Career Planning

It can’t be emphasized enough: Developing your career is still the best and most promising way to secure your financial future.

We all know the mantra that parents, banks and insurance agencies try to feed us: Start saving early and utilize the power of compound interest to your advantage. The sooner you start saving even small amounts, the sooner you will reach your target.

Theoretically, it makes sense and it is probably one (out of many) ways to start your journey. But I am not a big fan of it. Let me explain.

The first time when I opened a mutual fund saving account I was just 20 years old. The bank convinced me at that time that saving 50 EUR a month would make me rich by the time I retire and the numbers seemed to support it:

  • 50 EUR x 12 = 600 EUR per year.
  • Considering 45 years, that’s a down payment of 27.000 EUR.
  • With compounding interest and re-investments of all generated profits at an average market return of 8% a year, this would indeed translate into solid 250.000 EUR when I reach the age of 65.

A lot of money. Only problem: As a student 50 EUR was already a lot of money to me and I wasn’t always able to come up with it. It didn’t take long and after a year I canceled the account as I was forced to make a downpayment for a student apartment and I simply didn’t have enough cash on hand.

Looking at the calculation at that time from today’s point of view, I see things a little differently.

  • Saving 600 EUR per year would equal 3.000 EUR after 5 years and with a friendly market return of 8%, it would have generated a profit of 801,56 EUR. My account would, therefore, have a value of 3.801,56 EUR.

Here is the catch: As an employee in a managerial role, I could probably save up the same amount every 1 or 2 months.

So instead of living as a student on the brink of extinction for 5 years, it makes so much more sense to me to try to push up my career the best I can and to get to a salary level that will make up for those 5 years in as little as a month. Is it possible? Absolutely and in fact, I did just that, and it worked. In my first 3 years as a manager, I saved and invested more than I would be able to collect in 22 years of my original investment plan with the 50 EUR a month mutual fund.

I admit, not everyone can do this and the stock market has been very friendly for a long time. Also having a solid, permanent income is only one side of the coin. Another important point that has an effect on our ability to save and invest is the lifestyle we chose. I prefer a minimalistic lifestyle and buy only things that I truly need. During this 3 years, I traveled around in Asia as a hotel manager and all my possessions were in a carry-on with 7kg of weight. This increased to 12 kg after some time, but despite having a family now (which requires some adjustments to my strategy and consideration for my family’s needs), I am trying to stick to the same basic idea that allowed me to pursue my target of financial independence in the first place: Appreciation for simple life and maintaining a low cost of living.

Having a solid income and keeping your living expenses low is the perfect formula to ensure that you become financially independent in a much shorter period of time.

Don’t punish yourself when you are young, but don’t get lazy as you get older. Work on your career, try to increase your income and remain humble with spending. There is no reason to wait until 65 to be able to follow your dreams. Doing the right things at the right time, chances are that you can reach your target much earlier.

Take care of yourself

Let me start by saying this: We only got 1 live. You might believe in reincarnation, but no matter what you believe or how you turn the story around: You always got to start from scratch. You are born and you end up under the earth or in an urn.

The available time to make the most out of our life is pretty limited. When we are young we tend not to appreciate this and waste precious time on plenty of useless tasks: Watching TV, playing video games, “liking” cat pictures on your friends Facebook, sleeping off hangovers, etc. – just to name a few.

There comes a point when we realize how much time has actually been wasted on such useless tasks and believe me, it can be a very frustrating moment. Sure, we need relaxation and free time and can’t be constantly working, learning, adding new skills or perfecting existing ones. But, we just really should appreciate the time we have and try to make the best out of it.

Having said all that, let me tell you why I bring this whole thing up: Considering that our time is limited and we should try to make the best out of it, spending most of this time at work seems just not right. I don’t believe that working all your life just to get by makes any sense. I got no problem with being active, creative and certainly, I got no problem at all with earning money. It just shouldn’t be something that you HAVE to do just to ensure that you have something to eat in your fridge, that you are able to send your kid’s to school and that you can handle your medical expenses when they come up occasionally.

Unfortunately, our society is built upon exactly this model. While some systems provide better social security than others, ultimately the overall idea is the same all around the world. The majority of the population gets by on a day to day basis, earning just enough to make it until the end of each month with little room to generate some savings and being hardly able to afford 2 weeks of vacation once a year. They spend a large part of their lives in exactly this manner, craving for the time when they hope they can finally escape into retirement, only to realize that their health has deteriorated, their financials may not be enough to do what they were hoping for and that on top they already forgot how to have a life without their daily commute to work.

