel guilty of spending money on fulfilling this basic need. The guilt will come later, but the money will be gone by then and the fridge filled with plenty of useless stuff that one wouldn’t probably look at under “regular” circumstances.
  3. Don’t shop online. I know, Amazon is very successful, as is Baidoo, LAZADA, and E-Bay. I am not saying that it is not less convenient or that you couldn’t get better bargains on these sites. But it is exactly this comfort and convenience that makes online-shopping so dangerous for the money-savvy individual. As a rule of thumb, one should always remember, that the easier any company makes it for you to spend your hard-earned cash, the less you should utilize its services.

    You might feel like a unicorn first, but especially in Europe, you will quickly discover that you are not alone. A farmers market i.e. is always very popular among all generations. You get great food, often from local farms or manufacturers and you get a real sense of what you are actually doing as opposed to clicking on virtual shopping baskets and waiting for the delivery. The walk to the market, the socializing with local dealers and some human-to-human conversations may also be good for your physical and mental health by the way.

  4. Don’t chase trends, especially in technology-related items. When I was 10 years old, I bought my first computer, a C64. I was very proud as I paid for it with my own, saved cash which I was able to gather by walking to school instead of taking a bus. Day by day after school on the way back home I would stop by the bank and pay-in the saved cash until after almost a year I had enough to get my first computer.
    6 months later, one of my best friends got an AMIGA500 and his dad an AMIGA2000 which made me so jealous that I decided to start saving for a PC (a 486DX33). I cleaned walkways, distributed newspapers, walked to school and was trying to gather cash wherever I could, and my parents go so impressed that they finally supported me to get a 486DX2-66 (the DX33 got already outdated by then).
    Only a year later, I upgraded it for a Pentium, and shortly after for a Pentium 2 while my parents were still paying off the loan they took for the DX2-66.

    Point is: Technology is moving so fast, you can sink a fortune in it and you will still never be on top. Just appreciate what you have and learn to fully utilize it. Trust me, it will do the job just fine as long as you keep investing in quality.

    Having learned all that, I swapped from PC systems to a MacBook back in 2007. I got my first, white MacBook and was very happy with it as a student and beyond until 2012. Then I purchased a MacBook Air and used it for 5 years until 2017. After that, I purchased a MacBook Pro and I intend to keep using it until 2021 or maybe even beyond. 5 years usage-cycle works perfectly for me but I can imagine to extend it even to a 6 or 7-year cycle. And by the way, all my previous MacBooks are still working and being used as I donate them to my sister who continues using them as long as possible.

  5. Learn to say no, to yourself and to your friends and/or family. I could name hundreds of stories when people get into financial trouble just to fulfill expectations of others. In the end, in most cases, no one wins on such occasions and you just keep adding more personal and financial pressure to yourself.

    There is always “something”. A friend gets a job promotion and wants to celebrate. Christmas, New Years, Birthdays, family events, school reunions, the list is endless! And it is really easy to spend money on every single one of these events. The sooner you and your family learn to handle it, the better everyone will be off and there is a high chance that your social circle will actually start to appreciate some adjustments on this front because, while many people may not show it in the beginning, buying things for others all the time and overpaying events on a weekly or monthly basis is no one’s favorite.

One more point that should be on this list but which I will have a separate post about is concerned about loans. There is no rule of thumb and the topic is a little more complicated, but for most parts, taking loans is not a good advise until you learn to use them to your advantage. But more on this point later on.