About emergency funds

This post is probably 12 months late. As we are in the middle of a global pandemic, people are losing jobs, lives. But even more are coming to realize that they miss something truly important: An emergency fund.

I got to admit, I am also not a great role-model here. Over the last 5 years, every penny I got was being invested right away. Therefore I have not built up a proper emergency fund. This is changing now.

How much is enough?

I read several surveys from Germany and the US last year. While I don’t remember exactly the numbers, they were overall pretty similar in their final assessment. A majority of citizens (of each of the countries) are not prepared to handle even smaller unexpected (emergency) expenses out of the pocket. How small? We are talking about 300 Euros or 350 USD.

I was honestly shocked by reading about it, because 300 Euros is very little, especially when we are talking about the US or Germany. For most people, it wouldn’t be enough to cover monthly rent, groceries, let alone a potential hospital bill or car repairs.

So obviously 300 Euros is not enough and wouldn’t qualify as an emergency fund. An emergency fund is meant to offer us protection in times of real need. When something happens that threatens our 3 basic needs (shelter, food, health), possibly over a prolonged period of time.

It needs to be therefore large enough to cover our regular monthly expenses for a specific timeframe. Most financial advisors recommend 3 to 6 months.

Therefore, to determine the size of your emergency fund all you need to know is about your monthly expenses and multiply this amount with a minimum of 3 months. If you are a cautious type or consider yourself for whatever reason to be more at risk, you might want to multiply it with 6 or even 12 months.

How to get there

Of course, you are not supposed to put this money aside right away. If your monthly expenses are around 1.500 Euros, it would mean that your emergency fund should be at a minimum of 4.500 Euros to cover expenses for 3 months. If people can’t get 300 Euros out of the pocket, how can they save up 4.500 Euros?

The solution to this is of course time, consistency, cautious choices, and the occasional sacrifice.

If you are saving monthly for a certain financial goal, a part of that monthly savings needs to be redirected towards your emergency fund. When you get a salary raise or a bonus payment, you might want to skip the celebrations and put the money into your emergency fund. If you are a coffee addict, how about skipping two cups of those soft lattes each week and putting 10 dollars each week in your emergency fund instead.

This step by step approach might take time, but unless you have an emergency every few months, you should be able to get to your goal within a reasonable timeframe.

The last option is to take on a side-gig. Sacrificing a little more time for a few months or a year might prove the right choice down the road. Having an emergency fund in place will protect you not only by covering any expenses that might unexpectedly pop-up. It will also protect your investments and other financial assets. Because you won’t get under pressure to sell them when money becomes an issue.

Keeping it liquid

An emergency fund needs to be liquid, which means that it must be easily accessible and not tied up to anything. Usually, you will, therefore, keep it in cash, on a simple savings account, or as a fixed deposit which can be easily withdrawn.

I have decided to split it. I keep one month of expenses in cash, and over the next 6 months I will set up a fixed deposit account with enough money in it to cover another 3 months of expenses.

No matter which way you chose, but having some money on the side for the next pandemic, the next wave of cost cuts in your industry (meaning when you get furloughed), or the next car accident, is surely worth the effort.

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.

Assets and Liabilities

These two words rarely come up in conversations. Even with my friends and colleagues, unless initiated by me, I have seldom noticed anyone popping them up into a regular chat. I guess there are good reasons for that. They sound complicated. They sound very “financial”. They just don’t fit in the “what are you planning for the weekend” talk. They also don’t really fit in the “what do you do after work” conversation. And yet, when it comes to financial knowledge, these two words are the most crucial terms and in my humble opinion, everyone should learn their meaning as early on as possible.

What is an asset?

Obviously, if one is about to learn something, one should always try to learn from the best. The book titled “Rich Dad Poor Dad” by Robert Kiyosaki was my personal eye-opener. It takes the most simple and accurate approach to define assets and liabilities with one-line definitions:

“Assets constantly generate money and put it in your pocket”.
“Liabilities constantly take money out of your pocket”.

That’s it. It doesn’t get simpler than that. And yet many have trouble getting the concept. Especially the traditional souls out there who dream about buying a house or condo might have some challenges with this definition.

I as house an asset?

