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.

Evaluating your expenses

My family was never wealthy, frankly speaking, there were times when we had trouble to get through a month and as far as I remember, we mostly lived paycheck to paycheck. This resulted in a very low pocket money which our parents would hand out to me and my brother. It didn’t bother us when we were very young, but things became unacceptable when we turned teenagers.

Hanging out with friends, buying new sneakers or going for a party costs money, as do computers (I still remember that first C64) or books and magazines. I wanted to have all those things, and there was only one way to get them. I had no choice: I had to work.

The Time & Money Relation

The legal age to start working in Berlin in 1994 was 14 years (don’t nail me on the details, I might be 1 year off) and I quickly found part-time jobs which I could do after school. It was a great experience for me: Working just 1,5 hours in a shop cleaning or filling up empty drawers would provide me with the income that before I had to wait for an entire week. We are talking about roughly 10 DM – today the equivalent of approx. 5 €.

I realized how much time I had wasted in the past: 1 week vs. 1,5 hours for the same reward. Just that the latter one would require my active participation.

The lesson learned was that I could get much more money by spending more time working. Having realized this, I didn’t want to spend time at home anymore. I wanted to go out and work.

However, since that very first time, while I basically kept on working until today (I am 38 now), this feeling that I had when making my first salaries didn’t come up too often with later jobs. I was always tight with money and therefore I learned very quickly that if I wanted to get anywhere with my wishes for what I want and what I need, I had to prioritize – and sacrifice.

Measuring expenses

It was a tough lesson and I hated the very idea that most things were still out of reach for me. Because you see, we get used to our salaries very quickly and by some miracle, the more money we get, the more things we start to see that we want to have which are out of our reach.

So, when I started to work the initial happiness didn’t last that long. I got unsatisfied with the situation, as I needed to make constant choices and set priorities. To help myself manage my expectations in a better way, I developed very quickly this 1 way of measuring expenses, which helped me to actually really understand what I truly wanted every time when I reached for the wallet.

I was counting hours.

I was counting how many hours I needed to work, to either get the money back that I was about to spend, or, how many hours I would need to work in order to be able to afford something I wanted. With this idea in my head, the evaluation of “wants” and “needs” took a truly different perspective.

Time is limited. There are only so many hours in a day and with my limited knowledge, school and friends to take care of and family, there was simply a limit of how much I was realistically able to earn. Measuring working hours against the price of a product would clearly show me if it’s something worth working for.

At that time I also learned that in the future I would have to learn to control these 2 factors: My hourly income and the amount of available time to take advantage of it.

This habit stayed with me until today and in a sense, investing in stocks became the ultimate solution, because this is what stocks, especially dividend-paying stocks, do.

They take time almost out of the equation because analyzing and purchasing a stock is a one-time effort. But it can reward you for decades. The only difference is, that instead of time to exchange for money, you need to put money as a downpayment first, and receive both, time and money slowly back, stretched over a long period of time until it starts to out-weight your initial investment.

The more you invest, the more time you free up and at the same time your hourly income increases. Patience and diligence is the key here.

Just chasing higher salaries will seldom give you time back. And working less will seldom give you opportunities for higher salaries.

You see, this is what investing is all about, and this is why it’s, in my opinion, the best way to escape the rat race.

Enter The Rat Race

My blog is all about getting out of the rat race and I believe if anybody finds his way to this website, he or she will already have a pretty clear idea of what the rat race is, but I will give it a shot anyway and try to dig a little deeper into this term and especially how one gets into the rat race in the first place.

How you get into the Rat Race

This is probably the biggest drag of all and let me start by saying that unless you are born into a wealthy family, there is simply no way around it. Sooner or later you will have to become a part of this never-ending, spinning, hamster wheel that we call work & life. It’s very hard to pinpoint exactly how and when you get into it, but it’s basically the moment when you are required to earn money to make a living and get pushed into the workforce.

For some people, this may be right after high school. For others, even earlier or much later. But when the time comes that you want to or have to stand on your own feet and take control over your life, this is when the cage opens, you get pushed in and the rat race starts.

