In this post, we’d like to share with you how we reached financial independence aged 32, in 9 years from the point we moved in together and started working in Germany.
It was 1st October 2005 when I arrived in Saarbrücken in Germany for my one-year Erasmus scholarship, my suitcases mostly filled with large amounts of food from my mum. She was afraid I’d starve so she packed my bags with lots of jars of tinned bean dishes and zakuszka (homemade Transylvanian aubergine salad). Altogether I had about €2000 of which I had borrowed €1000 from my dad. My net worth: €1000.
This is where my life in Germany started. Today, almost exactly 10 years later, we have two kids and are financially independent (I count the date I started working as the starting point of our FI journey, though).
How did we do it? Here’s our story:
So back to October 2005:
At this time I was already dating Mrs W who got a job in Heidelberg. That’s about 150km from Saarbrücken, so we decided to give the relationship a chance.
All I was focused on was making sure I could pay my bills; I had to find a part-time programming job and try not to touch the €300 a month scholarship money for the simple reason that I’d have to pay most of it back if I didn’t pass most of my exams. Luckily being a student in Saarbrücken was really cheap. My 11m² room cost about €120 a month including high-speed internet. Meals at the student canteen cost €1.85 each (those times are over…).
I managed to find two part-time programming jobs and not touch my scholarship money. It was enough to live on but only just. I will never forget the night I took Mrs W for a date to a dancing class that was advertised as being free and it turned out we had to pay €10 each at the end of it. I almost cried. My budget didn’t include that sort of luxury spending.
It was the financially tightest but probably most exciting year of my life. I always had to watch my spending but still managed to have a great time travelling and partying. It was the year I got into the habit of tracking my finances down to the last cent. I had to. I wanted to return the €1000 to my dad as soon as possible. I did that within six months and was very proud of myself. It was a great feeling.
Mrs W already started working full time in August 2005, so she had a slight advantage. 🙂
The year was over. I moved in with Mrs W on the 1st of October 2006. I spent the first week applying for jobs. Then I went for interviews the second week. The 16th of October was my first day at work as a programmer for small start-up. I couldn’t believe I actually had a salary… it was great! My spending habits didn’t change very much though.
Milestones on the Road to Financial Independence
Milestone #1: Becoming Self-Employed
The happiness didn’t last very long though. My work permit expired after six months and… surprise, surprise…the German bureaucrats were not very nice to me. Apparently Germany had enough programmers (bullshit!). The best solution turned out to be to become self-employed. When I started researching I realised that self-employment had some interesting advantages over employment:
- I didn’t have to pay into the state pension fund: I liked that, that meant more take-home cash.
- I could work for whomever I wanted: Cool, I could keep my previous customers – more cash!
- Health insurance was cheaper: Fine by me!
- It gave me much more flexibility.
That’s exactly what I did. Ten minutes and €20 later I was self-employed. The story is longer but I won’t bore you with the details. I couldn’t believe that it’s so quick and easy to become self-employed in Germany!
And that’s how I was able to stay working for the start-up while keeping my old customers as well. I was still dependent on one company but I was free to work for whomever else I wanted as well!
The next few years were quite boring as far as FI goes. We basically lived a standard consumerist lifestyle. We both had jobs. We didn’t earn very much but much more than we could spend. We had no debt so we just did what everybody else did around us: spending money on shit that we basically didn’t need like new furniture, a new DSLR camera, tech gadgets, more tech gadgets, etc. (Note from Mrs W: The tech gadgets were all Mr W – my hobbies were much cheaper!). We also did a fair amount of travelling, but I wouldn’t count that as stupid expense…we love travelling!
Becoming self-employed was not only an eye opener but a serious kick in the ass as well. It changed my life profoundly and was the major freedom-turbo on the way towards FI. Why?
- Because I was forced (by law) to keep and look for other customers(working for just one customer is illegal), projects and side hustles. It wasn’t easy but for me it was very exciting and fun.
- I was forced to use my brainin so many situations where normal employees are on auto-pilot-rat-race mode.
- I was forced to look forpension alternatives a.k.a investments. Without that, I wouldn’t be here to tell you about financial independence!
- And so many more reasons… I think I should write a separate post about that at some point.
Milestone #2: The First Side Hustle
Sometime in 2007 I was sitting in my office at the start-up (where I basically spent most of my day) and I thought: hey… I don’t think many people in Romania know about the process of becoming self-employed in Germany. So why don’t I start a business finding Romanian freelance programmers and helping them become self-employed in Germany so they can work for German companies.
I knew how to find programmers. I knew there was a demand for them in Germany and I knew the bureaucratic part (since I’d gone through it) so there was a business opportunity. It worked! I was suddenly a full-time programmer, a self-employment-consultant, a salesman (selling my services) and a head-hunter all at the same time!
I made nice money with about an hour’s work a day on top of my regular income as a programmer until the 2008 financial crisis started having an impact on the job market in Germany. That was it. It wasn’t working that well anymore and we had made enough money (especially with the side-hustle-turbo) to afford a down payment on our future flat…so I just stopped doing it. It was an invaluable experience: a great life lesson that came with a whole host of new skills. I knew I could always go back to it if I wanted to.
