Today I’m not going to tell you that you need a budget. Shocking, because the title says so! How is that possible?!
I’m not a big fan of monthly budgets. If you set a budget and stay below budget, you are more likely to spend because your money was assigned to that budget. If you spend more than the budget, you feel bad even if it was unforeseeable. That can’t be right.
No, today I am telling you to track your spending. Do what you want, of course, but if you want to be financially free and set goals for yourself, this is the right path to walk.
Measuring is knowing.
If you don’t know how much money is coming your way every month and how much you spend, you will most likely not become financially free. To become financially free you need to get a grip on your money. Measuring is knowing.
Most people know what they earn per month. Kind of. Sometimes a bonus can be a pleasant surprise still, even if it happens every year. If you work for a boss, you probably know what to expect. If you work multiple jobs or you are your own boss, sometimes it is harder to know in advance.
Expenses on the other hand are a blurry guess for most people. Fixed expenses like rent/mortgage or the electricity bill are known but other than that I know a lot of people who just estimate and guess around. It can be a difference of hundreds of euros each month. Then there are quarterly and yearly bills that come as a surprise each time again.
Budgeting in hindsight.
From now on you are going to track your expenses from the previous month each month. It is budgeting but in hindsight.
For me I track my expenses in an Excel document. I put down everything that has entered my account in the first column. It’s my income. I include income from the shared Netflix account, payment requests and all that.
Then I make multiple columns on my expenses. You could make do with just one but more is better here. I split between different categories.
First category is for fixed expenses. This includes mortgage/rent, electricity, internet, phone service etc.
Next column is for groceries. For me it includes the supermarkets with laundry detergent and toothpaste and everything.
Then a column specially for the car. Including purchase, taxes, repairs and gas.
Up next for me is the category home. This includes all trips to the construction stores, home decor, paint, doorknobs. The whole shabam. It’s more then I like to admit.
Then there were the columns for restaurants/bars and holiday. Yeah for this year I cut then out except for the occasional take out.
Combine everything per category and then everything combined as well. Make a green box and a red one. In the green box is the cumulative income and the red is for cumulative expenses.
For me it looks a little something like this. With made up numbers for privacy.
Do this every month and you will get a clear picture of where your money is going. You can correct course without making a super strict and restrictive budget. Sometimes I see a lot of expenses in one of the columns and I course correct the next month. Also I now know that I spend a lot of money on paint and other construction market related expenses. And how much goes to waste for the car!
Know where your money is going and I am sure you will adjust accordingly. You are reading this so you are heading in the right direction anyways.
You also have a clear view on what is the absolute minimum you need to stay afloat (fixed expenses and groceries) and what you need for a comfortable life. And you know what you spend money on that is not really making you any happier and is not important to you. Don’t spend on those. You are less inclined to spend on something if you know you will have to put in on the sheet at the end of the month.
Put yourself on the right track without a super strict budget and make your way to financial freedom.
Good luck!
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
DIY or Do It Yourself has become know for the crafty things you make yourself. Usually it is used for crafts and home-made interior design. Today I write about DIY as a lifestyle. Think of all the things you could do at home and then do them yourself. In many circumstances this saves money and if you did something yourself you feel proud and satisfied.
While you get more comfortable and skilled to do things yourself, you become less and less dependent on others and money. Independence and endeavor in itself. On my journey to do it myself I had a lot of help from YouTube and the internet. If I still can’t do it, I ask friends or family. Be amazed at all the things you are able to do yourself! A few examples: paint walls, frames and doors, chores and maintenance, assemble furniture, wallpaper, gardening, cooking, manage your finances, manicure, cut your own/spouses hair, repairs on bike or car and so on.
Jackson is tired thinking of DIY-ing alone.
With everything you do there is a learning curve. The first time you do something yourself may fail or turn out mediocre. Next time will be better and the more you do something, the better you become. The gained self-esteem makes room for even more projects. I didn’t know how to fit my own curtains, but it turned out not to be too difficult. When I got the hang of it I fitted my own roller blinds as well.
For the fitted curtains I would pay about 200 per window. I have three windows that need curtains. Total costs: 600 euros. The curtains I got that were too long and other expenses like rails and hangers all combined costs me 45 per window. 135 in total. By doing it myself I saved 465 euros and it took me about six hours to do it myself (!). 435 euros for 6 hours totals 77,50 per hour. Not bad!