The definition is clear in terms of what to do with your money in general. A car is not an asset. It uses energy, depreciates in value, you need to pay taxes, insurance and chances are that even if you use it to earn money with Uber, your net-balance will remain negative.

Stocks and bonds are assets IF they generate cash-flows and add on value. So personally, I consider dividend-paying stocks, REITs, and index-ETFs to be assets. Other stocks that are highly speculative and don’t pay dividends I consider to be just that: Speculations.

But how about a house? Is a house an asset? The answer to this question is: It depends. Unless purchased for a commercial purpose, they don’t generate cash per se and if purchased with a mortgage or with any other form of a loan, they actually take money out of our pockets, month-in, month-out.

Now you can argue, that you won’t need to pay rent and the money saved is equivalent to a handsome return on investment. It is a valid comment and one could definitely have debates about it. The reason why I would still hesitate to count it is due to the structure of mortgage payments. Especially during the first years of a mortgage, almost every penny you pay to the bank is actually only covering bank fees and interest. Very little is going into the actual payback of the loan. You are therefore actively spending money on it.

Furthermore, a house is good for a couple of years, but you do have additional costs associated with it which will grow even larger as the house gets older. Repairs, refurbishments, taxes, insurance. These factors play a big role and can massively diminish your return on your investment.

Buy assets, avoid liabilities

Once you have the understanding of assets and liabilities, all you need to do is to focus. Keep buying assets. Try to avoid liabilities. Following this simple rule will lead you straight to financial independence and out of the rat race.

4 Reasons not to invest – Having no money

A majority of people out there thinks that investing is not for everyone. A recent survey by Blackrock revealed some critical reasons across generations, and as for why people would postpone or even not consider to invest at all. My previous post was about the no. 1 topic from that list, the access to and understanding of financial information:

  1. Access to and understanding of information about investing
  2. Having not enough money to start investing
  3. Being too worried about one’s current financial situation (and thus being too busy to worry about the future)
  4. Being afraid of losing everything

When you look at the second and third point, they do appear to be connected with each other. And surely they are. So today we take a look at the point no. 2 & 3.

It takes money to make money

A popular phrase, but is it really true? As always, it depends. If you talk to entrepreneurs, they will most certainly say “no” to it. For entrepreneurs, all you need is a great idea, dedication and hard work to make money.

But this doesn’t sound like the right approach to me. The goal for me is to stop trading time for money. Hard work and dedication always require to do exactly just the opposite.

So when you talk to investors, it’s a different story. For investors, it’s all about having money and making it work for you. As Warren Buffett likes to say: “If you can’t figure out how to make money while you sleep, you will have to work until you die.”

In other words, you have to figure out a way how to make money without having to trade time for it. The professional term for this is “passive income”.

Investing is the king of passive income 

If you just type in Google the term “passive income”, the result might produce various topics for further research. The website “Good Financial Cents” has this list in petto:

  • Savings Account
  • High Dividend Stocks
  • Passive Real Estate
  • Betterment
  • CDs
  • Index Funds
  • Corporate Bonds
  • Lending Club
  • Rent Your Space
  • Start a Blog
  • Buy a Blog
  • Affiliatize a Blog
  • Online Course or Guide
  • Online Tasks
  • Online Rebates
  • Cashback Credit Cards
  • Sleep Studies
  • Advertise with Your Car
  • Rent Your Car
  • Rideshare Driving
  • Silent Partner
  • Buy a Business
  • Outsource Your Business

Feel free to visit the website for more details on each and every single point.

From all these opportunities, investing in dividend stocks is probably the most efficient one. This is for several reasons, the most important one being that it’s completely scalable without any extra effort. Of course you need money to get started, but that is it. The only thing you need to get and/or to increase your passive income is additional money. With every additional Penny invested in a dividend-paying company, you increase your annual income.

Now you might argue that you need to trade time for money to have those funds necessary for investment in the first place. And it is true. But from some point onwards, those dividends that come up every month, quarter or year, they can and will grow your account without you having to lift a finger. Dividends grow, get re-invested and compound. In the long-run, it’s the single least-effort-strategy to go with.

How much do you need?

The belief that you need a lot of money to get started is not wrong, but it is flawed. You can start with as little as 25 Euros a month. That’s less than 1 Euro a day. But of course, with such a small investment it would take a very long time to let it grow large enough to be able to retire on it. It’s not impossible, but it’s not something to rely on.