At that point we had no idea about FI but we still managed to put aside a huge part of our income to save for our flat.
Milestone #3: Our Flat
This is Stuttgart and we’re talking about the city centre, which means the number of 3-4 room flats for sale was something like 13-15. Of which normally 10 were overpriced and 5 were absolutely shit and still really expensive.
Anyway, I was optimistic. I was looking for flats every day. I had my instant notifications set up on the property websites. I knew that speed was going to make all the difference and one day, after six months of looking, once day in spring 2009 we found two flats that matched our criteria. Good locations, quiet, fairly new, affordable…the sort of flats that exist in theory but the chance of finding one is close to zero. We looked at both of them on the same day and shook hands (by phone) on one of them the same night – midnight, to be exact, from our bed! I even tried to negotiate and – I still can’t believe it – it worked: the seller went down €5000€! (In that sort of market situation that was insane!)
No, that’s not our house
We put about 50% down and we had a three-room flat with a small balcony in the city centre. Check!
We thought (at that time) that it was expensive. Which it really was back then…but looking back at it now, after prices have gone up by at least 50%, it was a bargain.
We moved in a week before our wedding so that we had access to both the new and old flats at the same time. That’s very handy if you have to provide accommodation for wedding guests from lots of different countries. The plan worked well.
Milestone #4: Rental Property No. 1
What do you do after you’ve bought your home and furnished it? Exactly! You get bored and start looking for more flats: rental properties!
I knew that since I didn’t pay into the state pension fund I had to do something to make sure I wouldn’t have serious problems when I get older and can’t work anymore. Mrs W was employed all that time so her pension was sorted. But what about me?
So, instead of playing video games every night, I went online shopping for flats. We went to have a look at some, started learning about the market, prices, ROI, etc. At the same time, after paying the monthly mortgage on our home (which was hardly more than our rent before) we still saved quite a bit of money.
After about a half a year (in early 2010) we found a fairly new two-room flat (50m²) with a balcony and a parking space and a very civilised tenant already living in it. We didn’t know much about rental properties but after running some numbers and asking some banks, property consultants (not always a good idea btw…), we decided to buy it.
Our consultants advised us not to make a down payment (we had about €30,000) but to get a 100% loan from the bank and invest our money somewhere else. Whether that was a good idea or not is highly debatable, however, that’s what we did. Again: we weren’t financial experts (nor are we now) and yes, those advisers got a big fat commission from us.
By mid-2011 we still didn’t have any idea how we should invest our €30,000 that we didn’t end up using for the down payment and we kept on saving money, so we just put all we had (minus a small buffer) in a five-year fixed-term savings account with a 4.25% guaranteed interest rate. No, we hadn’t heard about the 4% safe withdrawal rate.
Milestone #5: Rental Properties Nos. 2 and 3
It was mid-2012 and we were constantly looking for flats and learning about property investing. By this time Mrs W was also infected with the investor virus. We found another 50m² flat on the market at a very good price. We made an appointment with the seller (a building company) to have a look at it but they sold it a few days before the viewing. We were angry and I called the estate agent to give him a piece of my mind. I asked him whether they had any other flats for sale. It turned out it was a good question to ask – they had several almost identical flats for sale in the same building. BINGO!
I remember the conversation with Mrs W where I asked her, “Hey, should we buy two flats? “ So we did. It was a BARGAIN!
We made a 20% down payment on each flat. Both already had tenants in them so basically we didn’t have to do anything to them for a good while.
At some point one of the tenants moved out, so we furnished the flat and started our experiment with furnished rental properties. To keep it short, it was a very good plan. We’ll write more about it in a different post.
Milestone #6: Rental Property No. 4
We just couldn’t stop. Our minds were focused on property investing and we could tell in seconds whether an offer was worth even properly looking at. We found another bargain in mid-2013. Same setup: about 50m², two rooms, central location, 20% down payment.
It was already furnished and all we had to do was freshen it up a bit. We rented it out fully furnished expecting the tenant to move out as soon as he had time to properly look for a cheaper place. Turns out he didn’t bother. Two-and-a-half years later he’s still there, happily paying his rent.
Milestone #7: Rental Property No. 5
In early 2014 it was time for a new investment: another bargain. Only this time a one-room place. (We’d realised after running numbers on so many flats that the smaller the flat, the higher the ROI.) The flat was already half furnished and didn’t need any work. It took us a day to find a tenant.
The ROI is fantastic! Small places have great ROIs. That’s a general rule (although it’s not the whole story).
Milestone #8: The Napkin Plan
While we were in the process of buying rental property no. 5, went for dinner at a Chinese restaurant. It was one of those rare occasions when a set of grandparents was visiting and we able to look after our baby daughter for the evening. It felt sooo good to have a break! And such breaks have to be used wisely. We did our best.