There is, of course, a small minority earning significantly more, working significantly less and having much more time & money to take care of themselves at a much earlier point.

For most parts, this minority is somehow directing, entertaining, managing, or in any other way influencing a poor-to-middle-income majority. And when you think about it, it makes perfect sense. While we are constantly adding money to the markets, the basic rule is still valid: For one person to have a lot of money, many other people need to have much less. And while everything in our society might suggest that there are people in charge who care about you, either in your company or government, the fact is that you are out there on your own. Realizing this is the first step and the second step got to follow up immediately: You really need to start taking care of yourself.

It’s kind of a sad setup, isn’t it? Maybe. But it also gives clarity about what you have to do and where your focus should be upon.

Obviously, there are also other things than money to worry about, but the words life & freedom only start to make sense together when the basics are covered and your most pressing worries about food and shelter are gone for good.

And this is what this blog is all about. So how do you get to the point that you can cover the basics – without working? The 2 magic words are Passive Income and this will be the topic for one of the next posts to come.

The Rat Race

One of the main reasons why I decided to write this blog is because I had this urge to share my thoughts on what is happening in the world, and what can be done about it. It is obviously the title line of this post. The Rat Race.

Just before writing this article, I was listening to a speech by Arnold Schwarzenegger. It was a motivational speech in which he quoted a statistic which said that 74 % of US citizens hate their jobs. I am sure this number can be debated, but from my personal experience, I would say it feels about right. I would also say that this number will probably not be much different in Europe. Or Asia. Or almost anywhere in the world.

There are so many reasons to hate your job

In his speech, Arnold Schwarzenegger is pin-pointing this sad statistic back to each individual. Many people lack vision and determination to follow their beliefs, their passions and to work their ass off to learn, to train and to do what is necessary to get where they want to be. Again, I am sure that this is true to a large extent.

But there are countless other factors that can cause you to hate your job. Abusive bosses, lack of benefits, frustrated and uninspired colleagues or just the countless times when you have to compromise for the sake of a team, a project and more than often, for money, can be a frustrating experience.

How a regular uninspired day looks like

I know it can be a frustrating exercise but let us think about a regular day: A day has 24 hours out of which a regular person will spend approximately 7 hours sleep. Then he or she might take an hour to slowly wake-up (don’t we all hate the snooze function?), take a shower, have some light breakfast and commute. This is followed by 9 hours of work including lunch, 1 hour getting back home through horrendous traffic or packed subways and finally having some dinner.

After arriving home, 6 hours remain. These hours may be used on some housework like laundry, cleaning, maybe some Netflix (and chill). Maybe some time for friends or family.

More than often, however, coming back home from a job that one doesn’t like keeps people frustrated. They then might fall into a negative pattern, trying to shut-down their frustrations by watching TV shows, playing videogames or just browsing apps on their phones. Smoking and drinking are obviously other popular time-wasting activities.

Freedom means to be able to choose how we spend our time

Working means to trade our time for money. Money that we use for something that we either need or desire. It can start with existential things like shelter or food. As we progress in our careers and the existential threats get covered, new targets will emerge, like a career (for fame and recognition) or simply to get more money to be able to improve our standard of living.

And this is how we get into the rat race.

Reputation, material possessions, social pressure and other things that we think that we need, or consider to be obligations. All these force us to trade more of our time for ever more money. At this point, you might like your job and be thankful for the opportunities, knowledge, and experience that you could gather due to and along with it. Don’t get me wrong, I was very fortunate to find a career that inspired me for several years.

Nevertheless, I have made the decision to escape the rat race. Why is that? Let’s crunch some numbers. Let me first focus only on my working time which is on average 11 hours a day.

A year has 52 weeks = 52 x 6 = 312 working days. I got 28 days vacation and 14 days for public holidays = 312 – 28 – 14 = 270 working days a year.

270 days x 11 hours = 2.970 hours work for the whole year.

That’s a lot of hours. I am not regretting even one of those hours spent over the years so far. But the question in my head is, does it have to be that way? And how long will I be able to keep up this pace? Isn’t it time to think about doing something more with my life than just going to work almost every day? After all those years working my ass off, shouldn’t I be able to choose how I spend my time by myself? Shouldn’t the target of any job be to free ourselves?