Also I plastered the living room walls (with some help :D), painted everything that needed new paints, cook my own food almost always, cut my own hair, do my own nails, fill up the oil in the car and so on. It saved me thousands of euros along the way and I learned so much.
Yes this needs some plastering.
Some things I don’t do myself. For example when I have a flat tire, I go to the bike repair shop. It will cost me 5 euros and if I do it myself it will cost me about 2. It will cost me at least an hour to reapir myself since I don’t know how to do it. Maybe it is lazy but the 3 euros I love spending on it. And a free walk to the repair shop is included.
What do you do yourself?
Till next time,
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
Before you start investing you want to have an investment strategy in place. Here is a suggestion.
Pay of any debt first. This does not include mortgage (most of the time) and might not include student loans. That is up to you. More on debt here.
After you have paid off all debt, save for an emergency fund and for foreseeable expenses. If you rent a place, probably 3 months’ worth of expenses is enough. If you own a property, you might want to consider four to six months. Account for family member that rely on you as well. So with children maybe keep a higher emergency fund as well. Foreseeable expenses include new (used) cars, constructions, holidays etcetera. Everything you foresee spending money on that is not a ‘normal’ expense.
Have that all in place? High Five! Only money that is left after that is money set for investing.
If you just start out investing you can split all investments in two main categories, offensive and defensive. Defensive are the lower risk investments that also have lower yields. This includes bonds, ETF Bonds, savings account, gold, checking account and cash. A defensive investment strategy might be 75% bonds and 25% stocks. Defensive investing knows less volatility and makes more sense if you invest short term. The change of losing money when you need to sell is smaller.
Offensive is everything with a bit more risk and also a bigger change of higher yields. Here there is more risk involving with changes of higher yields. You can lose more as well. In this category for me are ETFs in stocks. Some asset managers say ETFs are defensive. In the market crash of march 2020 almost all ETFs crashed hard. It was temporary but it showed they are volatile. Average returns are about 8%. That is why I think ETFs are offensive. Because of the volatility your ETFs can be worth (a lot) less then what you bought them for temporarily. Only invest for the long run to make up for the short term losses.
Very offensive individual stocks, shorts, cryptocurrency, speeders or sprinters. It’s more like gabling and less like investing. I call this ‘play money’. This is for the fast, high gains and not to ‘set and forget’. If you are willing to put a lot of risk and a lot of time in to investigate the market, you can have a high return but also a big loss.
A rule of thumb I heard of is your age in percentage of bonds and the rest in stocks. So if you are 30 years old you put 30% in defensive investments and 70% in offensive. When you are 60 years old, 60% defensive and 40% offensive. The older you get the more defensive you get. This is because when you reach the age of retirement you want to get your money (partially) out. If the market is volatile you risk a lower yield when you are still investing offensive when you are older.
For the sake of this article I calculated how much in my portfolio is defensive, offensive and ‘play money’.
Jackson and Vladimir don’t care. At all.
Turns out I have 27,5% in defensive, 70% in offensive and 2,5% in play money. For this rule I’m pretty fine but for me that is a bit too defensive. Especially considering I have an emergency fund in place. F I count my emergency fund as a defensive asset, the ratio will be 38% defensive, 60% offensive and 2% play money. I will rebalance until it looks more like 10% defensive, 87,5% offensive and 2,5% play money. Rebalancing is balancing back the assets until you reach the strategy you choose for is restored. This rebalancing can be done different ways. I can sell some bonds and buy stocks until I reach the desired ratio or I put the next few months in stocks until I reach it. I’ll do the latter.
What’s your investment strategy?
Till next time,
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
Investing is done on the stock exchange. It’s a place where shares and stocks are being bought and sold. There are different stock exchanges, for example London stock exchange or Nasdaq. This used to be a place where suit and tie guys were screaming, selling and buying from each other. Now it is all electronic. You can’t go there directly, you need a broker or a bank to give access to buy or sell stocks. There are a lot of different brokers. They all look quite alike but there are some differences. Most important are the transaction fees and service fees. This varies quite a bit. Best is to choose one that has low fees or no fees. Also there is a difference in user experience and customer service. Most are just fine. My platform of choice is DeGiro. They are low fee and once per month I can even put money in selected index funds without any fees in the ‘kernselectie’.
Other brokers for example are eToro, Binckbank, Lynx, Plus500, Bux, Trading212 and Meesman. There are many more.