The more you invest, the more return your investment can create. So it is advisable to invest larger amounts and to keep that investment growing until you reach a critical mass that becomes basically self-sufficient. My target: Getting to 100.000 Euros.

100.000 Euros invested in high-yield dividend stocks, REITs and BDCs or even CEFs can create stable returns of 6% or higher – after-tax. That is equal to 6.000 Euros a year. 500 Euros a month. Once you get there, your stock-investment becomes basically entirely self-sufficient. Whether you put in an automated savings-plan or add/buy more stocks each month on your own. The money just keeps coming.

With the above mentioned yield on your investment, every 1000 Euros that you re-invest will add to your annual income another 60 Euros. Times 6, that’s additional 360 Euros a year or 30 Euros a month. So just after 1 year, your monthly return will already increase to 530 Euros on average. And it will keep growing at a higher pace after that, year on year, following dividend increases and the compounding effect.

And the best part is, that you won’t need to do anything for this to happen.

Not having money and being worried about the present

So back to the original point for people not investing because of not having enough money, or to be too worried about the present. I am certain that this is for many the case. But you have to overcome it and find ways to get started. Even if it starts with only 25 Euros a month.

I like to compare this kind of situation with education or training. For example: If you can’t read and write, and your family has no money, you might be forced to engage in low-skilled-labor jobs that will ensure your families survival. But, if you keep doing it without looking for ways to improve yourself, you will never get out of this circle.

If you, however, put in the effort to study and to learn new skills, even if it’s in the late hours after work every day, on weekends, public holidays, whenever you can squeeze out that extra hour, you will set yourself up to be able to take advantage of opportunities that may pop up in the future.

So yes, not having money and being worried is absolutely a valid reason. But success won’t come to those who don’t set themselves up to be ready for it. As Warren Buffett likes to say: “The harder I worked, the luckier I got.” Look where that got him.

Thinking about inflation

Today is the 12th of May, which means that today is the last day of the 19th week of this year. This, in turn, means that we have only 33 weeks left until it’s New Year’s Eve again. Time is short.

I have fulfilled one of my targets for 2019 and took a break in-between jobs for a total of 6 weeks. Frankly, I could use another 2 weeks. I spent 3 weeks in Thailand relaxing in and working a little on our house in the beautiful north-east province of Isaarn. After that, we visited my parents in Poland for a week and spent another 2 weeks together in our main home in Berlin. Those 3 weeks in Europe just passed by like nothing.

It’s funny because every time I visit Europe I feel different about it. Last year I was feeling great and was actually really thinking about moving back to Berlin. The summer was nice and hot, people were smiling and my daughter had the best time with my parents. This year, while it all also felt good, I took another perspective. One thing I noticed was that the city is getting pretty expensive.

Inflation is just part of the deal

When I moved out of my parents’ place at the age of 21, I had a super tight budget and was only able to spend approx. 20 Euros a week. My rent was roughly 400 Euros a month, which was equal to my income from my civil-service job (instead of going to the army I was doing civil service and working in a kindergarten). While working there from 6 AM to 3 PM every day, I took on a 2nd job for 3 hours daily at some local office. It would pay me 6 Euros an hour, and cover my expenses for utilities, telephone and whatever was required to ensure I don’t end up on the street. Additionally, in the evening, I would give Karate-lessons to children once a week in my local dojo which paid me 20 Euros. This was the money that I used to buy food/groceries for me and my girlfriend at that time, as we moved in together. It was tough but do-able.

Today, it’s impossible to find a 70 sqm 2-bedroom roof-apartment anywhere in Berlin for the same price of 400 Euros. Prices have doubled and tripled. It would also be very hard to get through the week on 20 Euros, even if that 20 Euros would be only for myself.

We all know that things change and that prices go up, one way or another. It’s just how it is and part of the game. Going deeper into this topic one might argue that today we receive much better value, despite paying a higher price. Apartments are in better conditions, with central heating systems, clean drinking water from the tap and better-insulated buildings to protect us and reduce heating costs during winter. Computers got actually cheaper while offering a performance that we could only dream of 20 years ago. Food… well this one is probably arguable. I don’t think food got better over the years.

