First off, a small correction for the February number, it was adjusted downwards as one set of newly purchased stocks registered after the dividend cutoff, so that first new dividend won’t come in until May (it was only about 9 euro’s, so not too bad). We have several shares that register on one of the last days of the month. We (try to) wait until we have received all dividends into the investment accounts before we report the final incomes from Dividends.

As you can see below, March was a killer for us! Mainly due to RDSA, which contributed about €153 to the total (after taxes) and a (one time) bonus dividend of ~€65 from the Chesswood Group. Nice unexpected surprise!

Below you can find a quick overview of the total monthly dividend payouts for 2015/2016:

Here is an overview of our dividend stocks (we currently have 37 36 different stocks):

20160401 Dividend Overview

If you group the above dividend stocks by sector, the distribution of our portfolio is as follows (based on market value at close of markets on March 31, 2016):

20160401 Dividend Stock by Sector

So, what happened in March? Well no new stock purchases, that is for sure. However, we did sell both UNA and RDSA right after we received their dividends. Why? Simply because we wanted to capitalize on some of their capital gains due to share price increases (ended up making about +10% on the UNA shares after fees).

However, last Friday and last Tuesday the market on Amsterdam got a hit, and we ended up buying both stocks back (in multiple transactions) with a discount between 3.5-6.5% compared to the highs we sold them for earlier. We only did this after re-evaluating our cash position for our pending Real Estate adventure and realizing March had a good run upwards. We are not really the gambling types, but will try to capitalize on an opportunity if it presents itself 😉

March was a very good month for the Cheesy Index, as it saw a very respectable increase of 1.3% to a total of 45.5%.

We closed 2015 at a Cheesy Index of 43.6%, we recently decided to aim a bit higher for this year and get to the 50% mark. So another 4.5% to go for the rest of the year. Let’s hope the stockmarket will be nice to us.

The Cheesy Index up to March 2016 is as follows:

201603 CI

Although we did not think we were going to beat February, we did! It was the result of careful spending and a bit of “luck” regarding the timing of payments/benefits. This month we managed to obtain a Savings Rate of 61.2%! It was a basic month in terms of expenses and income, with no major expenses outside the normal housing costs and daycare costs.

The main reason why this month is so good is because we received the second set of benefits for daycare expenses came in for the period January to April 2016, which was €1056! This is considered as a negative daycare expense and reduced the total daycare costs to just €470. Nice, but this also means that the next couple of months, the daycare costs will be back to normal. Furthermore, child care benefits also arrived in the chequing account as well as several expense payments from Mrs. CF’s work. See below for the Savings Rates of the last few months including March 2016

201603 Savings Rates

Below you can find an overview of our expenses in percentage. Transport remains low for us as both Mr. and Mrs. CF have their commutes paid for (one company car and one public transportation card). The “Kid” category is thus extremely low this month due to the received daycare benefits. This months we did a couple of day trips, one of which was to the Dutch Comic Con in Utrecht, one to the beach (free), couple family visits, and a Musical Show in Amsterdam (we got free tickets form our landlord, so only parking fees).

201603 Expenses

Travel

After reading up on the blog “Wandering Earl”, and enjoying it very much, I’ve started to think where our (Mr. CF, Mrs. CF and Team CF) travels have let us to in the last decades. The list is not nearly as long as Earl’s (see here), but we appear to have done our fare share of travelling. Between the two of us we have been to 23 countries so far (including Hawaii with the US, of course). We are still planning to add a few more countries in the coming decades.

Do note that our travels were both for business, studies and pleasure. Both Mr and Mrs CF have studies abroad for a semester. Mr CF also worked extensively abroud during his carreer. We also emigrated to Canada for many years, which was an absolutely amazing experience!

Photos!

We have included a few of our own photos to give an impression. For some places we don’t have any photos as we did not have any (digital) camera’s at that time:

Angola (Business)

Catching Cobras (not me though!)