It’s kind of ironic. For me, I was trying to get out of my parents’ place as soon as possible with the aim to finally be in charge and get full control over my life. Staying with my family, I always felt as if I would be in a cage with so many restrictions on what I could and could not do.

As it turns out, leaving the warm and cozy cage which I was living in with my family resulted only in moving on to another, larger cage. I had the false belief that I would gain some kind of freedom and in the beginning, it certainly felt that way. I had to start from scratch and my new room was much less comfortable compared to my former family apartment. But I could bring friends over whenever I wanted, I could party and go out as I pleased. I also could decorate it the way I wanted, the fridge was empty for most parts but the things that were in it were the things I liked. It felt like I could do “my thing”.

There was only this small but very annoying detail. Suddenly, I needed money for everything. And getting money to do all the things I wanted to do took up a lot of time and effort, so much, that suddenly I had no time to actually do all the things that I wanted to do. Does this make sense?

Probably the worst part of getting into the rat race is that it takes some time to realize that you are trapped. Funny enough, especially when you think that you get on the right track, pour time and money into your education and start a career, a family… all you really do is actually shrinking the cage and getting trapped even tighter. Day by day, penny by penny. Because the more money you spend, the more your daily expenses go up, the more money you borrow to fulfill what you consider to be your needs, the more money you got to earn to keep up with all of it.

And there are you are. Spending the vast majority of your time to earn money, which again you spend mostly to cover your costs & expenses. Welcome to the rat race.

Finding the Exit

The big question is of course, how can you get out of it? There are many points to consider, but the single, major point is to become financially independent. Why is that? Because it has an effect on the single most crucial element that is the true reflection of what freedom is all about: To be able to use your time the way you want to use it.

As I mentioned before, time is your biggest asset, and if you spend the majority of it for work and worries, then it means that you still got that chain around your neck and the cage all around you and that you got to keep this hamster mill spinning just to get by.

Finding the exit is what this blog is all about.

A place is a place, people are people

I had recently an interesting conversation regarding my daughter. She is only 2,5 years old but due to the nature of my job, she already moved 3 times together with our little family and at the age of 3, she will have moved 4 times as I am going to have to move again latest by April next year. Working as a hotel manager requires flexibility and the conversation narrowed down on the topic of traveling and raising children. The common perception is that once you have children, things become more complicated and difficult and that you should settle down somewhere to offer your children a stable and safe surrounding to learn, grow and to develop.

Here is the thing: I don’t agree. At all.

First of all, children are much more flexible and can adapt to new surroundings in a way that most adults can’t even remotely keep up with. I notice it every single time. While my wife always needs two to three months to get around in a new area, my daughter is up and running from day one as soon as we unpack those few bags. She will quickly figure out all the rooms of the new apartment or house, discover the garden and sleeps perfectly fine the next day forward. She also finds new friends quickly and frankly, I believe she rather helps my wife to get accustomed to a new area rather than the other way round.

Secondly, kid’s come without prejudice. If we move to another country, another language area, another cultural surrounding, she just accepts it and quickly figures out how to appreciate it. I would say most adults have much bigger problems with this and in fact, most adults never really overcome the once setup prejudice which remains in their heads since childhood.

If you ask an adult about his or her nationality, what will they say? They got their mind made up and they have mostly a clear answer to your question. There are of course exceptions, such as myself with a double-nationality or specific mindset, but for the majority, there is a clear distinction.

Kid’s don’t have it. They don’t know anything about the concept of nationalities. For kid’s, a place is a place, and people are people. No matter where. No matter who. It is us who destroy this open mind by our teachings of countries, languages, nationalities, and barriers that we consider important to keep up our world order.

I am not saying that it doesn’t make sense, but I am saying that this coin has 2 sides. There is no question that putting things in place and order is important to ensure progress and economic development, but it comes at a high price of differentiating and separating people from each other. This breeds conflict, as we can now see everywhere around the globe. Conflict of economics, conflict of cultures, conflict of religions.

