Money – Pagina 2 – Simple with Money

april 12, 2021april 11, 2021Lifestyle, Money

House Flipping

Earlier I wrote this piece about the 4% rule. I received feedback on it, namely the following: ‘If you are alone and want to be able to live on an average salary of about 25,000 euros per year, you have to adjust for inflation of 2% and an estimated return of 4% and 0.1 % for the broker already make 6.1%. That means that you have to get around a capital of 410.000 euros. And even if you manage to set aside 2000 per month, it will take you 205 months or 17 years. Although there is a snowball effect in it which makes it faster in practice, it does indicate that the horizon is too long to comprehend. “Really super extensive and calculated feedback! Thank you!

And I totally agree with this! Saving to retire is not cool, fast, easy or fun at all. It takes a long time and with a normal salary (which I assume in this blog) it takes a very long time. You have to be very frugal for it and you will regularly wonder what you are doing it for.

You can abandon the idea all together, but you can also ask yourself whether it can be done faster or differently. One way to become financially free faster could be to earn more and invest that extra income as well. Another way is to see if your living expenses can be reduced. Most people think about this, the ideas are open doors. Another way, by no means an easy way, is flipping houses.

Graham Stephan talks about it, Robert Kiyosaki (author of Rich dad, poor dad) wrote about it and Peter a.k.a. Mr. Money Mustache loves it. Real estate. Why? Real estate can yield a lot very quickly. In this blog I specifically zoom in on house flipping.

What is house flipping?

House flipping is buying a house, fixing it and then selling it for a profit. This can be a very lucrative activity if you are a handy carpenter.

In the fall of 2020 there was a house for sale that I was interested in. It was a fixer-upper. A number of things had already been done, such as a new kitchen and the living room / kitchen had a new floor, new ceiling and freshly plastered walls. The rest of the house was, well, let’s say, habitable. Water, gas and electricity worked and the house was not yet about to collapse, but everything else had to be done. It was really a fixer-upper for a handyman. It must be added that it is also a large house. Suitable for double occupancy. The garden was even worse. What once must have been a beautiful garden was an abundance of weeds and the entire garden was difficult to pass because the vegetation was everywhere. All and all it looked bad and you had to see through to see the potential.

At the time, I was unable to purchase a fixer-upper. It was probably financially successful with the sale of my current house, it was a real bargain. The house was for sale for 175,000 euros. The highest bidder was about 60.000 above the asking price which is normal in this region at the moment. Someone was the new owner of a potentially beautiful place. Now, about 6 to 8 months later the same house is for sale again. The renovated living room / kitchen is untouched, the rest of the house and the garden has been given a major facelift. New bathrooms, kitchen of the other part, walls, ceilings, floors, doors. Everything has had a beautiful facelift. Everything on the outside has also been beautifully painted and the entire garden has been made bare, with grass and gravel. Not super pretty, but it looks fresh around a newly renovated home.

Now the shocking part: the house is for sale for 595,000 euros. That’s 360,000 more than it was sold for half a year ago. It will probably sell for about 50.000 higher than asking price. Imagine if a renovation of that house cost anywhere from 100,000 to 300,000. Then the house is sold for 635,000. For more than six months of work, you will have made a nice profit on your project between 100,000 and 300,000 euros. If you want to make a lot of money quickly, this is a smart way.

I want that too!

Like I said, this is not an easy way. There are many things you have to work hard for. First, you need a mortgage and therefore a mortgage lender. You need the amount for the costs of the buyer yourself and a fixed income so that you can get the mortgage. Alternatively you need the money on hand in cash. Also you have had to work for it pretty hard and long if I’m correct. Then you also need a starting capital for the buyer’s costs. Either you pay for it in cash or you go into debt for it. Both are a risk. Then you need time to renovate (how do you arrange that if you have a job to apply for the mortgage?). Good connections help enormously (people who are handy and who can help, your own construction company so that you have staff who work with you, etc.) To set up something like this it may take you years before even buying your own property, just like a house to live in. However, if you do this trick once a year or once every two years, for example, you can – if you earn between 100,000 and 300,000 each year – live off of the profit. In addition, the skills that you have acquired as a handyman are useful for the rest of your life. The more you are able to do yourself, the better (read why).

Now it is easier to buy a home that requires less work but is cheap, only needs modernization and can then be sold for more. The chances of buying a house that is already fine for a bargain are smaller. The profit that can be made on this is usually also less. How about buying such a fixer-upper, renovating it and then renting it out? You can include the rental income as income for your new mortgage. Before you know it, you will be a slum landlord! (just kidding, don’t milk your tenants).