Angola - Cobra

Austria (Leisure)

Castle/Mountain Lake

Austria - Castle Austria - Moutain Lake

Belgium (Leisure)

Brugge/Caves of Han

Belgium - Brugge Belgium - Caves of Han

Canada (Business/Leisure)

Lake Louise/Rockies/Snowshoeing

Canada - Lake Louise Canada - Rockies Canada - Snowshoeing

Croatia (Leisure)

Denmark (Leisure)

Estonia (Leisure)

France (Studies/Leisure)

Mont Blanc/Paris (Le Notre Dame)

France - le notre dame France - Mont Blanc

Finland (Leisure)

Germany (Studies/Leisure)

Black Forest Home

Germany - Black Forest House

Great Britain (Business/Leisure)

Greece (Leisure)

Hawaii (Leisure)

OK , this technically is the USA, but it is a special place: Lava/Blow Hole/Maua Kea Observatory

Hawaii - Lava Hawaii - Maui - Blow Hole Hawaii - Mauna Kea Observatory

Iceland (Leisure)

Iceland - Reykjavik

Italy (Leisure)

Luxembourg (Leisure)

Netherlands (All)

Keukenhof (Lisse)/Hellevoetsluis (Windmill) – we know, very stereotypical!

Netherlands - Hellevoetsluis Netherlands - Keukenhof

Norway (Leisure)

Portugal (Business)

Lisbon (Castle)

Portugal - Lisbon

United States (Studies/Leisure)

Yellowstone/Bison/NYC

USA - Yellowstone

USA - Bison USA - NYC

Qatar (Business)

Camel near Doha

KONICA MINOLTA DIGITAL CAMERA

Spain (Studies/Leisure)

Sweden (Studies/Leisure)

Switzerland (Leisure)

Mountain Lake/Church on the Rock(s) 😉

Switzerland - Church Switzerland - Moutain Lake

And you, where have you travelled?

Where have you travelled? Where have you gotten yourself to on this amazing planet? What was your most memorable place or the one you love most? Any ides on where you will be going this year? Let us know!

As noted in a previous post on Creative Living Options , if you are a bit savvy (which you are of course!) you can look into creative ways to lower your house expenses or even earn some money on the side.

We are currently renting and were waiting for an real estate opportunity to present itself. We were looking into a couple options for our next real estate purchase:

  • Single unit for a low price (a fixer-upper would also be acceptable);
  • Double unit or potential option for a double unit (e.g. an old farm house/duplex), we would keep one for personal use and rent one out for some extra income;
  • Multiple units, again to keep one for ourselves and rent out the other units.

Criteria for the search were as follows:RE 04

  • Within about 30 min driving distance from Mr. CF’s work;
  • Within about 15-20 min cycling of a major public transport hub (for Mrs. CF to get to work);
  • Priced under €450.000 for double or more units with little renovations;
  • Priced under €375.000 for double or more units with major renovations;
  • Priced under €232.000 for single unit of even double unit, the reason for this price is the ability for the unit to be priced under the NHG mortgage insurance limit, which provides a lower interest rate on the mortgage (more on this below);
  • The potential property would get “extra points” if it would also be situated close to our parents, so that grand parents can take care of Miss CF on occasion and our weekend commute to family would be limited.

The NHG stands for Nationale Hypotheek Garantie, which freely translates into the National Mortgage Guarantee. You pay for this insurance when you close the sale of the house, however, it generally allows for a massive discount on the mortgage interest rate (up to ~1.1%, subject to how much you pay down). It also covers the shortfall in case you are forced to sell your house below the purchase price. So it’s a pretty sweet safety net, and the additional closing costs are limited.

With the above criteria were are trying to achieve the following goals:

  • Limit monthly cash-flow;
  • Low maintenance/replacement cost;
  • Gross return on investment of around 7-8% (in today’s monetary value);
  • Net return of investment of 5% or more (in today’s monetary value); and
  • Limit daily commuting times.

RE 02

Not the actual property, go figure!

After actively searching for about 3 months (which is not very long!), and a couple of failed attempts, we seem to have been successful at our latest try! We found a property which already consists of 3 units and a garage/storage building with the potential to be converted into a fourth unit. It is situated on a large plot of land, ample parking and was for sale well below our limit of €450.000. We have already completed the property inspection, signing of the purchase agreement and are awaiting completion of financing. Possession date is schedule for mid July this year.

Why did we select this particular property?