But still, we really need to think about it and what it means for our personal situation.

Future prospects

This all happened in less than 20 years. I am now 39 years old so chances are, that I got at least another 20 years ahead of me. Probably more. It could be another 40 years. Or even 60. Could prices double and triple again?

Well, yes they could. In fact, I am pretty sure they will.

That’s why it is so important that your savings grow at a similar or larger pace. We cannot rely on things remaining similar in pricing in 10, 20 or 30 years from now. What we think will be enough to live on today, may be very different from the reality in the future. That’s why keeping money on a savings account over long periods of time is probably not the right thing to do. This money is losing value day by day.

Investing in stocks that consistently grow dividends, on the other hand, seems like a much smarter way to go. Even if those increases are marginal, like 2 % or 3 % a year, it beats every savings account out there not only by percentage but more importantly by its long-term value.

Obviously, if those increases can go up to 7 % or 10 % or even more, then there is really not much to complain about. And, this is not the case only for some rare-super-stocks. It’s pretty common for many companies out there. Plenty of companies increase their payouts on an even much larger scale, like 15 % or 20 %!

It does also make sense for a few simple reasons. As prices go up, so do revenues and profits. If companies manage on top to improve their margins and grow market shares, the growth becomes exponential. As an investor, you are poised to participate in this process.

This is why investing is such a powerful tool to increase wealth and this is why in my opinion, everyone who plans for FIRE needs to be invested one way or another.

Getting some perspective

I have been on vacations for the last four weeks. While the first week was still pretty stressful due to a few family and work matters, the second week was already very relaxing. I spent some time at our inherited house in the north-east of Thailand. A peaceful and quiet place.

Extremely low living costs, usually filling a table full of food for less than 10 Euros at today’s exchange rate (1 Euro = 37 THB). A small Thai herbal sauna just in front of my house. A visit there costs only 50 THB which is not even 2 Euros. This includes the sauna visit and free of charge herbal tea – all day long. There is a nice public park for about 5 min. by car from my house, where I can go exercise every day, with a nice lake to run around, pull-up bars, a basketball field, soccer field and some machines that can be used. There is also a nice playground which is great for kids. After exercise, I can take a 2 min. ride to the local market where I can get a freshly pressed carrot-apple-lime juice for 20 THB. Roughly 0,60 Euro. A portion of steamed chicken breast with some rice and a chicken-broth-soup costs 40 THB. A little more than 1 Euro.

Why do I list all this? Very simple: I could have a very simple and actually good life in this place for probably less than 15 Euros a day – for my whole family. That’s 450 Euros a month. We inherited the house so there is no rent to pay, but even if I would rent a place it would cost not more than 200 Euros. For a 2-3 bedroom house or apartment, with a bathroom, garage, garden and garbage pick-up.

Keeping living costs low

The secret to success for most people is not about how much they earn, but about how much they spend. Having a high paycheck won’t help you if you are not able to manage your expenses. Living frugally is an essential part not only to become financially independent but also learn to enjoy a simpler life.

Basic living expenses play a key role in the entire structure. As we know, many people around the world use the majority of their earnings to spend on basic living costs. Rent, water, electric, food, transportation, education, and medical costs tend to eat up very large chunks of distributed salaries. Therefore the logical conclusion for most should be, that in order to be able to save more, one should try to reduce those costs as much as possible. Living above your means is a sure way to end up broke. Living below your means, however, will unlock the potential to save and to invest. Thus, building wealth.

There are plenty of blogs that teach people how to live frugally and I follow a few of them. I can always find some idea and some tips on how I can squeeze out more opportunities to save, without having any significant impact on my lifestyle. So while I don’t intend to make my blog about this, here my top 5 tips that I think can make a huge difference:

  1. Move to a low-cost area – This is probably the most important one. Living in an area where costs of living are low can have a tremendous impact on your ability to save up money. This does not only refer to the rent for your house, but also to such basic costs like groceries, coffee-shops, etc. If your profession offers the flexibility to move around, you certainly should consider moving to a place where you just get more value for your money.
  2. Ditch things that you don’t need – or declutter your life. Memberships, online subscriptions, insurance policies… you really got to review it all and consider which service brings real value to your life and what you consider necessary. For most cases, less can be more.
  3. Embrace minimalism – or declutter your life even more. I am sure I quoted this at some point on my blog already, but many people live their lives by buying things they don’t need, with money they don’t have, just to impress people who they don’t even know. It’s not necessary. You don’t need to have an expensive car. You don’t need to follow every new trend and to always be up to date – especially if you need a credit card to make it possible. Having less will free up your mind, your time and let you focus on the things that really matter. Like your family, or going for a run (instead of the gym). And when was actually the last time that you just laid down on your back in a field or on a lawn and watched the clouds passing by in the sky?
  4. Learn about taxes and benefits – A few things in life are certain. One is, that we all have to die. The second is, that we all have to pay taxes. However, while we still can’t control the first point, paying taxes is not only a burden but it also opens up some benefits. While some, such as a schooling system for your kids or basic medical care, are more obvious, other benefits are hidden and not in plain sight. So no matter where you live and what you do, it makes sense to spend a few days a year to learn about things that you are entitled to, and how to benefit from them. Ask around your friends, google it or maybe invest a few Euros to seek the support of a professional. It may be worth it.
  5. Re-evaluate your priorities – We all have our routines. Things we do, because we always did it. Things we do, because that’s how we grew up. Things we like to do because that’s what we identify ourselves with. Chances are, that those things do cost you money, and chances are even higher, that there are tons of things you might not know about yourself. Try to do new things. Explore your own abilities, interests and challenge yourself with things you never thought about or considered in the past. It’s not just about saving money, but also about developing yourself, expanding your horizons and finding new opportunities along the way.

Early retirement is possible with some sacrifices along the way

I am planning for early retirement. However, as I stated a few times, this won’t work without a few sacrifices. FIRE is not for everyone, because it requires a lot of sacrifices that many are not willing to take. However, living frugally is not one of them.

Living frugally, embracing minimalism and learning to be happy with less, will most probably contribute to a better and healthier life. It will reduce stress, pressure, costs and help you to turn into one of those people who are endless optimists. Because of the fewer things you own, the fewer things you have to worry about. And in today’s world, this is a huge burden taken off your chest. You should give it a try.

Why everybody should invest

I strongly believe that the majority of people who don’t invest their money, most probably also don’t understand our economic and monetary system. There is otherwise no other valid explanation or reason, why any sane person earning enough to build up savings would not routinely and diligently contribute at least a small part of their savings into some kind of investments.

Investing itself is no rocket science and requires almost no effort. It actually only requires commitment and patience. There are many different ways of how investments can be pursued, but the easiest and most accessible one is certainly the stock market via ETF-index savings/investment plans. Therefore also the advice from one of the richest person on the planet, Warren Buffett, that the best investment most people can make, whether they’re wealthy or just have a few hundred dollars to invest, is a low-cost index fund.

We can, of course, have a debate about this and we could find some cases and examples that could undermine this statement – in some cases. But I actually like to learn from smart people who simply know what they are doing, who learned the lessons and are more than happy to share them with the world. It would be just not smart to ignore such learning opportunities.

Why it got to work out

Are there risks involved? They certainly are.
Is it a totally safe investment? It certainly isn’t.

So why should you put your hard earned money there? Well, because at the end of the day it just got to work out. Here is the idea behind it.

Good or bad, our economic system is designed for growth. As long as we keep developing, building, expanding, increasing consumption, researching etc. – our economies will grow. As long as the growth is intact, money is being created and wealth is increasing. However, as everyone noted by now, only a small percentage of people worldwide actually participate in the growing wealth. You might have guessed it: Largely, the investors.

There are people who think that we are approaching a limit for growth. I won’t debate about it but let me just say: Those people couldn’t be more wrong.

The world population is still growing, technology is increasing faster than ever and I am pretty condifent to see humanity going beyond the limits of earth within my lifetime. You remember how your parents were always telling you that there are no limits to what you can achieve? They were probably wrong, but there are certainly no limits to what humanity can achieve. This is what I believe.  And this is also, why growth and wealth creation will continue.

What can go wrong

Now, despite being very optimistic, there might be some bumps along the way. If economies stop growing and a country or the entire world falls into a recession, wealth is being reduced. This is not a theory, but a regular occurrence. The most popular country caught up in a recession is probably Japan. Despite it’s amazing technology development, large population and being home to some of the largest and strongest companies in the world, wealth creation has stagnated or even declined in Japan.

