Who can FIRE? This was a questions that was raised at the dinner table in the Cheesy Finance household. It was actually on the day we had the podcast interview. To be brutally honest, we are really spoiled  privileged. Take two people with a MSc. degree and professional designations, two full time jobs, a reasonably frugal nature, and you have a winning recipe for FIRE. But what if you earn a median income, or less, how good are your chances to FIRE? Can  you even FIRE?

Who can FIRE? Perhaps you can!

Who can FIRE? Perhaps you can!
Source: https://pngtree.com/free-fire-background

Who Can FIRE?

Before we can answer the question who can FIRE? We need to define some boundary conditions. Otherwise there are simply way too many variables. Here we go:

  • Three “situation” scenarios: Single, DINKS (Dual Income No Kids) & a family (two adults, two kids)
  • FIRE age no later than 50 years (so you have about 25-30 years to get to FIRE)
  • You start with the journey to FIRE once you get our of school (without student debts!)
  • Median income in the Netherlands (2017 data) is €37.000 gross and about €25.000 net
  • Return on investment is set at 6% average (assumed inflation adjusted)
  • 4% rule is applicable (in either withdrawal or as a net cash-flow)
  • No social benefits (I.e. allowances for healthcare, low income, etc.) during/after working years
  • No wealth tax included as an expense during working years (to simplify)
  • Assumption of a steady amount of savings throughout the years (to simplify)
  • No expensive live events (i.e. divorce, illness, etc.)
  • Wealth tax calculated on actual wealth (no “discounts” included that you could have with real estate valuations)

Dutch Income Distribution

How much are Dutch households earning? The latest (visual) data available from the Dutch bureau of statistics (CBS) is from 2014. The graph below shows the number of households vs. their available net income. This is shown for “all households” (in light blue) and for “families without kids before age 65” (dark blue):

Who can FIRE? Income distribution

Who can FIRE? Income distribution (net income per household)
Source: http://visualisatie.cbs.nl/nl-NL/Visualisation/Inkomensverdeling

 

Some data that accompanies the above graph.

  • Total households in 2014: 7,950,228 (light blue)
  • Single households: 2.803.852
  • Couple households: 2.498.744 (“DINKs” are the subgroep is shown in dark blue)
  • Family households (1 or more kids): 2.647.632

When I looked at the data behind the graph, about 50% of households need to “survive” on less than €30.000 net per year. Obviously, if you are a single, that should not be an issue. But for a couple with 2 kids this is a bit more difficult, albeit certainly not impossible. Many folks are in that position (say about 25%), as you can see in the dark blue section of the graph above.

Let’s look at a few scenarios and see if FIRE is possible before age 50?

Scenario 1: Single

You are single and earn a median income (€25.000 net per year). When you are very frugal and have a simple life (“barebones”), your expenses are assumed at €15.000 per year (€1.250/month). This leave €10.000 for investing and thus a savings rate of 40%. If you want to enjoy life a bit more (“comfort”), and don’t’ mind to work a bit longer, your expenses are assumed at €20.000 per year. In short, you have €5.000 per year to invest which is a savings rate of “just” 20%.

Based on the two lifestyle scenarios (“Barebones” and “Comfort”), you will need about €420.000 and €585.000 in assets. These numbers are based on the 4% rule (or 4% net cash-flow) and incorporate wealth taxes (2018 percentages and discounts). For more details on how this work, see this post (still contains 2016 tax percentages, but the calculations are the same!).

Who can FIRE? Scenario Single

Who can FIRE? Scenario Single

The graph above show wealth as a function of years, based on a certain amount of absolute savings per year. Based on this graph, you will need 30 years before you will reach a “comfort” level FIRE and about 21 years to reach a “barebones” level FIRE. In both cases you will be able to actually FIRE before the target age of 50 years! That is good news.

Keep in mind that in the Dutch retirement systems you might get a lot of extra spending money (or financial buffer, depending how you look at it), once your pension and/or old age security kicks in at about 65-70.

Scenario 2: DINKS

The next scenario assumes that there are two of you and both have (or combined you get) twice the median income (€50.000 net per year). When you are very frugal and have a simple life (“barebones”), your expenses are assumed at €20.000 per year (the benefits of living together compared to the single scenario!). This leave €30.000 for investing and thus a savings rate of 60%.

If you decide to enjoy life a bit more (“comfort”), your expenses are assumed at €25.000 per year. This leaves a very healthy €25.000 per year to invest and calculates to a savings rate of 50%.

Based on the two lifestyle scenarios (“Barebones” and “Comfort”), you will need about €565.000 and €730.000 in assets. Same logic applies as per the previously discussed Single Scenario.