So, for my point of view, someone growing up in different places, experiencing different cultures, languages, mindsets, laws, rituals, and world-views is a huge advantage. A gift, that offers the opportunity to keep an open mind for as long as possible. It surely is not a guarantee and it has its downsides. But that applies to everything, doesn’t it, and at least it offers the chance to see and to learn more along the way.

Why is this important for this blog?

Well, I really just wanted to write about this. But to give a small connection to this blogs main purpose: Reaching financial independence becomes much easier if you free yourself from your prejudice and open up your mind to move out from your comfort zone.

Don’t nail me on the exact statistics but if I remember correctly, the average American household spends 30% of his/her income on housing or rent. The average German household even up to 50% and I believe for Scandinavians it was beyond that. The tax may eat up 25-40% of the total household income and social security deductions that come on top of that.

At the end of the day, people are left with a paycheck that is just enough to keep anything between 0-10% percent of household income for savings and investments. This explains that most EU or US citizens don’t have retirement savings at all and those who do have something stacked up, have by far not enough.

It’s a scary thought, so naturally, people tend to brush thoughts about this away and instead rely on the idea that social security will take care of them once retired at 65. Or 67. Or 69. Depending on where the government will shift this over the next years.

Well, does this really sound like a promising scenario? Working until your health deteriorates and relying on your government to take care of you, even though we all know that social security systems will have to collapse at some point?

When I moved to China as a trainee, my salary was only 500$ a month which was 350EUR at that time (2009). In Germany, I was expecting to get approx. 1,800 EUR a month before tax. And yet, after working 1 year in China, I saved up much more money that I could ever have in Berlin. Because the housing was offered for free, the food was included, there were no taxes to be paid and even the cost for a private insurance was much lower compared to what I would have to pay in Europe for my basic social security.

So what would happen, if you could eliminate or reduce your housing, basic living expenses, and taxes from that total of anything between 50-70 % down to let’s say 10-20% of your total monthly income?

Well, suddenly saving and investing 30-40% of your monthly income doesn’t sound unrealistic at all and retiring with 50 or 55 without dragging any government into this is also becoming a realistic, if not even a desirable target.

If you want to escape the rat race, you should consider getting out of that labyrinth that you got put in.

I know it is not an easy decision, but consider moving to an area that will make these things possible. It may be another state, another country, another continent. Why not? What is it really that binds you to a place? Your neighbors? Family? Friends? Or is it just the comfort to stay at a place that you know with things that are convenient? This is something that really should be thought through and put into consideration.

Take care of yourself

Let me start by saying this: We only got 1 live. You might believe in reincarnation, but no matter what you believe or how you turn the story around: You always got to start from scratch. You are born and you end up under the earth or in an urn.

The available time to make the most out of our life is pretty limited. When we are young we tend not to appreciate this and waste precious time on plenty of useless tasks: Watching TV, playing video games, “liking” cat pictures on your friends Facebook, sleeping off hangovers, etc. – just to name a few.

There comes a point when we realize how much time has actually been wasted on such useless tasks and believe me, it can be a very frustrating moment. Sure, we need relaxation and free time and can’t be constantly working, learning, adding new skills or perfecting existing ones. But, we just really should appreciate the time we have and try to make the best out of it.

Having said all that, let me tell you why I bring this whole thing up: Considering that our time is limited and we should try to make the best out of it, spending most of this time at work seems just not right. I don’t believe that working all your life just to get by makes any sense. I got no problem with being active, creative and certainly, I got no problem at all with earning money. It just shouldn’t be something that you HAVE to do just to ensure that you have something to eat in your fridge, that you are able to send your kid’s to school and that you can handle your medical expenses when they come up occasionally.

Unfortunately, our society is built upon exactly this model. While some systems provide better social security than others, ultimately the overall idea is the same all around the world. The majority of the population gets by on a day to day basis, earning just enough to make it until the end of each month with little room to generate some savings and being hardly able to afford 2 weeks of vacation once a year. They spend a large part of their lives in exactly this manner, craving for the time when they hope they can finally escape into retirement, only to realize that their health has deteriorated, their financials may not be enough to do what they were hoping for and that on top they already forgot how to have a life without their daily commute to work.