So you selected a broker to start investing. Now you can choose different products. Here I will cover stocks, bonds and ETFs.
If you buy a stock, you own a little piece of a particular company. If dividends are paid, they get paid to you monthly, quarterly or yearly. So you earn by keeping the stock. Also the stock can go up or down so you make a profit or a loss if you sell the stock.
Bonds are a loan to the government or a company. They borrow money and return it at the end of the duration. On top they pay you interest. Mostly bonds are less volatile, a more stable way of investing. Downside is that the yields are generally lower compared to stocks. This is a stable part of your investment portfolio.
ETF or exchange traded fund is a basket of stocks that follow a certain index. Usually this is widespread with hundreds or thousands of different stocks. If you buy an ETF you buy a piece of all the stocks or bonds in that index. Your return is the same as the index in total and you don’t need to buy all the individual stocks. This saves a lot of transaction fees and you can start with a smaller budget. Because ETFs spread over so many stocks, if one company doesn’t make a profit, another will make up for it. Also ETFs are passively managed because they simply follow the market. This results in lower fees then actively managed funds (investment funds).
So how do I buy all of them stocks?
If you want to buy (or sell) a stock or bond or ETF, you place an order. This is you saying you want to buy a certain amount of stocks for a certain price. Of your order has been executed, you bought a stock.
An example. I want to buy Vanguard FTSE All-World UCITS ETF at DeGiro. First I have to sign up at DeGiro. When I have a working account I deposit the money I want to invest from a checking account. In the search bar I type vanguard. It looks like this.
I choose the first one because it is in the kernselectie and I can buy it without transaction fees once per month.
The green K is for buy. Click.
Now you will see the following (but with other figures).
On top there is the title of the ETF. Then it says the abbreviation VWRL, et cetera.
Below is the current price. R is for realtime price.
The bid and let.
The bid is the highest price a buyer is willing to buy the share for.
The selling price is called the ask price or let (here laat). This is the lowest price a seller wants per share.
There is space in between, you call this the spread. In this example the spread is 2 cents. That is the space between the highest bidder and the lowest seller. When the market is open, this changes every few seconds.
Then it says buy in the green (koop) and sell in the red (verkoop).
Next to it is dayorder. You can choose day order or a continuous order. When you set a limit for that day (day order) and the transaction is not made, the order will disappear. If you choose continuous order, the order will stay.
Below that is limit order on the pulldown menu.
There are different types of orders. We will briefly review them.
Limit order. This is the most common. You want to buy a certain amount of stocks for a certain price. When the price of the stock is equal to the price you put in the order, the stock will be sold to you. When the price is not reached, the deal is off. The closer your price is to the price of the stock, the higher the change your order will be executed.
Market order. With a market order you buy for the best market price on the moment of the transaction. So you only put the amount of stocks in your order, not the price you want to pay for it. Only do this when the stock exchange is open. This way you will buy around the price of the stock. A lot can happen to the price when the exchange is closed and you might pay a lot more if the value has gone up.
Stoploss order. A stoploss order is ment to protect you from big losses. If the stock you own falls below a certain price, you can use a stop-loss order to set the stock to be sold at the set price. If the stock exchange is closed and the price falls below the set stop loss, the share will be sold at the then current price. To prevent this, a stop limit order can be set. This indicates that your share cannot be sold for less than the set price.
So if you want to buy the share keep it on limit order, at limit put the same amount as the let. At amount type in the amount you want to buy. In this example two. Right of the amount (in this example two) the total price is filled in automatically.
It should look something like this.
Click place order and your first purchase is a fact. You are now an investor in more than 6000 companies!
Happy investing!
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
Before starting investing you have to be clear on why, how and how long you want to invest. Do you want to spend hours a week watching the news and trends, do you want to actively trade or do you want to set and forget? Put everything in at once or rather invest some every month?
How will you react when there is a recession or a crisis? Will you panic? Will you sell everything at the lowest point out of panic and buy back when it is higher? You have to be clear on that. It makes all the difference.
What can I say, I can put a picture of Wallstreet or whatever here but look at him! It’s Vladimir but two years ago!
Why do you want to invest? Some answers here could be: For my (early) retirement, for my kids, for rainy days, buying a house etcetera. Get really clear on why you want to invest. This way you have more focus on actually doing it. For me the answer is to save up for early retirement and to buy a homestead just outside the city.
