In order to track any progress or even to start thinking about a plan we need to define our vision or our goal.
Our goal here seems to be pretty simple right? Reach FI!
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.
- 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…