There is, of course, a small minority earning significantly more, working significantly less and having much more time & money to take care of themselves at a much earlier point.

For most parts, this minority is somehow directing, entertaining, managing, or in any other way influencing a poor-to-middle-income majority. And when you think about it, it makes perfect sense. While we are constantly adding money to the markets, the basic rule is still valid: For one person to have a lot of money, many other people need to have much less. And while everything in our society might suggest that there are people in charge who care about you, either in your company or government, the fact is that you are out there on your own. Realizing this is the first step and the second step got to follow up immediately: You really need to start taking care of yourself.

It’s kind of a sad setup, isn’t it? Maybe. But it also gives clarity about what you have to do and where your focus should be upon.

Obviously, there are also other things than money to worry about, but the words life & freedom only start to make sense together when the basics are covered and your most pressing worries about food and shelter are gone for good.

And this is what this blog is all about. So how do you get to the point that you can cover the basics – without working? The 2 magic words are Passive Income and this will be the topic for one of the next posts to come.

The Rat Race

One of the main reasons why I decided to write this blog is because I had this urge to share my thoughts on what is happening in the world, and what can be done about it. It is obviously the title line of this post. The Rat Race.

Just before writing this article, I was listening to a speech by Arnold Schwarzenegger. It was a motivational speech in which he quoted a statistic which said that 74 % of US citizens hate their jobs. I am sure this number can be debated, but from my personal experience, I would say it feels about right. I would also say that this number will probably not be much different in Europe. Or Asia. Or almost anywhere in the world.

There are so many reasons to hate your job

In his speech, Arnold Schwarzenegger is pin-pointing this sad statistic back to each individual. Many people lack vision and determination to follow their beliefs, their passions and to work their ass off to learn, to train and to do what is necessary to get where they want to be. Again, I am sure that this is true to a large extent.

But there are countless other factors that can cause you to hate your job. Abusive bosses, lack of benefits, frustrated and uninspired colleagues or just the countless times when you have to compromise for the sake of a team, a project and more than often, for money, can be a frustrating experience.

How a regular uninspired day looks like

I know it can be a frustrating exercise but let us think about a regular day: A day has 24 hours out of which a regular person will spend approximately 7 hours sleep. Then he or she might take an hour to slowly wake-up (don’t we all hate the snooze function?), take a shower, have some light breakfast and commute. This is followed by 9 hours of work including lunch, 1 hour getting back home through horrendous traffic or packed subways and finally having some dinner.

After arriving home, 6 hours remain. These hours may be used on some housework like laundry, cleaning, maybe some Netflix (and chill). Maybe some time for friends or family.

More than often, however, coming back home from a job that one doesn’t like keeps people frustrated. They then might fall into a negative pattern, trying to shut-down their frustrations by watching TV shows, playing videogames or just browsing apps on their phones. Smoking and drinking are obviously other popular time-wasting activities.

Freedom means to be able to choose how we spend our time

Working means to trade our time for money. Money that we use for something that we either need or desire. It can start with existential things like shelter or food. As we progress in our careers and the existential threats get covered, new targets will emerge, like a career (for fame and recognition) or simply to get more money to be able to improve our standard of living.

And this is how we get into the rat race.

Reputation, material possessions, social pressure and other things that we think that we need, or consider to be obligations. All these force us to trade more of our time for ever more money. At this point, you might like your job and be thankful for the opportunities, knowledge, and experience that you could gather due to and along with it. Don’t get me wrong, I was very fortunate to find a career that inspired me for several years.

Nevertheless, I have made the decision to escape the rat race. Why is that? Let’s crunch some numbers. Let me first focus only on my working time which is on average 11 hours a day.

A year has 52 weeks = 52 x 6 = 312 working days. I got 28 days vacation and 14 days for public holidays = 312 – 28 – 14 = 270 working days a year.

270 days x 11 hours = 2.970 hours work for the whole year.