How long do you want to invest? Don’t invest money you need soon. Only invest with money you don’t need. Yes I say that double because it is important. There will be times when the market goes up for a couple of years in a row but there will always be crisis waiting. We just don’t know when. If you need your investments when the market is very low, you have to sell when you are in loss. That would be sad and is not the point. Wait the crisis out. As long as you stay in the market your assets will go up again. Sometimes you have to sit it out a couple of years. Investing is for the long run. In 10, 15 or 20 years you will always be at a win if you invest in Exchange Traded Funds (ETFs). More on that later.
‘Compound interest is the eight wonder of the world. He who understands it, earns it… He who doesn’t, pays it.’
Albert Einstein
How much time do you want to spend investigating the market? This is a very personal thing. You can be an active trader. Beating the market would be cool and if you look at some forums it is achievable. It is persuasive but remember: people tell everybody about their wins but rarely about the losses. If you want to be an active trader, make sure to watch the world news, watch the different companies and read a lot of books about the topic. If you invest in companies, you have to get to know the company very well. Have an opinion and be prepared to win more than average, but at a greater risk to lose more than average as well. Active trading is time consuming.
Another option is to ‘set and forget’. Meaning you will put money in an index fund regularly (every month for example) and not look to time the market. I choose ETFs (index funds) with low fees and wide coverage of the market and I know my assets will go up with the market at the same pace (or down). This requires a lot less time, effort and knowledge. Average returns will be between 5-8% annually. This will vary every year but talking about the long run.
Do you put your money in all at once or over time? For me I do it over time. Every month I put what I have left in an index fund. I try and make that the same amount every month. This way I don’t need to time the market (although I try and look for the lowest point in that month). Remember: Time in the market beats timing the market. The earlier you are in, the better the results will be over time. Compound interest is real and you should let it work in your favor. Maybe if you inherited or otherwise found a large sum of money you would like to invest, you could do it at once but most people don’t regularly find themselves in that situation so we will go with every month.
Panic selling at a loss? If you panic sell because the digit turned red for you, maybe investing isn’t for you. The market is volatile, meaning it is going up and down all the time. You have to get used to it if you want to be an investor. This is why it is so important to only invest money you don’t need in the short term. If you need the money in the short term to pay bills and the numbers are down, you will panic. That is normal. We are investors because we don’t want to live paycheck to paycheck and we want to not worry about money anymore. We want to sleep safe and sound, doesn’t matter what the market is up to.
Conclusion: We want to invest for the future. This is personal but we all have dreams don’t we? So we invest for the long run and we don’t want to be on top of the economic news 24/7. Just set and forget. Ideal is putting money in every month and hold. That is what I will focus on here.
Till Next Time,
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
For me a goal in life is financial freedom. To achieve it, I save money and invest it. This way the money can make money and I get more and more financially free every month. One thing that is keeping me from saving is spending on stuff I don’t need, use and love.
Here is a guide I use to stop myself from (over)spending. Maybe you find value in it as well.
Get to know why you want to stop spending on stuff you don’t need.
Get clear on why you want to save money. For me this is a couple of reasons. I already have all the stuff I need to live a good life. More stuff will cause more clutter, needing me to take more time cleaning, organizing, and maintaining the tranquil home that I desire. Second I have savings goals. I want to save money to retire early and I want to be flexible in the amount of hours/days per week that I work. This way I don’t need to work fulltime but can do with a little less to keep me mentally sane and focus on –for example- writing this blog. The flexibility is a really big one for me.
You don’t just not buy something, that takes a lot of self-discipline. You choose between buying something you don’t need or to save up for your big goal. The choice becomes so much easier if you have the end-goal in mind. Visualize your own end goal, make it super specific. It sometimes still is hard to not spend money, but it will get easier over time. Also sometimes this will still fail and you will buy something you don’t need. I do it too. Don’t be mad at yourself. Sometimes the self-discipline is just not strong enough, and that’s okay.
Stop advertisements from entering your home.
We live in an overly advertised world and get bombarded with stuff on sale that we don’t need. There are ways to make the advertisements come to you in a more moderate way. Here in the Netherlands, once or twice per week we get a big bundle of advertisement leaflets actually on paper in the mail. There is a really good way to not get them. Place a ‘nee-nee’ sticker on your mailbox. They prevent all unaddressed mail from coming in. It saves a lot of paper too! Save the trees yay! They are available at your Township.