Once again, I want to emphasize that this is not an easy way to make money. However, it is something to consider or to work towards if you are working towards financial freedom. The road to financial freedom is a boring, slow road with probably sometimes (serious) setbacks. There is some serious risk-taking involved in this. But becoming financially free is a lot faster by working hard on a challenging project like houseflipping, it is worth considering.

Have you ever heard of house flipping? And would you do it yourself?

Until next time,

Elske

Elske 0

april 9, 2021april 8, 2021Lifestyle, Minimalism, Money

Living without money

Is it possible? Can you live in our society today without money? I researched it! To be fair, I didn’t try it out. It is one step too far for me, but we can learn from the principles. Through various websites I read article from writers who live or have lived without money. However, that is by no means easy. We spend money in a number of categories. Below is a list of the possible solutions in each category.

Living

You could of course get by with a tent and a sleeping bag… but you have to be really motivated and hardcore. Cashless living is a lot more difficult if you want a roof over your head. On a blog I found an example of someone who lived without money and who had a house. He paid the rent of nomadic travelers who came to stay with him in while traveling and donated towards the rent. These people often also brought food that they shared.

If you want to live cashless but have a (substantial) starting capital, you can choose to buy a house without a mortgage (or, for example, a tiny house or caravan) and live in it.

Services

If you live in a house and not in a tent or your sleeping bag, then a number of things are important. Electricity and gas, and for me also internet. Carolien Hoogland says in her TedTalk that she has lived without money for a year. She wrote a letter to the energy company requesting to receive “free” power and gas for a year. In return, she researched better marketing around green electricity and shared this with the energy supplier. The energy company agreed, and so they managed not to spend money for a whole year on electricity. With a little creativity, even that is possible! Dare to ask.

Food

A basic necessity of life is food. You can of course grow your own food. After a start-up period of buying seeds (or growing vegetables by cuttings and using seeds from vegetables from the supermarket) and soil and possibly pots, you can then grow your own food and harvest your seeds for the following year. You do need space for this. You can also pass by restaurants and ask for leftover food that would otherwise be thrown away. You could also go dumpster diving (getting food from waste bins at the supermarket) or ask at the market at closing time if there is anything unsaleable that would otherwise be thrown away. If you want to eat for free you can be less picky. You eat what you find or what you get. You can also organize a potluck. Then you invite people to eat with you and everyone brings something.

Taxes

In the Netherlands it is very difficult to not pay taxes. That is not surprising. Many essential things are paid from the tax money. We all use services payed by taxes on a daily basis.

Don’t want to pay tax after all? You can have yourself made sovereign, then you are supposedly stateless and you no longer have to pay taxes. You can no longer get a passport and driver’s license, you are not allowed to work and you are not entitled to allowances and benefits. Issues such as receiving care if you do not have health insurance and are not officially a resident of the Netherlands are difficult topics. Not paying tax is therefore very difficult in practice. I certainly wouldn’t recommend it.

Clothes

I think clothing is the least difficult part of this list. Clothing is donated by almost all of us. If people know about your cashless living project, you can ask them to think about you before donating clothes. If you are skilled with the sewing machine, you can make your own clothes if you get something that does not fit properly. The only thing people often wear until it breaks are socks and underwear. Here, too, it must be possible to get your hands on for free. Think of asking for a supply for your birthday.

Transport

The bicycle is free and so is walking. Do you have to be further away? Hitchhiking is not common in the Netherlands, but you can go a long way. Carpooling can also be an option. Do you have to be on time? That may be more difficult. If you live without money and do not have a job that requires you to arrive on time, the need for motorized transport is a lot less.

Others

How about all the other stuff? People donate well-functioning things all the time. Let your network know what you are looking for and chances are you will get what you need. I myself regularly accept things from people who have to get rid of it. I have already received a tumble dryer, bookcase and sofa. Absolutely for free! If you search for free stuff in your area on your version of craigslist, probably it is full of all kinds of other things that people want to get rid of.

And if you need something that normally needs money in return, you may be able to barter or work and get paid-in-kind.

What lessons can we take from living without money and still remain normal.

You live more with the community that exists or that you create around you if you decide to live without money. You depend on people but on the other hand you live more freely than ever. At least, that’s what the people who do it themselves or have done for a while say. If you do this for a while, I think it will change your view of money. You become more creative and settle for less.