That’s a lot of hours. I am not regretting even one of those hours spent over the years so far. But the question in my head is, does it have to be that way? And how long will I be able to keep up this pace? Isn’t it time to think about doing something more with my life than just going to work almost every day? After all those years working my ass off, shouldn’t I be able to choose how I spend my time by myself? Shouldn’t the target of any job be to free ourselves?

The feeling of something being off

I think everyone who works for a couple of years must have had this feeling at some point. Just waking up one day and realizing that our whole life consists of the same daily routine that forces us to repeat the same things over and over again. And the worst thing is: We have no idea how to stop.

If we want to get out of it, we got to re-evaluate our priorities. Nothing comes without sacrifice and the first thing that needs to be taken look at is… ourselves. Chances are that we maneuvered ourselves into a comfort zone that makes our life just convenient and acceptable enough not to rebel, but at the same time preventing us from happiness and fulfillment. So we got to ask ourselves: What do we really want in life?

How an inspired day can look like

I am a General Manager in a hotel with ambitious career goals and FIRE aspirations. Let me tell you how my day looks like.

I wake up at around 7:30 AM, take a shower, drink a glass of water. I make sure that all this will not take longer than 20 minutes. I am really not a morning person, so I make sure that my house or condo is as close to my work as possible to reduce the time for commuting. Usually, I will arrive at work at around 8:30 AM.

Now there, I usually get stuck until 7:30 PM, sometimes longer but let’s just say that I finish at 7:30. Yes, that’s 11 hours including lunch and dinner. I don’t do breakfasts on workdays. The morning time is precious and most useful to tackle the most challenging job assignments, so except for coffee in a to-go-cup I don’t want to waste too much time on food. Lunch and dinner are also usually being kept short with only 15-20 minutes for each.

I get back home around 8:00 PM, play with my daughter and spend some time with my wife until around 9:00 PM. Then I will exercise for usually 1,5 hours until 10:30 PM, take a shower and work on this blog. At around midnight I will get some newsletters regarding the stock market into my mailbox. I will read those and review my stock portfolio. I will also do some research on the next potential stock for my FIRE portfolio. Usually, I will go to sleep at around 1 or 1:30 AM.

I do this 5 days a week. Saturdays are a little more relaxed and I will not go to the gym on that day. I will, however, catch-up with financial articles and magazines, read some weekly news summaries on Flipboard and work on my side-gig, writing financial articles for an online magazine. Writing a solid article of approximately 700 words, doing the research and adjusting it to the requirements of my client can take a whole day. Sometimes more. Sundays are mostly dedicated to my family, but on a Sunday after 8 PM I will start preparing for the week ahead. Allover, I consider myself working 6 days a week.

Having a vision can help us to get inspired and to work our ass off

My family and most of my friends think that I am crazy when I tell them that sleeping 6 hours is enough. I just need the time to get my stuff done, but when explained they don’t understand what I am talking about. So let me elaborate.

I need my main job to ensure full support for my family. I also made sure to have a solid career and work long hours in a high position, because this enables me to save and invest on the scale that I need to hit my target and to retire before the age of 45. It also enables me to travel and to discover countries in ways that I would have never imagined possible before.

I want to exercise to make sure that my health doesn’t let me down. Not now, when I work as hard and as much as I can, but also not later when I hit my target. Because when I retire I want to make sure to have still all the energy that I will need to get to do all the things that I am having on my agenda.

I want to have this blog and to write financial articles. For one, because it helps me to learn the necessary skills that I plan to put to use during my “retirement”. But also, because it’s fun AND I earn additional money with it on top.

The Rat Race

I can’t imagine wasting all this precious time that I have on things that would not help me to get closer to my dream. Shouldn’t that be obvious? Shouldn’t we all try to do our best and be happy to work as hard and as much as we can to get closer to our dreams? I think we should, but that’s exactly what plenty of people out there are not doing.

The Rat Race is largely to blame on a system that is designed to pushing people into work, under conditions that are hardly ideal to build a life on. However, while in most cases there is no way around it, there are ways to get out of it. We are forced into it, but it’s up to us to escape it.