The feeling of something being off

I think everyone who works for a couple of years must have had this feeling at some point. Just waking up one day and realizing that our whole life consists of the same daily routine that forces us to repeat the same things over and over again. And the worst thing is: We have no idea how to stop.

If we want to get out of it, we got to re-evaluate our priorities. Nothing comes without sacrifice and the first thing that needs to be taken look at is… ourselves. Chances are that we maneuvered ourselves into a comfort zone that makes our life just convenient and acceptable enough not to rebel, but at the same time preventing us from happiness and fulfillment. So we got to ask ourselves: What do we really want in life?

How an inspired day can look like

I am a General Manager in a hotel with ambitious career goals and FIRE aspirations. Let me tell you how my day looks like.

I wake up at around 7:30 AM, take a shower, drink a glass of water. I make sure that all this will not take longer than 20 minutes. I am really not a morning person, so I make sure that my house or condo is as close to my work as possible to reduce the time for commuting. Usually, I will arrive at work at around 8:30 AM.

Now there, I usually get stuck until 7:30 PM, sometimes longer but let’s just say that I finish at 7:30. Yes, that’s 11 hours including lunch and dinner. I don’t do breakfasts on workdays. The morning time is precious and most useful to tackle the most challenging job assignments, so except for coffee in a to-go-cup I don’t want to waste too much time on food. Lunch and dinner are also usually being kept short with only 15-20 minutes for each.

I get back home around 8:00 PM, play with my daughter and spend some time with my wife until around 9:00 PM. Then I will exercise for usually 1,5 hours until 10:30 PM, take a shower and work on this blog. At around midnight I will get some newsletters regarding the stock market into my mailbox. I will read those and review my stock portfolio. I will also do some research on the next potential stock for my FIRE portfolio. Usually, I will go to sleep at around 1 or 1:30 AM.

I do this 5 days a week. Saturdays are a little more relaxed and I will not go to the gym on that day. I will, however, catch-up with financial articles and magazines, read some weekly news summaries on Flipboard and work on my side-gig, writing financial articles for an online magazine. Writing a solid article of approximately 700 words, doing the research and adjusting it to the requirements of my client can take a whole day. Sometimes more. Sundays are mostly dedicated to my family, but on a Sunday after 8 PM I will start preparing for the week ahead. Allover, I consider myself working 6 days a week.

Having a vision can help us to get inspired and to work our ass off

My family and most of my friends think that I am crazy when I tell them that sleeping 6 hours is enough. I just need the time to get my stuff done, but when explained they don’t understand what I am talking about. So let me elaborate.

I need my main job to ensure full support for my family. I also made sure to have a solid career and work long hours in a high position, because this enables me to save and invest on the scale that I need to hit my target and to retire before the age of 45. It also enables me to travel and to discover countries in ways that I would have never imagined possible before.

I want to exercise to make sure that my health doesn’t let me down. Not now, when I work as hard and as much as I can, but also not later when I hit my target. Because when I retire I want to make sure to have still all the energy that I will need to get to do all the things that I am having on my agenda.

I want to have this blog and to write financial articles. For one, because it helps me to learn the necessary skills that I plan to put to use during my “retirement”. But also, because it’s fun AND I earn additional money with it on top.

The Rat Race

I can’t imagine wasting all this precious time that I have on things that would not help me to get closer to my dream. Shouldn’t that be obvious? Shouldn’t we all try to do our best and be happy to work as hard and as much as we can to get closer to our dreams? I think we should, but that’s exactly what plenty of people out there are not doing.

The Rat Race is largely to blame on a system that is designed to pushing people into work, under conditions that are hardly ideal to build a life on. However, while in most cases there is no way around it, there are ways to get out of it. We are forced into it, but it’s up to us to escape it.

The Time Replacement Model (TTRM)

There are plenty of different ways to calculate your targets and goals. You can estimate total revenues, spendings, monthly targets, annual targets… but my favorite model at the moment is TTRM, which stands for: “The Time Replacement Model“.