As far as I am concerned, what we can get out of this is that not everything always has to cost money. I don’t think I could live without money. I don’t have that ambition either. I do know that I could make do with less. Let’s face it, a lot of things we spend money on are not necessary. All that is really necessary are housing, food and certain services such as electricity, water, gas, internet and some insurance, and even all these points can be disputed and negotiated and saved.

In the Western world we live in such an abundance of luxury that we are no longer used to anything else. It is good to reflect on that from time to time. We pretty much all have everything we need to survive, and most of us have enough to live comfortably or even thrive, grow, and live meaningful lives. What a privilege!

By living more frugally and applying the philosophy of cashless living in different areas of your life, you are good for your wallet. That is good for your future self. If you have money on hand in the future by saving it now, you will be a bit freer and experience less stress. And if you are now used to spending less than you make, you will learn to be satisfied with less and you will not immediately have stress when things go downhill financially for a while.

By living with the things you already have, by exchanging more with each other instead of buying everything new and by being more creative with your resources, you also help our planet. And what really emerges as a benefit is the sense of community. You can rely on each other and you can trust that it will work out. People are more generous than you think!

I’m going to try not to spend money this month on things that aren’t needed. I don’t need clothes (note to self). I’m also working hard to grow a lot of my own food, even though my garden is small. This month I will review all fixed costs and switch to different providers where possible. Only the transport to and from work, I cannot change that much. I cannot carpool, take public transport or work from home due to working in a semi hard to reach place. I do drive 100km/h on the highway. That quickly saves 2 km per liter of petrol compared to 130 km/h. At the end of the month, I will let you know in my dear diary of april how it went. Who knows, maybe I want to keep this up longer!

Let me know if you could live without money in a comment!

Until next time!

Elske

Elske 1

maart 29, 2021maart 28, 2021Money

Don’t overthink it.

What is the fine line between Analysis Paralysis and Extinct by Instinct?

Analysis paralysis is when the fear of either making an error or forgoing a superior solution, outweighs the realistic expectation or potential value of success in a decision made in a timely manner. This imbalance results in suppressed decision-making in an unconscious effort to preserve existing options. Also known as overthinking.

This happens all the time with regards to investing. In the stock market it’s never the perfect time to step in or to get out. You will never be at the lowest to step in and never at the highest to get out. But as warren buffet says, time in the market beats timing the market. It is better to just begin before it is 100% right then to wait and miss out. Don’t be paralyzed by analysis.

On the other hand though… on the contrary is extinct by instinct. It means to make an incorrect decision in haste without detailed or with little analysis. Such decisions can be detrimental as much as the analysis paralysis. So, here’s a little advise. Only invest money you can afford to lose. Invest in stuff you know something about and are appropriate for your level of risk. If you have money left to invest, read up on what you want to invest in and go for it. Don’t overdo the research but don’t make rushed decisions. Never listen to a random guy on the internet. It’s weird how people blindly follow advice from an unprofessional internet stranger when it comes to investing but are not willing to listen to a financial advisor or make own decisions. (Hi, I’m an internet stranger as well, don’t take my advice too serious, make your own decisions 😉 )

Don’t fall for overcomplicated explanations. You don’t look dumb if you don’t invest in stuff you have little understanding of. If you understand what you are doing, the risk is so much lower and the chances of a high return of investment are increasing. So your best bet is to stay there. Expand your knowledge before expanding your investments into unknown territory.

Best of luck!

Elske

Elske 0

maart 26, 2021maart 24, 2021Lifestyle, Money

Side Hustle ideas you can do from home in 2021

The idea of Simple with Money is to earn enough money to live off of passive income forever. A.k.a. living financially free. To live financially free you need money to work for you and make you income. Money makes money, so the more you can put in your investments to make more money, the faster you are financially free. Here are some ideas in different categories to make more money.

Renting out stuff

Rent out a room or your house on Airbnb.
Get a roommate.
Rent out your car on a car lending platform.
Rent out your ladder, drill land hammer.
Rent out anything people are willing to pay you for.

Second job from your computer

Print on demand shop. For inspiration follow Wholesale Ted on Youtube.
Start a dropshipping webshop.
Create an online course and sell it.
Start a YouTube Channel and generate income through ads, sponsorship and affiliate marketing.
Create a blog for the same benefits.
Create a podcast for the same benefits.
Translate texts.
Hire yourself as a personal assistant.
Fill out online surveys.
Offer coaching or consulting.