There are several reasons why this particular property was interesting, these include:

  • Well priced (e.g. relatively low price per square metre, both for living space and yard);
  • Good cash-flow potential, in its current state the rental units would cover about 50-75% of the mortgage cost. Once the additional space would be developed, the cash-flow from the units would more then cover the mortgage payments;
  • Once paid off, the gross return on investment is estimated at 9% (in “today’s money”, will be way more in 20-30 years time due to price increases); this is estimated to convert to about 6% after expenses and taxes (again measured in today’s money, so no inflation corrections);
  • Bathrooms and kitchens are recently renovated or in good condition;
  • Roof has been replaced and outfitted with solar panels (enough to pretty much cover our yearly usage); and,
  • Overall the building appears to be in a good condition and is reasonably well maintained (as you would expect, some maintenance is still required, but the cost for this is within the normal range).

There must be a few downsides as well, we hear you ask. And you would be correct, there are a few points that are not ideal. These include:

  • Not situated close to family, the travel times are around 45-55min, which is fairly long for Dutch understandings (we know, Canadians and Americans will think this is just around the corner);
  • The building is relatively old (around 1900-1910), so there will be additional upkeep to the brick walls (there are many hairline cracks in the plaster, which is typical for such buildings with that age since they are founded on steel, not piles, and thus settle);
  • The kitchen in the main unit was not replaced yet, everything works but it is old and will need replacement in the next 5 years or so; and,
  • The layout of the unit we are planning to use is not ideal, it is spacious, but not very efficient (think long hallways and large staircase landings).

But these downsides are minor in comparison to the potential of the property.

The next steps

The next steps in the process is to RE 01arrange a taxation report and sort out our financing options, sort out down payments, notary works and close the final sale on the property. As noted the possession date is scheduled for mid July. So we have some time to sort out cancellation of our own current rental, plan for moving, arrange for some minor repairs and a couple of other minor arrangements. Fingers crossed that all goes well!

The Dutch Government has several benefits programs to help those with low incomes to pay for various expenses like healthcare, housing, children and childcare. However, there are restrictions on when you can apply for certain benefits.

Once financially independent, most people will generally have a “lower” income to sustain their daily expense. However, these same folks will generally have a relatively high wealth in order to do so (e.g. comprised of stocks, bonds, rental properties, etc.). So, how does this affect their ability (or inability) to qualify for the various benefits?

money-bag3A quick overview below (as per 2016):

Healthcare Benefits (Zorgtoeslag)

Low income families can apply for aid to pay for healthcare cost. However, there are both caps on income and/or wealth to be able to qualify for these benefits. For income this cap is € 26.316 (single) and € 32.655 (couples). For wealth this cap is € 21.330 per person, so € 42.660 for a couple.

In short, folks striving for financial independence will most likely not be able to apply for this benefit as many will have more than the maximum allowable income and/or wealth.

Rental support (Huurtoeslag)

Low income families can also apply for aid to pay for rent for their primary residence. Again, there are both caps on income and wealth to be able to qualify for these benefits. The income cap (for a couple) is € 29.800.

For wealth this cap is the same as for healthcare benefits, so € 21.330 (single) or € 42.660 (couple). The base rent also need to be within a certain range: min € 229,64 and max € 710,68 per month (excluding service fees).

Similar to Healthcare benefits, folks for financial independence will most likely not be able to apply for this benefit as many will have more than the maximum allowable income and/or wealth

Special Child Benefits (Kindgebonden budget)

This benefit is in addition to “normal” child benefits (http://www.svb.nl/int/en/kinderbijslag/index.jsp; more on this in a later post) and is to aid in raising children under the age of 18.

However, similar to healthcare and rental support benefits, this optional benefit is subject to wealth (same limits as for healthcare and rental support). Again, not a benefit that the average folks going for Financial Independence could obtain (see a pattern here?).

Childcare benefits are limited to 230 hours per month and depend on how many hours you work (i.e. a full time job at a 40 hour work week will qualify you for the maximum number of benefit hours). There are also a maximum hourly rates associated with the benefits. Rates vary between about € 5.48 and € 6.80 depending on the childcare type (i.e. dayhome vs. daycare). If you pay a rate that is higher than the maximum, the difference will not be covered by the benefits. coins

Folks aiming for Financial Independence will not be able to apply as they would not have a job and thus no need for this benefit. It may, however, still benefit most folks that are on their way to Financial Independence and have children in daycare.