I got a napkin, we asked the confused waitress for a pen and we started writing numbers down. Did I tell you I love numbers? We still have that napkin btw…
We wrote down two questions:
- How much monthly income do we need to cover our expenses?
Answer: €3500 net a month (just a rough estimation based on current and planned expenses)
- How much net rental income will we have once all the flats are paid off?
Answer: €2713,75 a month
So we had a gap of €800 a month.
At the beginning, my plan was to have an income that would replace a pension. As of the napkin plan, we were officially on the road to FI.
Yes, it’s overly simplified and we needed to factor in many, many more things, but seeing the numbers written down had a huge impact on our journey to FI.
We now have a much better idea of what our estimated post-FI expenses are going to look like. We’ve been track all our expenses in detail for years now. That’s crucial!
Around the same time (in early 2013) I started a website as a hobby. It quickly started generating income (some passive and some less passive). Then I started another website. Since then they’ve grown so much that in 2015 that income alone could have covered all our expenses. It’s not all passive, but most of it could be outsourced.
It’s such a good feeling to get advertising orders or ad income while playing with the kids or sitting on the sofa sipping a glass of nice red wine.
That was a big surprise and an eye-opener. It’s like building a money-making machine. My initial investment: €0, but quite a lot of time, most of which I really enjoyed!
Milestone #10: Switching to FI Mode with F-You Money
At the end of 2014 I realised I’d been working for mostly the same company for eight years. I made a decision: next year I want to work only 100 days for them. I want to use the rest of the time for my family, for my website that had great potential, and for giving online marketing consulting for short projects with a much higher hourly rate.
With the power of F-you money, I did exactly that. And it worked a lot better than I expected, basically catapulting us into FI!
Mrs W was on parental leave until the 1st of August 2015. When we looked at our simulations in early summer it was clear to us that it didn’t make any sense for Mrs W to go back to work. So she quit her job and became self-employed. Freeedoooom! …Kind of…
Mrs W now works a few hours a week on short projects and is learning about the benefits of self-employment. Managing the household, meals and two very young kids isn’t something that should be done “after work” or “when I find the time”. They’re THE most important jobs in a family. She’s amazing at it! Especially since the “job stress” is out of her life.
Since then we’ve both been at home and we’ve switched to our definition of FI mode. At least the first stage of it. It’s great!
How Are We FI when We Still Have Hundreds of Thousands of Euros of Debt?
We do actually have lots of mortgages left. We are allowed though to make extra payments each year. If we pay the maximum allowed extra payments, then we’ll be debt free by the end of 2019. So how can we say we’ve reached financial independence already? Well…we already have the money for all the extra payments plus all our expenses for the next few years almost entirely in cash or in the stock market. So basically if we stopped working now and our passive income streams continue to generate income, we would still be able to cover all our expenses until the rental income kicks in.
Thanks to a tool called Excel (Heard of it? It’s great!), we can simulate different scenarios where the worst case is good enough for us. Plus with every passing week, and unexpected income hitting our account, that worst case scenario is looking better and better.
Sorry if we disappointed some of you with the fact that we’re not investing much at all in index funds (ETFs) and stocks or building up a dividend strategy. Sorry for not posting a sophisticated portfolio and a monthly stock performance update. We do things differently. I explained here why we haven’t built our financial independence strategy on the Safe Withdrawal Rate.
Actually, we do play with stocks and ETFs but we do it on a much smaller scale at the moment and our FI is not dependent on that. We do however plan to invest more in ETFs in the future since we’re most probably going to keep earning more than we spend and we don’t plan on buying any more rental properties. All the surplus is going to go into index funds unless we come up with a better idea.
Passive Income Is More Important Than Net Worth
The goal is to cover our expenses through passive income. Net worth is not part of the equation. What is relevant is how much of our income is passive. You can have a net worth of next to nothing, but if your regular passive income covers all your expenses, you’re fine! That’s why I encourage you to build up a business first of all rather than wait until you can save a half a million (in index funds or rental properties). In our case, we more or less accidentally did both. You can do it too!
Enough text. Here some numbers:
- Our expenses are higher in 2016 and 2017 because we’ll pay more tax on our higher income.
- The extra mortgage payments are eating up all our current passive income, which ends up negative until the end of 2019.
- In 2020, BANG, the rental income kicks in and that’s where the magic happens!
- All the red stuff is reserves we could virtually use up…but in reality we won’t touch much of it since we’ll keep earning.
Why Did We Invest in Rental Properties?
We did invest a lot in rental properties but we did it because we think we found the flats at very good prices and we didn’t have a better idea. Today it’s a different story. If we started today we would probably not invest in rental properties at all since the prices have gone through the roof. So please don’t go crazy and buy the first flat you find! Chill, and calculate the ROI! Always! Ah…and loooocation! More on property investment another time…
So, this was a short version of our story. If you want, we’ll write about some of the points in more detail. Feel free to ask.
Should we invest our extra money in the stock market rather than paying back our mortgages ASAP? We’d love to hear what strategy you’re using to reach FI. Or, if you’re already there, how did you do it?
We’d love to read your comments!