Category Archives: General Ideas

Goals 2020!

Ahhh! Making goals only in february seems like slacking right? Right…

Let me explain here some of our 2020 goals and how did they go in 2019.

Financials

Savings rate at 30%

In 2019 we achieved 24% savings rate. Summing all our income recorded (since August) and subtracting all our expenses we got ~5k saved for 5 months. This accounts for an average of saving 1k per month.

We think we can do better!

For 2020 we would like that this value increases to 1.4k per month in average. For the sake of simplification i’ve assumed we maintained the same income and saving 1.4k would mean 30% savings rate. This is a percentage we feel confortable with.

Increase networth in 10%

In 2019 our Networth increased 114% (+ 211 679,78 €) which was a huge bump. The reason for this was we got married and joined our assets.

I’ve been tracking my Networh individually since 2011 and as you can see there as been a nice rise! I’ve been tracking this since i was 23 years old and started working full-time 2 years before (in 2011). The increase either means i was very poor at the time or i’ve been saving and investing properly. My wage also grew dramatically (thankfully!) over this years.

To be honest i think i already had a good headstart since i dont know much 23 years old Portuguese with a Networth of 19k. And i had alredy bought my car which i valued at ~14k. Meaning when i was 23Y i had ~5k in liquid assets. Yay!

Coming back to topic….

Using currently our forescast for growth i would expect a rise in our networth of ~5%, this would mean 22k. To achieve this value i would use the % i expect our ETF portfolio to grow, what we would save yearly, what P2P returns would be, etc.

Nonetheless, i believe we could go to a higher number of around 39k growth, meaning 10% increase. (+39k).

Starting a company and having revenue of at least 10k

I’m currently in 2 partnerships, one of them already started last year which i will be formalizing soon by creating a company with a business partner. I’m quite confident we would be able to generate significant influx from this endeavor (>50k) at least. Nonetheless, lets be conservative. It’s my first company and i would like to have some activity at least.

Find a new property to invest (Optional)

I’m not making a hard deadline for this. We have still+3Y to invest the proceedings from our apartment sale and if the market doesnt retract soon we are willing to wait more time.

Non-Financial

Remodel the farm houses

In 2020 we would like to remodel and have usable our 2 farm houses. Or at least one of them so that we can finally start making use of our farm.

Maintenance primary house

Currently we have several things still to be done on the building we have our primary residence. This involves some work on the roof of the building (on going) but also other things like starting repairments on the facade. We live in a 1900’s building with 2 more tenants and every step takes a toon of time and effort. Making budgets for repairments, sending it to companies that execute this work, having them either not replying or coming and never sending a budget (yes, this happens in Portugal! Angry face).

If i could sum-up our objectives for 2020 it would be having the lateral facade repaired.

Goals (update) – Savings Rate

This week i will be talking about another important step to define in order to reach FI in our Goals – Savings Rate!

So, last time i’ve written about defining our anual / monthly expenses. This is something we will be sharing more with you. It takes consistency and its something we already have to do. So why not share it with you? Missed the post? Check it here.

Step 2 – Defining a Safe Withdrawal Rate

Defining a safe withdrawal rate will in the end determine the amount of money you need to have with a ponderation of different scenarios like inflation, return on your investments., etc.

Currently several studies point to a SWR of 4% in case you will need to withdraw money for the next 30 years. See the trinity study here. There are also very nice explanations for other FIRE enthusiasts like Mad Fientist which gives you a more detailed view on how you should define your own SWR – check here – you can even test it and see how this will determine your speed to FI.

In order to calculate our time to FI we need to have:

Networth – What is the value of our Assets – Liabilities. This is where we are.

Monthly Expenses – How much do we spend per month. (ie – 1.600€). This is how much we need.

Savings Rate – How much are we saving per month (Income – Expenses). – Lets assume 1.200€, thats the value we will be getting in the next few months. This is how fast we are getting there.

Growth rate – How much (in %) do we expect our portfolio / investments will grow. Here i will assume 7% – if its great better! This also how fast we are getting there.

The 4% rule could be easily translated into multiplying your currently yearly expenses by 25 – check here on the Fire Movement wiki. Meaning the bigger our savings (& savings rate) are the faster we can get closer to this number.

Using the logic above, if we assume the 1 600€ monthly that we predicted. This would turn to 19 200€ yearly, which x25 will be 480 000€.

This is the first goal to achieve! And this is why you will see it on the banner on the right side of the blog!

You can also make a few dry-runs and use the FIRECalc to try for yourself.