How to calculate your potential benefits? The Tax Man has a website where you can do your own calculations: http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/themaoverstijgend/rekenhulpen/rekenhulpen_particulier ) to see if you would be eligible for the various benefits (in Dutch only).

Its time for another overview of our dividend stock portion of our wealth portfolio.  And Boy, was I wrong last month, stating that it was a quiet month…. The quiet month appears to be February ;-). Albeit, we still managed to receive a very nice €225,37 in dividends during this month!  Most of this has already have been reinvested into new shares by various Dividend ReInvestment Programs (DRIPs), which will continue to increase the portfolio.

However, this time I have done my homework and looked forward to see how March is shaping up, and it should be a very nice one that should dwarf all previous months. But let’s not get ahead of ourselves here, first the February overview.

Below you can find a quick overview of the total monthly dividend payouts for 2015/2016:

20160301 Monthly Dividend

Here is an overview of our dividend stocks (we currently have 37 different stocks):

20160301 Dividend Overview

If you group the above dividend stocks by sector, the distribution of our portfolio is as follows (based on market value at close of markets on February 29, 2016):

20160301 Dividend Stock by Sector

During the dip at the beginning of February we were able to buy a whole bunch of shares with available cash. In total we invested a whopping €19.000, all purchases were triggered by shares dropping below our set limits (so no timing of purchases here). We have already set new limit orders for the next sets of shares, in case the market decides to have another hiccup.

We loved the mayhem at the beginning of this month, as you can imagine, and ended up buying shares in (amongst others) Unilever, Canadian Utilities, Corus Media, Fortis, Royal Canadian Bank and Plaza Retail REIT. These positions were selected to either average down or start new positions to further diversify our portfolio. They were generally Canadian Dividend “Contenders” or “Champions” with dividend streaks of 10+ years of increasing dividends, higher yields and high(er) chowder values.

Compared to January, February was a lot better, twice as good actually. The Cheesy Index saw a respectable increase of 0.4% to a total of 44.2%. The current target is roughly a 5.5% per year increase (we want to be done in about 10 years), so about 4.9% to go for the rest of the year.

The Cheesy Index up to February 2016 is as follows:

201602 CI

The February 2016 was amazing, but not for the “right” reasons of spending very little. This month we managed to obtain a Savings Rate of 58.3%! It was a basic month in terms of expenses and income, with no major expenses outside the normal housing costs and daycare costs.

The only reason why this month is so good is because we received the benefits for daycare expenses of the last 4 months in one payment. That was €1008! Yay. This is considered as a negative daycare expense and reduced the total daycare costs to just €350.

201602 Savings Rates

Below you can find an overview of our expenses in percentage. Transport remains low for us as both Mr. and Mrs. CF have their commutes paid for (one company car and one public transportation card). We only did visits with friends and family, so no separate travel & leisure costs this month. The “Kid” category is thus extremely low this month due to the received daycare benefits.

201602 Expenses

After is rocky start in January due to the Flu, February is progressing very smoothly with regards to the Amber Tree Leaves Running Challenge. From past experience training for a 10km run, a mixed workout regime and a very healthy diet are the key to success.

The mixed workout regime for me consists of actual running, cycling and indoor cardio workouts (Insanity, P90X or similar – go for the plyo type workouts). The goal is to workout at least 3 times per week, less would not allow quick enough progress to run 10km in under 45 min by June of 2016.

After essentially started from scratch early February, I have been able to do about 13 workouts in the last 30 days. An quick overview of the activities is provided below:

2016-02 RWATL Plot

For workouts I use a Garmin 310XT with heart rate monitor to track route2016-02 Garmins, durations, speeds, heart rate and calories (albeit the last is a bit of a useless unit, after all, if you are eating correctly this unit does not matter one bit). The above figure came from GarminConnect, an online database where all the workout data is stored. Handy.