This is the reason why every time you watch news, people are really getting serious about growth. Even small percentages or differences can cause heart attacks, since the outcoming results can be devastating. But exactly, devastating for who?

Now, here it get’s tricky, because while the wealth of investors can be significantly increased during growth periods and reduced during a downturn, investors are probably not the ones who will suffer the most. The one who suffers the most will be the average Joe. Why is that?

Well, the simple point is that investors can control a few things and actively reduce their risks and protect their wealth through active risk management. This may include many different options, from increasing efficiencies at their business, working on better economies of scale, merger & acquisitions… but it may also include simple, old-fashioned cost cuts. Closing down factories, reducing work-force and everything else that might be deemed necessary to reduce their losses or to protect their profits.

This may sound cold and terrible, but it is a purely logical process. Something everyone of us would do, even on a much smaller and simpler scale, like for example when managing our household budget. You might not be able to “fire” members of your family when times get tough, but you might consider sending everyone who reached working age to some kind of work. You might scale down on your house-helpers or gardeners if you had some before. You might cut your Netflix account, put tighter limits on your credit cards, swap your groceries purchasing routine from monthly to weekly or even daily, get rid of you 2nd car, move to a smaller house or condo, etc. Well, in business all the same things are being done, simply on a larger scale.

Why it’s the average Joe without investments who suffers the most

This is the main reason, why being invested is the best thing you can do, in good, or in bad times. Because if your company needs to scale down and you lose your job, then there is probably not much that you could do about it. The same goes for, if your work benefits are being reduced, or your pensions shrink or anything else that the business needs to do in an attempt to reduce their own risk. The average Joe without investments got no say and no alternative.

When you are invested, some part of you is on the other side of the game. Because the money you invested makes you, to a very small part and depending on how much money you put in, a partner and co-owner of the business. It means that all these things that the business will do to protect either its survival or its profits, or simply to reduce its risk exposure, all those things are actually being done for you. To protect your investment.

And not only this. When focusing on dividend stocks or index funds that payout dividends, as long as the business makes profit, it will also keep paying you. While others get their pay-checks cut, you will most likely still keep getting dividend payments.

A dividend cut may occur, for various reasons, but if it happens, then in most cases it will truly be the absolutely last resort for the company. And even if the business should require to propose a dividend-cut, well, as an individual owner of the company shares (not so with an index fund), you will have a vote on this. How many employees get to vote whether they can keep their jobs when a difficult situation comes up?

Investing is the only smart thing to do

On the other hand, as a simple employee without investments, you are not even participating in the game. When you lose your job and the economy takes a dive, you will need to tap your savings, to borrow money or to go for social security. Neither options is pretty. For those who were parking money regularly on a savings account things can get even worse, because just within a few months they might deplete and completely destroy all their years of savings in the process.

As I mentioned, there are no guarantees and even the best investors lose money sometimes. BUT in the long run, as an investor, you have a realistic chance of accumulating tremendous wealth, build up passive income and to actively participate in the wealth creation in the process through dividend growth and compound interest.

It is truly the only, reasonable and proven system to accumulate wealth, which doesn’t require any effort, skillset, or qualifications. All you need to do is to simply invest regularly, disciplined and with patience. Time, growth, and dividends will do the rest. This is why to escape the rate race, the stock market is my way to go.

2019 – Drop the resolutions!

Yes, you read right. The new year started but we don’t do the resolution stuff. We start the year with serious targets.

Today is the 6th of January, so the 1st week is almost gone. This means that we have roughly another 51 weeks to meet our own, ambitious but still realistic expectations on 2019. What can be done in 51 weeks? Here are my targets:

  1. Improve on time management. As you all know, and as the sub-headline of this blog indicates it: It’s all not about money, it’s about time. Time is our most precious resource and it needs to be managed well. A day has 24 hours. After deducting those 6-7 hours that are necessary to re-charge our batteries, plenty of things can be achieved each and every single day, if we allocate the remaining time efficiently. I would rate myself rather poor on this skill so far, as I still spend way too much time with my phone, while I could allocate more time to this blog, to my side hustle, to stock analysis, and to my workout routine. I will start slowly by:
    • trying to leave work on time,
    • delete useless apps from my phone and
    • to schedule my workout routine a little earlier throughout the day (so far I was always exercising after 10 pm)
  2. Increase side hustle earning by 50%. Right now I am writing about 1 article a week on average. I will try to increase this to 6 articles a month to curb my side-hustle income and to have more cash available for investments.
  3. Increase my dividend income by at least 10%. That’s right. While this should be not a problem, I put it on my target list. Most of my stocks will increase the dividend throughout this year anywhere between 2% up to 25%. However, I can also increase my dividend output by buying more stocks of companies which I already owe and which had been dragged down throughout 2018. This will cost-average down the stock-price in my portfolio and thus increase my average yield on cost per stock.
  4. Prepare for a larger market crash by saving up enough cash to be equivalent of 50% of my current stock portfolio volume. That’s the biggest and most difficult one, because this would require me to really try to achieve my savings target of 40% of my total annual income. Not impossible, but a tough one.
  5. Find a new job and re-negotiate my base salary by at least +20%. As mentioned in the last post, it should be possible due to my current situation, but I will aim even significantly higher. With perks and benefits, the total value increase should be at around 35%.
  6. Take a break for 1 month in between jobs. Yes, I put this in my target list also. I need time to recover and re-charge after my current assignment. I have now worked almost 2 years with a 6-day workweek, spending on average roughly 65 hours a week in my hotel. This does not include my side-hustle activities, my family time and my exercise routines (which takes 1,5 hours per day). So yes, to ensure I get no heart-attack before time, taking a break for a month will be commendable.
  7. Visit Japan and/or Korea this year. Indeed, it is about time. I haven’t gone to Korea and Japan since 2012 which is a real shame. I know my parents want to see my daughter and want us to go to Europe, but Japan and Korea is the reason why I moved to Asia in the first place and I seriously need to visit this beautiful places once again. On top, I have promised my wife this trip for a very long time.
  8. Exercise routine annual target:
    • 36,500 push-ups (100 per day),
    • 18,250 burpees (50 per day or 150 every 3 days),
    • 18,250 squats (50 per day or 150 every 3 days),
    • 3,650 pull-ups (10 per day),
    • Fresh-up of all my martial arts / kata routines
  9. Actively teaching German and English to my 3 year old daughter for 30 min a day
  10. Actively involve my daughter in my exercise routine to practice with me. She already started to sit on my head when I do squats or push-ups and loves to hang on to me when I try to do pull-ups, but this can be fostered more

So yeah, many things to do and 51 weeks is actually a short time. The older we get, the more we realise how precious time is. Let’s make the most of it.

And no, you really don’t need 8 hours sleep. The day is just too short to spend 1/3 of it with doing nothing.

This year, I also intend to write more about individual stocks and my investments. So just to give a brief heads-up, here a list of stocks which will be discussed and possibly purchased sometime in 2019:

Monthly dividend paying stocks:

  • Gladstone Investment
  • Main Street Capital
  • Realty Income
  • Apple Hospitality

Regular Stocks:

  • Ares Capital
  • Cisco Systems
  • Starbucks
  • Microsoft
  • McDonalds
  • Coca Cola
  • Merck
  • Pfizer
  • Iron Mountain
  • Tesla
  • Bayer
  • BASF
  • Aumann
  • DÜRR
  • GlaxoSmithKline
  • Royal Dutch Shell (B)
  • Baozun
  • Alibaba
  • QQQ

ETF:

  • iShares MDAX UCITS ETF

Disclosure: Some of those stocks I already owe, some I had in my portfolio in the past but sold them with a profit and plan to buy again when prices drop.

So get ready for a furious, active and hopefully rewarding 2019!

What FIRE really means

Retiring Early and being financially independent may be a dream for many. But before you put too much romance into that thought, let me tell you something: It becomes a dream once it happens. But before that, it can get really tough.

Savings target

My plan is to retire with 45. That’s 6,5 years from now. A long time? Not at all. Let’s do some basic math:

6,5 years => 52 x 6,5 => 338 weeks.

IF you would look at your current situation right now, how much money could you save up every week? 20 Euros? 30? 50? 100? Even if you would save 100 Euros a week, after 338 weeks this would equal only 33,800 Euros. Hardly enough to retire on.

