As I promised in my previous post 2016 Goals, I’m going to talk about my savings rate.
First of all, for a 20-year old it’s very nice getting paid to study. This brings me a nice paycheck every month. In comparison with my American colleagues who need to lean money and start in debt, this is a major benefit. Some are even paying off their debts long after they’ve graduated, which is obviously not a great start for an investor.
Secondly, my young age offers a few more advantages. I like to call this negative income as it saves me money:
- First of all, I still live with my parents. 5 days on 7 I’m at my work so I don’t see the point in paying rent for a house or appartment I can’t spend time in. I still like living at home so as long as I can and want to stay here, it’s a money-saving situation. In my case renting would just be a complete waste of money. And if there’s anything we don’t want, it’s wasting the precious.
- Second point: as a poor, young student my parents give me food and some money during the academic year. This brings my groceries cost down to €0. Yes, I’m a lucky bastard.
So, very nice, few expenses. But now what do I pay for myself?
My biggest expense is my car. I know owning a car does cost a lot of money but in my case it’s still acceptable. I often need a car to get to my work because train is very time consumable. It would take me about 2h30 to commute between work & home and by car it only takes like 50 minutes to 1 hour. Also, I carry quite a lot of baggage and after the train I would need to take the subway and then still walk like 15min equiped with 2 heavy bags with all my food and stuff. I prefer the car. I really like driving and I think of it as fun. It feels like real freedom and if fuel wouldn’t be so expensive, maybe I would make some rides for fun.
So how can I cut expenses on my car? First of all, it was kind of a present because of lucky family circumstances with promotions and stuff so I received the car. Second point: I share the insurance and tax bill with my dad. Because he doesn’t like someone else riding his car, we made this compromis when I received my car. The fuel I have to pay for myself in most cases. So now the yearly cost: Insurance 160 + Taxes 130 + Fuel 500-600 + Maintenance 200 (estimation). This comes down to around €90 a month for my car.
If I compare this to what other people pay, I think this is a very acceptable price for what I get.
So do I have other expenses? I like going to small restaurants where you’re served a very decent meal for less than €10. During school, I do this on average once a week. This comes down to €40 a month and sometimes I get a drink with friends, go to the cinema or buy a gift for special occasions. Let’s say this costs €30 a month.
Last but not least, I really like going on holiday. As I mentioned in When I Break The Chains, I want to travel the world when I’m free. These holidays normally don’t cost much as I try to look for deals or other promotions. Last year there was rather a splurge in my travel budget as my holiday to New York cost around €2,000. But hey, no regrets, it was by far the best holiday I ever had. A ratio 3 holidays or citytrips a year, lets say this takes a €1000 out of my yearly income.
My martial arts hobby costs me around €250 a year, my gym €0 (free gym in school). Health is even more important than money to me so I like to be ‘mens sana in corpore sano’.
As I have listed my income and expenses, I will now make it more clear in a table . This is a preview of my 2016 income and expenses. I am going to make monthly saving rate posts to see how I do and if I’m maintaining my savings rate.
Paycheck + bonus: €20,200
Tax refund: €1,100
Parent funding: €1,200
Family gifts: €2,000
Dividends (yay!): €680
Savings intrest: €200
Total estimated income: €25,330
Entertainment & Gifts: €360
Total estimated expenses: €3,110
–> Estimated Net Worth Increase: €22,220. Hey, isn’t this more then the €20,000 I wanted to invest in the stock market as one of my 2016 Goals? Exactly, it is €2,220 more. What do I do with this? €950 goes straight into my pension fund to reduce taxes and I also have a Home Invest Plan for €1080, which benefits me when I buy a house. These two other types of investments thus take €2030. I am left with another €190 which I take as a margin of safety on unexpected expenses.
This means I should be able to have an awesome savings rate of 87,7%!
This won’t be an easy goal to accomplish as I obviously forgot some things I can’t think of right now and which take the rate down.
I know I won’t be able to maintain this high savings rate for the long-term. In the mid-long term I will be looking to buy a house and extra expenses will come too. But, as long as it’s possible, I want to keep the rate damn high!
I am very conscious that I’m in a lucky position, with my parents still funding me and stuff. At least I try to do something good with the money and eventually it’s not wasted on poppin’ bottles in the club.
To end, a motivational pic which I think is very true.