The idea is pretty simple. If you are overall happy with your current lifestyle and earnings, the first thing you do is to calculate how much you actually currently earn per hour. To calculate this as accurately as possible, you should take your monthly NET salary and add any bonuses, benefits and basically, everything that ensures your current lifestyle. It is important to go by the NET salary calculation because taxes are counted different for salaries/wages and for capital gains. In fact, in most countries in the world capital gain taxes are significantly lower compared to taxes which are paid for regular incomes, which means that you require much fewer capital gains before tax to get the same after-tax result if compared to a regular salary/wage. I will write about this point (since it is quite significant) at a later point.

The calculated total amount of your income needs now to be divided by the number of working hours that you are in fact working at the moment. The hours that are listed on your employment contract don’t matter. What matters is the real amount of time that you pour in. Having done that, you will see a number that will come close to what you should get per hour to maintain your current lifestyle – without getting out of bed.

Now here we get to the fun part: You can now very easily calculate how much of your invested money will create how much of capital gains to replace how many of your working hours!

Just for the sake of an example, let’s say that my calculated or expected salary per hour is 25 EUR. Now, if I invest let’s say 1000 EUR in the BDC Aurelius which yields 9% at the moment this will generate an annual income of 90 EUR. I am currently living in Thailand where the tax on dividends is 10%, so at the end of the day, I will have 81 EUR left.

81 EUR divided by 25 EUR is equal to 3,24 – which is the number of hours (per year) that I was able to replace by this investment.

I truly love this model because it gives you a very simple way of estimating and realizing how investments work and it also gives you this kind of positive feeling of knowing that this 1000 EUR will make sure that starting next year you will have 3,24 hours more of your time. 3,24 hours more freedom. Make it 4000 EUR and it will be already 12,96 hours. Every 1000 EUR that you pour in bring you closer to your target by another 3,24 hours.

The true beauty of this is also, that this investment doesn’t replace the time only for your current or next year. If the company keeps paying or even increasing its dividends, the amount of replaced hours is increasing with every year. It scales fully automatic without any additional input from your side. If the dividend keeps stable, in the 2nd year, it will have already replaced 6,48 hours of work, in the 3rd it will be 9,72 hours and so on.

Now, if you lack the vision then this model can also be frustrating. After all, if you got a 40-hour work-week, for the whole year with 52 weeks it’s a total of 2080 hours to replace. With a stock such as Aurelius in the sample above, this would translate into an investment of almost 624.000 EUR. Since only a few stocks can reach a yield like this, you will quickly realize that you more likely will require almost 1 Million EUR in savings to get to this point which is admittedly a very high target.

But it doesn’t mean you can’t get there, it doesn’t mean you need 1 Million EUR and it doesn’t even mean that you really need 25 EUR per hour. The sooner you realize how many possibilities are out there to find your freedom, the more motivated you will be to invest and to get closer to making your dream come true.

Time for Shopping

We have 2 rough weeks behind us and while personally, I am optimistic about the next week, there is no certainty yet that there will be a recovery. Fundamentals didn’t really change much thus some people are very surprised to see what’s happening. While many companies got indeed a little overvalued in the recent months, when the correction set in some other good positions got dragged into the mess and have now again very reasonable valuations that would be a shame not to consider as opportunities.

So yes, I went shopping. Maybe a little early but trying to time the market usually goes wrong. If you see a good company at a fair price which you are willing to pay then there is in most cases no reason not to buy it.

One great buy that I added is a company which I had on my radar for a while now but which seemed a little highly valued: The US company “Gladstone Investment Corp.“. Its a BDC (Business Development Company) which is popular for mainly 2 things: It’s high dividend yield and for providing 14(!) annual dividend payments. Not only does it pay a monthly dividend, but it also adds twice a year a bonus dividend payment on top.

This is my second monthly dividend stock after Realty Income. People argue whether a monthly dividend is a real benefit or not, but it gives you a kind of good feeling knowing that there is something pouring into your account several times a year. If you got more dividend-paying stocks and even more which pay on a monthly basis, then you get something coming in even several times a month.

Furthermore, I added to my position on Wereldhave which is a Dutch REIT (Real Estate Investment Trust). The stock dropped together with the market AND because they also did cut the dividend by almost 20%. However, even after the cut, the yield is still excellent and the dividend payout happens every 3 months. I also believe that they will recover within 2-3 years and get back on track with the business.

Last but not least, I keep expanding my position in E.ON, one of the largest energy producers in Europe. A very solid company which is just about to finish its transition towards renewables, energy-blockchain technology and implementing consulting business to its business components. The shares suffered a lot over the recent years and I believe that now is the time to prepare for the rebound. On top, not only is the dividend stable, it is already confirmed that the dividend will grow by almost 50% next year and another 50% the year after.