You don’t actually need one of these toys, but they are very useful to guide and tailor your workouts and keep track of progress and improvements. There are many similar systems out there, the only reason why I bought this one is because of the massive discount bought on Amazon (after having done some research on what features were preferred on the unit). It set me back about CAD 175 (~€110) at the time. Still think it is worth its weight in gold, love it!

So, with regards to running, here are a few plots with data from the last month and targets to be achieved. The first one shows running distance vs. pace. As you can see, the pace is still around the 5:30 min:ss/km. For training purposes this should get down to around 4:45 to 5:00 min:ss/km.

2016-02 RWATL Dis vs Pace Plot

The next graph is a plot of duration vs. distance, with pace lines plotted for reference. Also added are the training events from February. As noted above, the goal is to increase pace and distance. The preference is to first get the distance up, followed by the pace. But it may be that both will happen at the same time, depends on how I feel when running. (Yes, “linear” is not spelled incorrectly on the graph, it’s the Dutch way and I could not convince Excel to change to English).

2016-02 RWATL Dis vs Time Plot

The goal for next month is to jack up the running distance to around 8 km, while keeping the pace around or below about 5:30 min/km. Update to follow by the end of next month.

For most people, one of the largest expenses within their budget are living costs (i.e. combined expenses for rent/mortgage, utilities, taxes, insurance and/or maintenance). In a past life we jointed in on this by buying a McMansion. Although it was certainly luxury living, after a few years we started to notice the drawbacks in terms of cost (and the mortgage was not even too bad!) and time (cleaning/maintenance).

We currently rent, but are looking again into home ownership. The region where we are considering purchasing, the cost vs. rent balance (assuming minimal down payment) tips in favor of buying. It furthermore gives us the opportunity to purchase a future investment as well (i.e. we are scouting for a home or homes that can be turned into a rental property or properties).

However, some folks have found creative ways to reduce their cost of living or enhance their way of living. Many of them documented these (ongoing) journeys, below is an assortment of (sometimes inactive) blogs that give you an idea how to “thinking outside the box” on “think inside the box” in one case.

Creative Living Options

Creative Living Options: Houseboat

Creative Living Options: Houseboat

Source: http://whatsupwithamsterdam.com/houseboats/

Not all off the following “housing” options are for everyone, or even possible for most, but it should make you think more creatively about your current/future living arrangement. For example:

  • Can you move to live cheaper and/or liberate equity to invest?
  • Can you sub-let a room/basement/attic/garage to get more income?
  • Can you split your home into two or more units?
  • Can you move to a recreational facility/park and live in a RV/Cabin/Trailer/House boat (you may need two as regulations don’t always allow permanent living at these places)?

Several creative living arrangements

Living in the office:

http://www.theofficehobo.com/

Living in a pickup:

http://www.cheaprvliving.com/survivalist-truck-dweller

Living in an RV:

http://www.cheaprvliving.com/

Living in a box truck:

http://frominsidethebox.com/

Living on a boat (stationary):

http://www.weliveonaboat.com/

Living on a boat (travelling):

http://www.bumfuzzle.com/2003/09/01/septemberoctober-2003

Living on a floating homes:

http://www.huffingtonpost.ca/2015/04/14/freedom-cove-tofino-float-home_n_7066358.html

http://www.citylab.com/housing/2015/11/why-i-decided-to-live-on-a-houseboat-in-london/417387/

Box Truck

In the previous post on the topic “How Much Do You Need To Become Financially Independent in the Netherlands”, we looked at three scenarios (the “poverty” option, base case option and the “luxury” option). One of the main things we concluded is that taxation significantly increases the amount of required assets before you can call yourself financially independent. We assumed an average tax burden of approximately 30%. However, was this calculated correctly?  Financial-IndependanceXSmall

In this post we will evaluate the impact of Box 1, Box 2 and Box 3 taxation on the total amount of assets required to provide you with a net “base case” income of €25,000 per year (in 2016 Euros). The assumptions remain that that 4% rule applies, that you make an average rate of return on your investment (ROI) of 7% and that we encounter an average 3% inflation. Obviously, swings in the ROI and inflation affect the total amount of assets required.