For addressed advertisements you can unsubscribe at Postfilter in the Netherlands.
They will unsubscribe any post from certain categories that you choose and filter them out for 5 years. Find out how to stop advertisements from entering your home where you live.
How do I get great deals if I run out of toilet paper or toothpaste? Well, first I don’t run out of toilet paper, I have a complete attic full, you know, just in case ;). But when I need something I go look for the discount online. Don’t fall in this checking every week for new stuff on sale. Only check when you run out of something and actually need it again. All the promotions are to be found online these days and this way I will not get all the unsolicited advertising at my door every week.
Be a cord-cutter.
Another great tip to decrease the amount of advertisement is to cut the cable. Just cancel your cable subscription all together. I did it about 4 years ago and haven’t missed it ever since. I pay way, way less for my Netflix account then I would commercials infused cable. Then I share to even further cut the costs and I get unlimited access to entertainment without commercials. Love it!
Then a couple of weeks ago one of the cats broke the tv, and I didn’t have it replaced. Now I watch TV on my laptop. That is a bit extreme, I have to agree 😉
Guilty as charged.
Delete social media.
Ok this is a little extreme, I know. But bear with me here. A big one but way harder for many, delete social media. This is hard for many because it is so engrained in our lives. Cut down drastically will help as well but deleting all together is great. If this feels like too much unfollow a lot of people and companies and you will get bored of your Facebook or Instagram because there is no more news every minute. I unfollowed basically everyone on Facebook and it got boring quickly. So I deleted it all together. Also I don’t have Instagram, Tiktok or whatever the cool kids use these days. I do spend a lot of time (more then I like to admit) on Youtube, which on my phone does have commercials. On the computer I use an ad blocker which is great. Highly recommend.
Unsubscribe everything.
Have you ever bought something from a web shop? Changes are you did. I know I did! All the shops here are closed except for the supermarket and drugstores. What can you do… Anyway, when you order something, they always hook you up with a newsletter. This contains all the stuff they know you like because you bought it before. Below the newsletter there is a tiny sentence that says ‘Unsubscribe from this newsletter’. Do it for all incoming newsletters that want to sell you stuff.
You will get less distracted and a much more spacious inbox as a bonus.
The thing with discount websites.
Comparison sites are great if you want to check if your internet subscription or your electricity bill can go down. Highly recommend. But websites such as pepper.com (the discount one, not the dating platform) just list everything with an exceptionally low price. This goes for electronic devices, clothes, free stuff to try, cheap toilet paper and what not. Here in the Netherlands but also in about 15 other countries there is an active community on the website. I tried it for about one month and it was great. There are so many good deals there, you can get everything you ever wanted and more for a great deal. The thing is, I bought all this stuff I suddenly needed because it was a good deal. Not because I needed it. It made me greedy, I want it and I want it now. The fear of a product going up in price just made me buy on impulse. I bought more that month than the previous 4 combined… when I realized I deleted the app all together and didn’t visit the website anymore. It is too tempting guys! I am only human!
All these things combined makes I don’t get as much commercials bombarded at me as the average Joe. Because I don’t see them, I’m not as tempted to buy all the things just because they are a great deal.
Do you have more tips on how to stop overspending? I like to hear from you, please share!
Till next time,
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
In the Dear Diary series I recap on what I did, read, spent and so on in the past month.
This month I started a blog. It’s called simplewithmoney.com. (Really? You don’t say!) I also made a YouTube page with the same name.
For as long as I can remember, or at least for as long as I started reading blogs myself, I wanted to start a blog. Always in my mind where these roadblocks. I don’t know how to make a website. I don’t know what to write about. I’m not a very good writer anyway. What if people judge me for what I write. I think the last one is the most hard to deal with. To give you an idea: I don’t even have Facebook or Instagram. I did have Facebook for a couple of years but I rarely posted anything. I just deleted it, because I didn’t use it.
So even though it’s scary and I am not used to being seen online, I am starting a blog.
This is exciting!
Vladimir is not impressed
Last month I read ‘The subtle art of not giving a F*ck’ by Mark Manson. The message in this book boils down to this: Don’t be afraid to fail, only those who do not try never fail. Yay Mark I started a blog! Are you proud yet?