Part time job ideas

Be a cohost to someone on AirBnB with no time to check in and clean.
Become an Uberdriver.
Become a local guide in your area.
Hire yourself as a babysitter.
Hire yourself as a pet sitter.
Hire yourself as a house sitter.
Become a dog walker.
Sell your creative work on Etsy.
Go mystery shopping.
Clean houses or do maintenance on house or garden.
Teach music if you play an instrument or know how to sing or DJ.

Miscellaneous

Isolate your house and put solar panels on the roof
Put your money in an ETF.
Sell unused stuff.
Negotiate your salary.
Flipping. Flipping is buying something cheap and selling it at a profit. Either car flipping, house flipping, LP flipping, designer handbag flipping, thrift store flipping, book flipping. Anything you can get your hands on cheap and know how to sell at a profit.
Get a library subscription and read all the books on finance, economy, investing and the stock market.
Build a vegetable garden and grow your own food (great hobby!).
Consider peer to peer lending.

Allright, I know they won’t all be suitable to you. They are not all suitable to me either. Also the list is far from complete. I still hope I gave you some inspiration on ways to make money. Let me know if you are making money on the side and how you do it. Let’s learn from each other!

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.

Elske 1

maart 22, 2021maart 24, 2021Lifestyle, Minimalism, Money

But I love my job!

This is for people who love their jobs and could not imagine a life without working.

The FIRE movement (financial independent, retired early) is all about retiring early. People of the FIRE movement are trying to get financially ahead so much that they don’t have the need to work for money ever again. You can do this either by saving up a large amount of money to live of the returns or by lowering your expenses by a lot. Quickest is to do both.

You really don’t want to stop working? Do you love your job and really don’t feel the need to be financially free? I still think you should consider getting financially free. The feeling of going to work because you want to versus because you need to is a world of a difference. Besides that, who knows how great your work is in 20 or 30 or 40 years from now. How will you feel physically, mentally and emotionally in many years from now? What will the company you work for look like in that amount of years, or will it even exist? Will your job be taken by robots and machines? Will a normal workweek be 4 days a week or 7? Saving for a rainy day, even if you love your job is never a bad idea.

I want you to think today about the feeling of wanting to work instead of needing to work. Really feel it, how do you feel? Is your job still as awesome? Do you want to go there and spend your precious time at work while you could be doing everything you want instead? Is it worth it to wake up by your alarm before you are actually done sleeping? How about commuting in a traffic jam?

If you still love your job: Congratulations! I salute you and I envy you. I have never loved a job that much that it felt like the most enjoyable thing I could imagine doing 40 hours a week. Don’t get me wrong. I don’t think there is something wrong with working and having a job. It is just that the freedom of getting to work instead of having to work makes all the difference. And besides. The freedom you get from working for example 3 days a week instead of 5 already makes a lot of difference. And you can pursue your dreams in the time freed. Or not, and live a leisurely and content life just at a slower pace than the rushed busy people around you.

I don’t think anybody on their deathbed has ever said: ‘Well, I wish I had spent more time working and less time with my kids, that would have been great’. Or: ‘I was thinking about buying that 73th pair of jeans that looked exactly like the 72 perfectly fine pairs already in my stuffed closet and I didn’t buy it. That is the biggest regret I have’.

Having money/investments/passive income will give you the freedom to be flexible. If you have debt you are basically a slave to the lender, and you will feel like you are never really ‘done’ working or feel flexible to work a little less when other things become more important.

The more money stays in your pocket (works for you in passive income!) the more freedom you will experience. And the feeling of working because you can and want to gives so much peace of mind.

Are you planning on retiring early? And have you ever heard of the FIRE movement before?

Let me know in the comments!

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.

Elske 0

maart 19, 2021maart 17, 2021Money

On monthly bills and utilities

I tell you to go and invest and save up for an emergency fund and I give advice about investment strategies. But life is expensive, I get that and I agree. It is hard to have some money left at the end of the month. I like to share some tips to keep the utilities and monthly bills as low as possible. There are more than just these tips, the list is not complete. Also you are probably already doing a lot of there. Hopefully it is of help anyway.