For this analysis we assume 4 scenario’s (see scenario assumptions below for further details):

  • All your income falls under Box 1
  • All your income falls under Box 2
  • All your income falls under Box 3
  • Your income has a 20 – 80 percentage split between income in Box 1 and Box 3

Real Life Examples

What do these scenario’s mean in real life? Here are some examples for the four scenarios, (please do keep in mind that there are many other examples out there!):

If all your income sits in Box 1, it most likely means that you are still employed as you have income from labour, or you are unemployed and are receiving benefits or you are retired and are receiving a (government/private) pension (and/or a combination of the aforementioned). You have no special interests in (your own) companie(s) (i.e. you don’t hold any shares or are a major shareholder in a corporation, which is taxed in Box 2) and you have limited to no assets and/or receive little to no dividends (as they are taxed in Box 3).

If all your income sits in Box 2, you are not (directly) employed, receiving benefits or a pension (all box 1), you are getting all your income from dividends paid by the company you own or in which you have a substantial amount of shares (see here for details). But you have limited to no other assets (box 3).

If all your income sits in Box 3, you are not employed, are receiving benefits or a pension (all box 1), or you are receiving very little and end up not paying any taxes due to various credits. You either do not own a company or are own a substantial amount of shares in a corporation (Box 2), or when you do, the company does not pay dividends (hence no income and taxation). However, you have managed to collect a (large?) amount of assets in the form or shares, bonds, real estate, loans, etc. This scenario is most likely when you become financially independent prior to age 67 and fully live off dividends, real estate income and/or capital gains from shares/index funds.

The fourth scenario is a combination of option 1 and 3; which you could describe as you having a large amount of assets (box 3) and are also receiving income from employment and/or pensions and/or benefits. The majority of us in the Netherlands will end up in this category at one point during our lives, albeit the ratio between incomes in Box 1 and Box 3 may vary significantly depending on your personal situation.

Final_FinancialIndependenceScenario Assumptions

As there are way too many variables to consider everything, we therefore need to make certain assumptions for our 4 scenarios. We assume the following for each scenario:

Scenario 1 (this scenario is primarily used to evaluate taxation from a “normal” job compared to taxation during “financial independence”):

  • Taxation is based on 2016 rates
  • It assumes income is from labour and you receive the associated credits/benefits (i.e. “heffingskorting” and “arbeitskorting”)
  • No income from other credits/benefits or government/private pension
  • You are younger than 67 years (calculation uses a person of 35 years)
  • No special tax arrangements or benefits (e.g. no company car, you rent a house, no special life insurance or other policies, etc.), just to keep it simple.

Scenario 2 (this scenario represents living from dividend income of your own company without performing any work; it is supposed to be representing “retirement”!)

  • Taxation is based on 2016 rates
  • There is only income in Box 2 from special interests in a company (paid in dividends)

Scenario 3 (this scenario reflect financial independence by living purely on your hard earned assets)

  • Taxation is based on 2016 rates
  • No dividend income assumed (more to follow in a future post regarding dividend tax and Box 3 calculations)
  • Assumed ROI of 2%, 4% and 7% (to show taxation effects), note that the taxman assumes you get around 4% (subject to the amount of assets you have) and we assume you get 7% for our base case.

Scenario 4 (this final scenario reflects financial independence, but you still like to do some work on the side for fun, say 1 or 2 days a week, and get paid for it)

  • Taxation is based on 2016 rates
  • No dividend income assumed
  • Income is from labour and you receive the associated credits/benefits (i.e. “heffingskorting” and “arbeitskorting”)
  • No income from benefits or pension
  • You are younger than 67 years (calculation uses a person of 35 years)
  • No special tax arrangements or benefits (e.g. no company car, you rent a house, no special life insurance or other policies, etc.)
  • Assumed ROI’s of 4% and 7%.

The Results

For details on the taxation amounts, please see Box 1, Box 2 and Box 3 (and check the website of the Belastingdienst for the latest and greatest). Please keep in mind that taxation between box 1, 2 and 3 is not interchangeable (i.e. taxation credits cannot be switch between boxes)!

Based on our assessments, you get the following taxation amounts and effective taxation rates based on the above noted assumptions. The required amount of assets are based on the noted returns on investments (hint, you need to make sure your ROI is as high as you can!).