So my target is actually significantly higher, with a goal of saving approx. 500-700 Euros a week. For most people this may sound hard to manage or even to be complete madness. But yes, it CAN be pulled off. It’s just really, really hard.

Focus on your career

I work as a hotel manager and have a decent salary which contributes mainly to reach my target. However, becoming a hotel manager at the age of 36 while having started in the industry only when I was 29, was a pretty tough call. In order to get quick promotions and collect the necessary knowledge and experience, I managed during this short time-frame to work in Korea, Japan, China, Scotland, Germany and Thailand. When I took on a role, I learned as much as I could, and as soon as I noticed that there is something in my way of moving up the career ladder, I simply moved on. I didn’t care about where I go, what my initial salaries were and I had almost no personal life whatsoever.

To be exact, the hotel was my life. I didn’t celebrate my birthday with any of my friends back home for several years. I didn’t celebrate Christmas or New Years back at home, because this is mostly a super busy time in any hotel around the world and you just don’t get off for that. I had no time for a family and even regular relationships were mostly annoying because they would just slow me down and require me to compromise on my career choices. My luggage was (and mostly still is) a 7 kg carry-on plus my laptop bag and a couple of suits. I hate to check-in luggage. My point here is: You got to really push yourself to get this career that will help you in building up your savings and investments.

Save a lot and use your savings to invest – aggressively

In the last 3 years I started to invest in stocks on a larger scale. Basically, when I got salary, I would send 50-60% of it to my stock account right away, and leave just enough on my cash account to get through the month. While I have a high position and a high salary by now, I really hate spending money for things that simply don’t matter. And believe me, from my point of view, there are not many things that would matter.

I don’t collect stuff, I don’t believe in buying presents or gifts. I get headaches when I enter a shopping mall and stay there for longer than 20 minutes and most of my clothes are being worn until they literally fall apart. I upgrade my phone and my laptop once every 5 years (yes, it should be Apple products, other brands just won’t survive long enough), I don’t sign any contracts that would involve monthly payments. Netflix is currently the only exception.

Don’t compromise your savings, get a side-hustle if you need more cash

But most and of all, I focus on work. When I get short on cash, I don’t withdraw any money from my stock account. I go to http://www.upwork.com and find a quick side-hustle to earn a few quick Euros to cover the expenses that suddenly came up. If I can’t collect the money quickly enough, I will put it on my credit card, collect the points and pay it off immediately as soon as I can collect my side-hustle reward.

Credit cards can be tricky but also useful. Living now in Thailand for a while, I can honestly say that during the last 3 years I never paid for a movie ticket. I got enough credit card points to go in every week (if I wanted to) without spending a dime. This is mainly, because I put almost any of the necessary expenses that I have on my card – and pay it back as soon as my points come in. Avoid delays, because credit card interest can seriously jeopardise your finances, but collecting credit card points is a great way to improve the value of your spendings.

For the last 6 months, I have filled my weekends (and some nights) with writing articles for The Motley Fool GmbH (German subsidiary). Regular writing on the side helps me a lot to keep up with my goal and additionally, it helps me to stay up to date on financial topics and stock research for any future investments.

It can get really tough

Sure, my wife complains sometimes about not having enough time for the family. My hotel job covers me for 6 days a week (yes, only 1 day off per week) and I usually spend roughly 60 hours in the hotel – every week. Researching stocks and writing about them adds at least another 20 hours on top of it. So I am now at roughly 80 hours per week. Hell, that’s a lot. Seriously, it is.

BUT the way I see it, in 6,5 years from now I will have plenty of time for everything – until I die. That may be shorter than I think. Or significantly longer. Who knows. But I don’t buy the “living for the moment” mantra when it comes to finance. Yes, I may die a year after reaching my goal, but the much higher probability is that I will be around for another 40-50 years after that.

Isn’t it a better choice to be optimistic about your life expectation and to look forward to it, with the confidence of being financially independent? I think so. I believe so. And that’s why FIRE is for me.

If you can’t motivate yourself to INVEST your time, and to dedicate your attitude and career approach to this goal, then FIRE will be seriously hard to pull off. And probably remain just a dream.

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?