Check at your bank if the interest rate on your mortgage can get lower. Ask for rent reduction at the landlord (traded for cleaning the communal space for example).
Compare the price of electricity to other providers and switch to the cheapest.
Compare the price of all your insurances and switch. For example house, life, travel, care, liability, legal assistance etc.
Cancel all non-essential insurances. Like phone, all risk for your older car, travel insurance if you are not traveling etc.
Change your car insurance if you pay for mileage. If you commute less due to working from home, it can be lowered.
Change internet providers.
Cancel your cable tv all together. Paying for commercials is old fashioned.
Choose one streaming service. Having Netflix, Disney plus, Prime and Hulu is a bit much. A lot of shows are available for free and there are better ways of spending your time than watching tv.
Turn off the heating at least an hour before bedtime.
Insulate your house. Check for available subsidies.
Be frugal with electricity.
Buy a sim lock free phone and take on a sim-only subscription. A phone can be used 3-4 years. Count your profit.

That’s it. It is my list. What do you think I missed. Can I save on other things than are on this list? Please let me know!

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.

Elske 0

maart 12, 2021maart 13, 2021Money

Predicting the future in a crystal ball

The stock market is shaking. Big players like Tesla and Apple have seen a big dip this past week. The stock exchange is a rollercoaster. Like always, a lot of people are making predictions. ‘A big crash is coming!’, ‘The whole monetary system is collapsing!’, ‘Interest rates can’t get lower, what will happen next?’. All these panic headlines. I tried to find out what the buzz is about. Here is what I found.

The stock exchange is a rollercoaster. You’ll get hurt if you step out early.

Corona.

The world economy took a big hit because of the pandemic. A lot of stimuli have entered the economy. The money presses have been pressing new money like crazy to keep ahead of the economic disasters created by lockdowns. With the extra money pumped into the economy, a higher inflation arises. That is undesirable. The aim is to keep inflation under 2% annually.

Super debt cycle.

Some economists say we are ending a super debt cycle. Once every 50-75 years there is the end of a super debt cycle. This occurs when central banks keep the interest rates low. It is done to make it easy to take out loans and make it less desirable to save. It is artificial growth of the economy based on loans. Interest rates are historically low both on your savings account as on a mortgage and on government bonds. Stocks in general are going up without any sort of big crashes for a while.

Tight monetary policy is coming. Defying inflation with low interest rates is not working. What is happening then is the central banks will increase interest rates. The artificial growth will slow down. It will get harder to take on a loan and that will decrease spending. The interest rates on bonds and savings accounts will go up so saving and investing in bonds will become more interesting. Saving and investing in bonds is less risky than investing in the stock market. Therefore money will be taken out of the stock market and put into savings and bond. By decreasing the demand on stocks, the prices will go down.

When will saving become more interesting than investing?

What if you have 100 dollars. You can exchange them to a 50/50% change that it will become 0 or 1000 dollars. What do you do? Changes are you are going to say I will take my change and hope to make it 1000 dollars. Now do the same thing but with 500 dollars. There is a 50/50% change of it becoming 0 or 1000 dollars. What do you do? My best guess is that you will keep the 500. The guaranteed 500 is better than the 50/50 change of 1000. This is how investing in the stock market is. The return on investments was so low on savings and bonds that a lot of people took a shot on the stock market. The risk of losing your stakes is bigger, but the changes of a high return are also greater. The near zero interest rates and growing inflation you lose money if you keep it at your savings account. The upcoming higher interest rates will also create a higher interest rate on your savings. Expectations are that a large group of people will redeem their stocks and put them back on the savings account. The stock market will go down. I think this will only happen as the interest rates will be as high as 3-4%. The average return of investments on stocks is around 7-8%. Where do you think the tipping point will be?

Gold standard and cryptocurrency.

Then there is this point. Our complete monetary system is based on the dollar. The value of the dollar was directly linked to gold. Other currencies were linked to the dollar. In 1971 the dollar was detached from gold but it is still linked to the other currencies. Since a couple of years there is a new player on the market that’s winning terrain. Cryptocurrency. Nowadays it is possible to use your cryptocurrency as collateral for loans. You no longer have to go to the bank if you need money. You can also grant your cryptocurrency to someone who needs money on websites such as blockfi. Someone who needs money pays interest, you receive interest. If your crypto increases in value and you exchange it for dollars again, that also adds up. That way you can create a whole new monetary system in which government and banks are completely sidelined. No one can see into the future, so I am not going to say in advance whether this is the new monetary system. It is interesting though.

Buy the dip.