2016-01 HMDYN P2

Observations and Considerations

Scenarios 1 and 2 are pretty straight forward, but there is a significant impact for scenario’s 3 and 4 subject to your effective ROI and associated taxes (box 3). The explanation on the results is as follows, the lower your ROI the higher your assets needs to be, simple right? However, the higher your assets, the higher the effective taxation, which makes is increasingly more difficult to obtain the required income of €25,000 net of taxes. We therefore see these ridiculous asset amounts to become financially independent.boracay-island

So how does this work then in reality? You will have years that do better than average and years that do not. During the years you are doing better than average, your taxation is “relatively” limited (but about the same in absolute terms) and you should have some extra that year to reinvest  into (or leave in) your portfolio. During the less than average years, you may have to dip into your principle to pay for the owed taxes (or work to get some extra income). On the upside, during a large stock market/housing crash, you tax burden also gets some relieve as your assets would be worth less!

We never realized these impacts on our cash flow (and required amount of assets) and now realize that we need considerably more assets to “securely” live during our years of financial independence. Or we just need to do some work on the side for some extra income during less than average years to cover the taxes.

Another realization is that most people on their way to financial independence in the Netherlands (and blog about it) do not assess this taxation topic and are more closely looking at the wealth building stage (how and how much). However, if you don’t know the level of your taxation, how can you define your wealth goal? So we have now taken an slightly conservative approach and included assets to cover taxation during financial independence. Our final calculated number is what is used in our Cheesy Index.

Conclusion

Based on the assessment above we conclude the following:carnival-of-financial-independence

  • The Dutch tax system is complex and has a large impact on everyone trying to become financially independent. It does not matter much if you are a dividend investor (all Box 3), real estate investor (also Box 3) or investor in Index Funds or stocks (yup, Box 3 again).
  • From a taxation perspective the most “stable” and easiest to calculate would be income from Box 2.
  • Taxation in Box 3 can work in your favour, but can also hurt you in financially less successful years. The key is to maintain a ROI of more than the assumed 4% by the government (plus 2-3% inflation, so ideally an ROI of 7% and up), and you should be coming out ahead.
  • It may actually pay off to do a little bit of work on the side (say postal delivery, cleaning services, consulting, etc.) for one or two days a week to keep your overall taxation down (the Dutch government stimulates labour and low incomes with significant tax breaks/credits). But it is then debatable if you truly are financially independent, you certainly would have way more time on your hands.

 

Below is an overview of our dividend stock portion of our wealth portfolio.  It has been a good month for dividends, especially considering that the months of January/April/July/October are somewhat “slower”.

Below you can find a quick overview of the total monthly dividend payouts for 2015/2016:

20160129 Monthly Dividend

Here is an overview of our dividend stocks:

20160129 Dividend Overview

If you group the above dividend stocks by sector, the distribution of our portfolio is as follows (based on market value at close of markets on January 29, 2016):

20160129 Dividend Stock by Sector

No updates to report, we only bought one new dividend stock (High LIner Foods) in January (we should have bought more, but were to busy dealing with the flu and missed the whole “dip”….aagh).

After such a rough month as this January, you would expect a dip in the Cheesy Index, at least we did. But to our surprise we came out ahead! For this months we saw an modest increase of 0.2% in our Cheesy Index (we ended 2015 with 43.6%, see here).

The current target is roughly a 5.5% per year increase (we want to be done in about 10 years), so about 5.3% to go!

The Cheesy Index for January 2016 is as follows:

201601 CI

January 2016 started off rather good, we managed to obtain a Savings Rate of 48.9%. Not bad! It could have been over 50% if not for a couple of vandals that thrashed one of our bikes causing €115 in damage (parts only!). Other than this little setback, expenses for food, day care, leisure, housing, and such were all inline with targets.

Unfortunatly, we still have not received our daycare credits from the government, which should be in the order of €200-300 per month, so it would be nice if that finally starts arriving in the checking account (expected to start Febuary or March).

201601 Savings Rates

Below you can find an overview of our expenses in percentage. Transport is low for us as both Mr. and Mrs. CF have their commutes paid for (one company car and one public transportation card). This expenses for this month include those for our personal vehicle and bicycles.

201601 Expenses