Next book was ‘IV’ by Arjen Lubach. A fiction about the Dutch royal family. I enjoyed reading it.
Audiobooks I listened to: ‘The four hour workweek’ by Timothy Ferriss. Bottom line, it puts everything you thought you knew upside down. It certainly gave me something to think about and made me think bigger than I thought I could.
Next was ‘Musk Mania’ by Hans van der Loo. About Elon musk. It was supposed to be about leadership and wavemakers, people that change the world. The book kinda makes Elon Musk look like a d*ick… He came off like working for him makes you a modern slave. Hopefully it’s not the case because he is turning things upside down worldwide, for the better.
I listened to a bunch of podcasts. The newest of the Minimalists. Some of Tim Ferriss, after his book the four hour workweek I was interested. And then some duolingo Spanish podcasts. I tried to learn Spanish and try and keep it dusted off this way. Understand not even half though 😉
For spending past month I bought a car. I talked about it in my previous post (There is no such thing as good debt). And I paid my health insurance for the whole year. If you pay annually you get some discount, yay! Unfortunately the kitchen sink was clogged, I tried to unclog it myself with a plunger, soda, vinegar, a sewer spring, the whole shabam. It was not working so I called the plumber.
Then I did a whole bunch of home renovation and decoration. Painted my window frame, ceiling and bathroom door. And I fitted my curtains. They were hanging like that way too long (like two years and 30 cm on the floor). And it was time to fit them to size. Took HOURS. Way longer than anticipated. But worth it, since now I have nice ironed, fitted curtains in the living room and bedroom.
What did you do this month?
Till next time,
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
I have listened to the minimalists podcast since they started it. I was a reader of the blog before even before that.
Among many other wisdoms they always state the following: ‘There is no such thing as good debt.’ They include every debt, from creditcard debt to car loans, student loans and even a mortgage.
Here is my thought on it. I cannot say anything else then I agree, almost… There is hardly ever any excuse to have personal debt, creditcard debt, car loan or any in that category.
Creditcard debt/personal debt.
You cannot spend money you don’t have to buy things. Period. Don’t do creditcard debt or any other form of personal debt. Not for clothes, not for repairs, not for anything. Maybe, just maybe, for a roof over your head or food. But really, buy the cheapest most calorie dense food and move to a place you can afford. Just don’t go into debt.
Now that that’s out of the way let’s talk car loans.
Car loans
Same goes for car loans. Let’s say you have zero money and you find a job you need a car for. Can you go there by public transport until you save enough to buy a car? Can you borrow somebodies car until you can buy yours? Can you carpool until you can buy yours? It is totally okay to drive a (very) old or (very) small car. I do too, my first car was 950 euros when I bought it and I drove it everywhere. It didn’t have air-conditioning and that is hot in summer. Here in the Netherlands we usually only have a couple of hot weeks but I drove the tiny Lupo through Europe in a road trip of almost 5000km/3000miles back in 2019 when traveling was still an option. Temperatures were above 38 degrees Celsius or 100 Fahrenheit almost all the time and we were driving hours an end with the windows down. It was sweaty and sticky, we had a blast, it was awesome!
The yellow beast, 1900 km from home in Tara National park, Serbia on a roadtrip!
And yes I also drove that thing to work and took coworkers with me when we carpooled. It served me well. Sometimes we were 5 adults in that tiny little car. So glad I was not in the back seat.
It broke down and instead of repairing the 21 year old car I sold it to the car dealer and bought a new used car this month. It was time for an upgrade. This one has electric windows and central door locking! What a luxury! Air-conditioning? Nope. This one is just 18 years old and cost me just 1600 euros. It has extremely low mileage and I think/hope if I treat it well this one will serve me for another 3-8 years. Fingers crossed!
I digress. The point here is, if you have absolutely zero money and you need a car right now, you might want to borrow some money but I really plea for buying something (way) under 3000 euro/dollar. This way you can pay it back AS SOON AS POSSIBLE. Not just the required minimum. No, as soon as possible. If you absolutely hate it, upgrade once you earned some more cash. Trust me you will be extra grateful for all the luxuries like electrical windows.