Conclusion

There are infinitely more factors that determine the economy. No one is able to predict this time and time again. Despite the uncertain times we find ourselves in and the crisis that will sooner or later come anyway, I will stick to my investment strategy. By always keeping savings and bonds in my portfolio, my portfolio remains slightly more stable than the volatile stock market. Because of my share in investments, my portfolio grows faster than inflation. The risk is that I will get (much) less return for a while during the inevitable coming crisis. Research has shown time and again that if you have a widespread portfolio, it is better to stay invested than try to time the market. The chance that you will achieve more returns is almost 100%. Time in the market beats the timing of the market, Warren Buffet said.

Would you adapt your strategy to a crisis?

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.

Elske 0

maart 8, 2021maart 13, 2021Money

Daytrading

These days there is a lot of news about investing. Daytrading in particular is gaining popularity. Daytrading is buying and selling of stocks daily or multiple times a day. You try and time the market, buy low and sell higher later on. People who make a decent amount of money on this tell everybody that wants to hear. They make it sound so easy to make money that you feel like a fool for not doing it. In my opinion, even though the chances of high returns with daytrading, it is like gambling. There has been a lot in the news on cryptocurrency and GameStop stocks for example. A lot of people made great amounts of money and a lot of people lost great amounts of money. The winning and the losing are both part of the gambling. The higher the returns can be, the higher the risk. You hear nobody when they lose an embarrassing amount of money. People who lose a lot of money or that even went into debt for it have a higher change of getting anxiety and depression. We want to avoid all.

To be quite honest, I got on board too. On top of the hype I bought GameStop stocks and a couple of years ago I had some bitcoin and ethereum as well. The crypto doubled and then halved and I sold. When GameStop was all dropping it was not so exciting anymore. Then the whole controversy around the disabled buy button was big I just wanted to be out. I waited a couple of days until the numbers were a little less red and sold all. At a loss that is. Luckily for me I didn’t put a ton of money in and I didn’t sell my other investments for it. I played according to my own investment rules. I can only imagine having sleepless nights and anxiety if I put all my investments on it and lost it overnight. My hard-earned money evaporating over night because of an impulse I couldn’t resist. The horror!

On Reddit I read a good counter argument on why you should take more risk. If you have a lot of money, a 7% return is pretty good and you can be satisfied with it. But if you are left with pennies at the end of the month, 7% is not at all that much. It is more attractive to double your money overnight than to see it grow slowly. Good argument! Although I think if you don’t have spare money, it is even more important to be a bit more conservative. If you live frugal and have to work long and hard for your cash you really don’t want to lose.

Besides, research shows that people who have actively managed investments, get more or less the same returns as people who put it in a passive fund or ETF. An ETF is an Exchange Traded Fund or a basket full of stocks following a certain index. For example the S&P500. It contains stocks of the 500 best performing companies in the US measured on their market capitalization. The biggest companies have a bigger share than the smaller ones. If you put your money in the ETF of the S&P500, you are investing in 500 different companies at once. The combination of the good spread and therefore less risk, and the low fees because there is no middle manager trading your stocks, makes that ETFs almost always outperform the active managed funds. This is the path that takes longer and is less exciting than daytrading. In my opinion it is the right path.

Actively managed funds usually cost between 1-2% in managing funds. This price is fixed, even if the manager is doing worse than the index fund. Research shows it is nearly impossible to beat the market in the long run. And this is for people who studied to do this and who are doing this as their occupation. If you do it yourself, chances of outperforming the market is even harder.

Let’s make a calculation shall we. Ok, so you have 10.000 euros and you put them in an index fund and on average you get a 7% return. You leave them untouched for 30 years. Without putting even one euro extra in, after 30 years you will have 71.142,57 euro. With service fees of 0,1% for passive investments you have a return of 6,9% per year. After 30 years this is 69.239,42 euros. It’s a difference of 1906,15 or 2,67% and not 0,1%.

With the service fees of an active manager of 2% annually and an equal return of 7%, after 30 years you will have 41.161,36 euros. It’s a 29.981,21 euro difference or 42,14%!!! The costs that only seemed 2% per year are astronomically higher and the amount at the end is so much smaller.

I made a spreadsheet below.

So we calculated the difference between passive and active funds. I’m not doing the same for daytrading. It is unpredictable. You take a lot more risk when doing it, it will cost you more time and the transaction fees are higher than with passive trading. Hopefully you see the difference now between daytrading, active investing and passive investing.

Have you ever invested in cryptocurrency or index funds? Let me know in the comments!

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.

Elske 0

februari 26, 2021maart 13, 2021Money

Why you need a budget

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.

Elske 0

februari 19, 2021maart 13, 2021Money

Investment stategy

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.

Elske 4