In our case, here it is:

  • Spending: 19 200€
  • Portfolio value: 480 000€
  • Years: 30 – Why 30? well i’m currently 31. Assuming we hit FI when i’m 35 it means i would need to live off my accounts until i’m 65 when my state pension will kick in.
FIRECalc looked at the 119 possible 30 year periods in the available data, starting with a portfolio of $480,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 119 cycles. The lowest and highest portfolio balance at the end of your retirement was $480,000 to $4,570,781, with an average at the end of $2,465,149. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
How our portfolio would play out. In 119 cycles we would get 0% failures. Pretty cool, right?

How to interpret would be to verify when any of the lines crosses the zero X axis. And in this case, it was 0 !

Now, assuming we cannot lower our monthly expenses to 1 600€, we also have the other scenario which is closer to our actual spending (we have an empty rental currently which means ~500€ pending in our necks) of 2 000€, this means:

First Milestone – 480 000€ for 1 600€;

Second Milestone – 600 000€ for 2 000€;

I will be tracking our progress towards the first milestone for now!

Since I’m all about teaching people how to fish, here are some of the resources i searched for this article:

Its important to have goals right?

In order to track any progress or even to start thinking about a plan we need to define our vision or our goal.

Can we fast-forward to success? Please..?

Our goal here seems to be pretty simple right? Reach FI!

Resultado de imagem para tio patinhas
This might be what you are thinking
Resultado de imagem para guy watching tv in pijamas
Or this.
Resultado de imagem para guy taking care of horses
Or learn how to take care of horses?

And what is FI? Financial Independence means that without working you are able to maintain your current lifestyle. Which for us translates in: we can do whatever we want without thinking about the financial return.

This is not to mention we dont love what we do. We both are lucky in that part. But why do we have to do it for 30 years straight? Maybe we would like to have some break in the middle and learn a new skill (Handling plants? Soldering? anyone?)

Now, this is a tricky part. What will our lifestyle be in the future? Well…i dont know. And its usually pretty hard to make a concrete guess. But we can try extrapolating from our current one !

Step 1 – Calculate Current Yearly Expenses

I first started writing my daily, monthly expenses when i was 21 and started working full-time. Back then i received around 980€ net per month which was ok for starters but i was determined to make it worth every cent! As i wanted to take control on my financial life i wanted to be able to know informations like:

  • How much do i save per month net? And in percentage to my income?
  • How much am i spending partying and eating out? – Remember i was 21y
  • How much do i need to put aside for anual expenses like Car maintenance, insurance and vacations? – I had recently bought my first car – a brand new Honda Civic black and it cost me 21.5k which was back then a huge value for me. It drained all the money my parents have saved up to give me once i turned 18.
Resultado de imagem para honda civic black 2010
Exactly like this!
  • How much can i invest?

All of this then translated from excel spreadsheets into an anual aggregator where i would include any extra spendings (i was taking a masters at that time and had to pay tuitions) but also any extra income like overtime or gifts from birthdays and Christmas.

Fast forwarding after i moved out (at 25y) and bought a place in Lisbon it became harder to keep track of the details of my monthly spending since homeownership tends to take its tool once you have to buy EVERYTHING for a new place. I never imagined to have to spend so much in plates, cuttlery and other objects. Well..it turns out it can drain in your budget! Towels..it turns out you need them as well!

This year and thanks to Mrs.Firecracker effort we pulled our heads together to verify our current household spending.

We calculate it to be monthly around 2.000 € . Now, this includes as well anual expenses divided monthly and put into a separate account for an easier management like Life insurance for the principal apartment morgage or car insurance.

Even tough this could be considered a high value for Portugal it doesnt mean we are opening Möet & Chandon bottles every month. It means this is what is needed for us to maintain our current lifestyle which entitles eating out every week and being carefree about our spending.

Nonetheless, there are some expenses we believe will decrease massively after we reach FI. We currently own 2 cars which means – Gas, insurance and maintenance take a huge tool into our monthly budget (almost 500€). And we luckely are firm believers of not taking credits for cars, otherwise this would be another expense. Summing up, we think we dont need more than 1 car in the future.

Having this stated we also believe other expenses might decrease due to having kids in the near future (like eating out). We think its not by chance we dont see much newer parents eating out with their babies! Public shaming, noise and making a mess might have something to do here!

In essence our first milestone and the value i will be using for our FI calculations will be 1.600€ monthly. This is a number we both fell confortable and which could be sustainable since we ponder to live in the city center or to move to our farm in the interior (more on that later).

To be continued…