27y/o in Germany; progress thread

[GERguy]

Hi there,

After quietly reading for a few years, I have decided to start my own Young-Dreamer-thread. Mainly because I like to read about other people's long term progress and find it's just fair for me to contribute as well.

I live in Germany so most of the common instruments (401k, IRA, 529, tax deferred accounts) are not relevant to me. I mostly come here for the "soft" information and inspiration, and from now on for my semi-annual update of this thread ;-)

I discovered the FIRE concept pretty early in my 20s and have been reading a lot of blogs and this forum ever since. Hating work or my job is not my main motivation right now. But looking at the numbers I can see us reaching financial independence in 2-3 decades and why wouldn't we want that?

I am married (both 27y/o) and all of the numbers are our joint accounts. We both started full-time work in 2015, bought and fully renovated a house last year. During that time I held all our assets in cash for flexibility and easy access; I'm just starting to look into investing it in a few low cost index funds. After we have settled in and big ticket items for the house are done (i.e. our expenses enter steady state) I'll go into more detail on this. As for the home loan, we are in no hurry to pay it down. You might be able to guess why ;-)

For now, these are our numbers:

Date	06/30/2017
Age	27
Take home pay	$75k	€64k
Home equity	$419k	€360k
Home loan @ 1.2%	$341k	€293k
Checking Acc	$97k	€83k
Cash	$16k	€14k
Stuff (mainly cars)	$23k	€20k
Net worth	$214k	€184k

I'm looking forward to any kind of discussion and questions you might have

 

[Oz investor]

a 20 to 30 year time-frame looks good but also hard ( time for many unplanned changes to happen )

the big question is job stability ( for one or both of you ) a big unknown in Australia where i live .

if thinking of index funds please put in the extra research effort , each is a very different beast and those tiny differences can have a BIG impact on you ( over 20 plus years ) ( it isn't all about lower fees and expenses )
market timing can be a nice ally as well

so far so good

good luck on your adventure

 

[Oz investor]

PS ...

welcome aboard

 

[RISP]

Welcome from a fellow German!

A few random observations in no particular order:
1) Those salaries are quite impressive, especially for your young age (and high German taxes ). By "take-home pay", are you really referring to your net salaries? May I ask what you do for a living?
2) I'm with you, there's no reason to hurry paying down a mortgage at such a low rate. Unless there is the danger of having to re-fi during a time of steep rate increases, that is. How long is your rate fixed? How much will you still owe once the mortgage is up?
3) By "Home equity" you likely mean how much your home is worth, no? Usually your equity is market value minus open mortgage balance. So if you own a 779k home and have a 634k mortgage, your equity would be 145k.

Again, welcome to the forums. Looking forward to hearing about your progress. Hit me up if you want to discuss anything Germany-specific.

 

[GERguy]

Thank you for your replies and your welcome!

@Oz investor:
Absolutely true. For such a long time frame, the range of possible scenarios is very broad. But keeping the FIRE goal in mind and sticking to the basics of saving, investing and LBYM will at least increase our chances to getting there.
Re jobs, for now we both have settled in at megacorps. Of course no guarantee here but usually that's the most stability you can get over here.

@RISP:
1) Yes, that's our combined net salaries. We gross around €55k each. I'm not going to name the job titles as they would be a 100% clue for someone who knows us and stumbles across this (albeit small chance of this happening).
But both of us have filled newly established positions at megacorps. This has allowed us to shape these roles over the past three years and has brought quite some management attention and a few raises.

2) The current 1.2% is a 10y fixed rate followed by a Bausparvertrag covering the remaining amount at well under 2%. The whole debt will be paid off within 15 years from now. All in all, it's a pretty secure and cheap financing setup.

3) You are correct. I can not change the first post anymore so I'll have to remember this for the next update

 

[RISP]

Date	06/30/2017
Age	27
Take home pay	$75k	€64k
Home equity	$419k	€360k
Home loan @ 1.2%	$341k	€293k
Checking Acc	$97k	€83k
Cash	$16k	€14k
Stuff (mainly cars)	$23k	€20k
Net worth	$214k	€184k

Sorry, I didn't see the € sign in the second column, so I assumed the two columns in your table are for the two of you. Apologies, just me being a bit slow. I should have gotten that from the context.

No need to get specific about job titles, I was just interested in which field two 27 year olds could net 75k and 64k, respectively. But €64k net for two incomes is of course much more in line with the salary situation for young professionals as I know it.

You're in a good place making this kind of money in an area where a house costs 'just' €360k. Usually the well-paid jobs in Germany are in the big cities, where prices have gotten utterly ridiculous over the last decade.

 

[justagirl]

Hey there! I'm a 20-something year old myself. Those are impressive numbers. Makes me wish I found the FIRE community sooner.

Is there an equivalent to 401k/retirement investing account in Germany? For tax purposes, it may be in your favor to invest in them (over here in North America, it lowers our taxable income and possibly puts us in a lower/more favorable tax bracket).

 

[RISP]

Is there an equivalent to 401k/retirement investing account in Germany?

Not really. There are two vehicles that can be used for tax-deferred savings: The so-called 'Riester-' and 'Rüruprente' (named after two politicians). Both are insurance solutions with high fees and little flexibility - basically you are buying an annuity.

 

[GERguy]

Semi-annual feels pretty slow so here's a quarterly update ;-)
We are chugging along, starting to shift checking acc and cash to World and EM ETFs.

Changes in reporting:

• correction from "home equity" to "home value"
• added some forgotten 10k in savings account
• I'll be reporting in € and only convert the total; previous method turned out confusing
• added savings ratio for the respective period

The numbers:

Date	06/30/2018	09/30/2018
Age	27	27
Take home pay	64.000	64.000
Home value	360.000	360.000
Home loan @ 1.2%	-293.000	-291.800
Checking Acc	93.000	106.700
Investment Acc	-	6.300
Cash	14.000	4.500
Stuff (mainly cars)	20.000	20.000
Net worth EUR	194.000	205.700
USD/EUR	1,170	1,161
Net worth USD	227.000	239.000
SR		73%

 

[RISP]

Congrats on your progress. One question about the home loan, if you don't mind: Apparently you pay off 400€/month. You mentioned earlier that it will be paid off in under 15 years. Do you plan to do extra payments?

 

[GERguy]

The 06/30 was rounded off for some reason, actual payment is 600€/month.

But even this (and higher payments once the 10yr loan expires and the Bausparvertrag kicks in) leaves a balance of 100k€. We could eliminate this by paying down an additional 500€/month but due to the low interest rate I prefer to re-route this money to savings.

If interest rates are still this low when I have to refinance, I'll gladly do so instead of taking the 100k€ from savings

 

[matjung]

Regarding Riester, was doing that for 2 years - don't see much value in it.
Still undecided what to do with it.
I stopped with contributions, also did not cancel it.
The surrender value (Rückkaufswert) is pretty low.

I hope that German FDP is coming up with a better solution than Riester/Rürup.