Next up: Student loans
I’m from the Netherlands and studied here. For this I am very VERY privileged. I studied when we all still got study grants. It’s a monthly payment from the government you could pay tuition and books from. The amount also depended on the income level of your parents, so the less fortunate got a change to go to college as well. A lot has changed, not for the good since 2009 when I started college. I don’t know precisely how it works now but most of the study grants have to be paid back and are a student loan now I believe. But, almost all colleges and universities (except for private ones) have the same fees for the first bachelors or masters you get. For a second degree it’s a different thing but let’s keep that out of the equation. I know this is not the same in every country. If the tuition fees different from school to school, search for a school with relatively low tuition fees. Search for a cheap place to live if the school is not close to where you already live with your parents. This includes sharing kitchen with roommates, sharing bathrooms and toilets with roommates and living tiny. Then if you have ANY time left after studying, spend as much as possible working a side job, especially if you would otherwise ‘waste’ that time chilling, watching Netflix or drinking beer.
On the other side, if you work so much you are going to skip college and fails exams because you work so much, it is best to actually get your degree first and work after you get your degree.
Also think really long and hard if you even want to go to college or university. Maybe you can get really good at something by working and climbing in position. You have approximately four years to get as good as someone who studied for four years. And don’t have to pay tuition fees that time. You also have about four years to start your own business before your friends from college are done studying and start their job/business. This is a very personal choice but take in consideration.
Onto the debt that is called mortgage.
Buying versus renting can be a tough decision. If you are able to make this decision you probably worked your butt off to be able to buy a house. Congrats on you!
Should you buy a house, even if you could? This is a hard one, depends highly on your life and the place you want to live/are living and how flexible you want to be. In the Netherlands on the long run, buying is cheaper then renting, and after 30 years of paying off your mortgage your house is yours and that is something you don’t have to spend each month. In the short run however, it is debatable. In the expensive areas like Amsterdam, Rotterdam, The Hague and all that is within about an hour drive of those cities, renting is super expensive but buying is super expensive too!
No matter where you live, think about how long you want to live there and make the following calculation. (The next is all calculated with made up numbers)
How much rent or mortgage would I pay over this amount of years (let say 5 years in this example).
How much extra costs would I pay in this 5 years.
For rent this is usually not so much, you don’t have down payment on the house, except for a deposit which you receive back if you leave the place in good condition. If something breaks or gets clogged you call the landlord to fix it, etc.
Do account for rental prices to go up.
Example: You pay 1000 per month in rent and rent goes up 5% each year. In five years you paid about 66.300 in rent.
Now if you buy the same house, how much do you need to pay in 5 years.
This is the monthly payment, the down payment (here it’s between 5-8% of the total amount of the house, realtor, taxes, mortgage etc.), constructions, repairs, home improvement etc. This amount adds up quickly, I know from experience.
You pay 1000 per month on it and because you have a fixed rate, after 5 years it’s still 1000.
You pay 60.000 in five years. Down payment is 12.000, constructions are 30.000 (it needed a new bathroom and desperately some double glass or something like that and some painting or wallpapering that will make it look modern and up-to-date. The plumber comes twice, the heating was broken, there was a flood, you name it. You are probably insured for some of it but it will cost you some as well. Let’s say 5000 total.
Total costs: 107.000
Buying costs 40.700 more than renting in this example. Renting is more profitable in the short run, besides you have a lot less work to do on maintaining the property.
How much is your house worth in that amount of years from now (in this example 5 years). And extract if from the total. Now here is some guessing but make a good estimate. How much did you actually pay off already? Take that off as well. If you have a low interest rate, this might actually be almost half of your monthly payment.
In this example the value of the property has gone up by 30.000 in 5 years. Marked has gone up and also you improved the house, the bathroom and so forth. If you have a low interest rate you may already have paid off a lot on the house, as (only) about 60% is interest in the first few year, 40% of the monthly mortgage is actually going towards paying it off. Here that is 40% of 60.000 = 24.000.
Now extract both from the initial 107.000 you put in it and you have 107.00-30.000-24.000=53.000.
Renting was 66.300 over 5 years and buying 53.000, now you are at the good end of the equating buying. The longer you own the property, the more in your favor the calculations will be.
Make this calculation for your living area, situation, and time you plan on living somewhere. You can imagine living somewhere for just a couple of years, renting is a good option, but if you want to live somewhere for a long period of time, it can be (way) more profitable to buy.
So, I have to disagree with the Minimalists here. A mortgage may not be a ‘ good debt’. It may be a financial good decision and save you money in the long run.
What is your opinion on debt? Let me know in the comments below!
Till next time,
Elske
I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.