There are some great opportunities now out there and some really great companies on sales. A perfect opportunity for new investors to jump on. For everyone else who is already in and now suffers losses – don’t panic! This is also a great opportunity for you to benefit from a cost-leverage-effect and to stock up your depot further. Your dividend yields will only increase and in 20 years you will be happy to have done that.

 

2018 – Is it time for a crash?

Last week was apparently the worst week for the stock market since the BREXIT announcement back in 2016. My portfolio took a hit with some of my favorite stocks crashing down. In particular, one of my REITs (Real Estate Investment Trust) crashed 12% while announcing a dividend cut.

The company is called Wereldhave and is a Dutch Shopping Mall REIT. I don’t have a large position in it and see an opportunity here to add more and to lower my average purchase price, but yes, it hurts. Having said that, the dividend yield is still fine and it will keep creating passive income for more years to come.

About passive income

Now this is just my 2nd article and I didn’t really start describing in detail yet about what I am doing here. If you like to see my introduction, take a look at my previous post. To sum it up: My goal is to reach financial independence and to have the freedom to retire early. Or FIRE.

Passive income is one of the main tools to reach my target. The reason is simple. It is hard to talk about freedom if you are depending on a job, a boss and a paycheck. If you have to worry about food, shelter, medicine and education, then it can hardly be called freedom.

Also, while you might not worry about all these things as long as you have a job, you might start to worry when your company gets in trouble, when your job becomes redundant, when you get older, when the economy goes down… there are countless reasons that may create a situation in which you will have to seriously start to worry about your income.

So getting to the point where this freedom-restriction is not your major concern anymore is pretty vital. True freedom doesn’t work without financial independence. Passive income streams are therefore crucial, and for me, the way to get there is through investing.

What to do when the market goes down

While 2016 and 2017 were great years for investors, 2018 might be a rough one and I actually think that we may see a correction in some sectors. My portfolio may drop as I do have some speculative titles in it, but while some people spend their money on avocados, cappuccinos, and clothes, I prefer to pour it into dividend-paying equities that will hopefully support me in a not too distant future and start to cover my cost of living.

Any crash in the stock market is, therefore, an opportunity to purchase more stocks, lower my average purchase price for equities that I already bought in the past and set up new positions that will bring me closer to my target.

So let’s see what happens. Apple came down in price nicely despite reporting record profits. Starbucks got back to “normal” prices. AT&T is still in a good dividend yield range, Realty Income is back to a 5% dividend yield, IBM seems to turn-around and getting stronger in its cloud business section. In Europe, my all-time favorite BDC (Business Development Company) Aurelius announced a 5 EUR dividend which at the current price is a 9% yield – and 10% at my entry point, Vodafone is speculating about takeovers, and BT Group just announced a very robust business. While some people might get spooked, I am pretty optimistic and all these equities now yield over 5% on average, some up to 10% a year.

Corrections offer buying opportunities

I am looking forward to the correction and some amazing buying opportunities. So is it time for a crash? I don’t think so. Most companies actually are reporting record earnings and the bigger players are swimming in cash. Stock valuations in Europe are very moderate and while in the US they may seem high for some, the tax cuts and improved economic conditions will soon let this numbers go up. Dividend yields are good and might even get better after the correction. There is no reason to panic. Unless something really terrible happens in the world, a crash is not very likely anytime soon.

However, I am not an oracle so just in case the crash happens anyway: You better keep some cash on the side to get in the market right after the crash. Now we know very well that it’s almost impossible to time the market and to generate optimum profits with our limited time, knowledge, access to information and speed of execution. But, it actually doesn’t matter.

As a simple rule, I tend to look at it like this: There are companies which I simply know will be around in 10 years from now like i.e. the titles I mentioned above. It doesn’t matter if the world economy crashes, I KNOW there will still be a Starbucks, people still need to make phone calls and access the internet and premium brands such as Apple are very hard to kill.

These companies are seldom truly over-valued, and no matter how much they crash, as a result, their valuations will only get better. 10 years from now, will be 10 years back in the future, and you will most probably sit on triple-digit earnings and enjoy rising dividends for your passive income stream.

Disclosure: I am invested in all the shares mentioned in this article.