Who can FIRE? Scenario DINKS

Who can FIRE? Scenario DINKS

Looking at the graph above, you will reach a “comfort” level FIRE in under 15 years. To reach a “bare bones” level FIRE you just need 12,5 years!. This is fairly quick and well before the age of 50. Saving more, in absolute and relative terms will get you to FIRE a lot sooner, but that’s nothing new 🙂

Scenario 3: Families

The final scenario assumes that there are 4 of you in the family and you guys earn 1,5 times the median income (€37.500 net per year). When you are a very frugal family (“barebones”), your expenses are assumed at Є25.000 per year. This leave €12.500 for investing and thus a savings rate of 33%. In the scenario that you want more family time and events (“comfort”), your expenses are assumed at €30.000 per year. This leaves a €7.500 per year to invest and calculates to a savings rate of 20%.

Based on the two lifestyle “choices” (i.e. “Barebones” and “Comfort”), you will need about €730.000 and €895.000 in assets. Again, same conditions as noted above.

Who can FIRE? Scenario Family

Who can FIRE? Scenario Family

When studying the graph above there is still some good news, becoming FI is possible! But you will need 35 years to reach “comfort” level. This means you can still retire before the official retirement age (and with a significant amount of wealth), but not before the magic “50” happens. To reach a “barebones” level FIRE you will need 28 years, so there is still hope for you to call it quits before the age of 50.

Now, this is technically a bad example, as by 28 years I really hope that your kids are living on their own and that you can get to the “DINKS” levels in terms of expenses. That being said, this depend on the age you get kids of course. So many variables! “Personal” finances eh?

No Median Income?

What if you don’t earn a net median income (as about 60% of the households do; see net income per household percentage graph below)? Subject to how low you can go in expenses and/or by living in another country, there are still options to FIRE (or at least RE). But it’s certainly not “easy” for most people.

If you want to stay put in the Netherlands and don’t want to deprive yourself of too much, the sad reality is that it will be difficult for the large majorty of the households/people.

Who can FIRE? Income distribution 2014

Who can FIRE? Income distribution 2014
Source: https://www.cbs.nl/-/media/_pdf/2016/26/2016welvaartinnederland.pdf

Note to the graph above, this is showing “a standardized” household income = 2,2 people. The associated graph for standardized net income is shown below (the one at the beginning of the post is not standardized to 2.2 people!).

Who can FIRE? Standardized Income distribution

Who can FIRE? Standardized Income distribution
Source: http://visualisatie.cbs.nl/nl-NL/Visualisation/Inkomensverdeling

Conclusions

Albeit not all data and scenarios presented above match “statistically/mathematically”, the general trend is pretty obvious.This post was then also not a complete surprise. But I was a bit disappointed in how many people should be able to reach FIRE in the Netherlands. Even when people are frugal and invest all their savings, FIRE is simply not for most. This does not mean that you should not live below your means and invest your money, but getting out (really) early is just for “a lucky few”. For the majority of the people it is a dream (hence the large numbers that play the lottery) .

Want to FIRE as a single, make sure you save and invest at least €2.500 per year (~€210 per month) and be/live (very) frugal.  Couples should aim for at about double that. As a family, you better start aiming for about €7.500-10.000 per year (€700-800/month)! For these scenarios FIRE won’t be very luxurious (unless you move), but you will have a lot of time to do fun things! Part time work is also always on option of course! Just work 2-3 days per week, instead of 4-5. You are still better off this way.

Cannot save this much? You can still retire a number of years (say up to 10) before the traditional retirement age. Just eat into your savings/investment until the time old age security (AOW) and pensions kick in (assuming you have any). But leaving “some” wealth to supplement and provide a general financial buffer. With the formal retirement age trending towards 70, this is still very good news for a lot of people! One additional note if you do get out sooner your pension contribution will drop and you will get less once your are eligible! Always check what you your estimated income will be after formal retirement at https://www.mijnpensioenoverzicht.nl/pensioenregister/.

 

What are your thoughts on this?

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We did a Podcast! Not sure how many of you have done one, but it’s an interesting experience. Why? Because it’s like a genuine chat, but with “strings attached”. Kind of found out this out only about halfway the recording! Let me explain.

Podcast

Guess you know you have “made it” in the FIRE scene when you get asked to do a podcast right? 😉 Neah, just kidding! But we did have to think about it for a while before we said yes. Albeit we have already lost our “anonymity” in the (local) FIRE community (thanks to various meetups), we didn’t want the same to happen to an even larger public. So we agreed to maintain our “online” identity during the interview.

And as to the “we” on this decision, it really means WE 🙂 Where the blog is primarily run by me (Mr. CF), I was able to get Mrs. CF crazy enough to accept this podcast invite. She generally does not prefer to be in the spotlight (not even on this blog), but does like to spread the message of common-sense financial approaches and help others with their finances. She even volunteered in a woman’s shelter to help out with financial literacy. Show’s what kind of person she is (awesome, if I may says so myself. But I’m slightly biased 😉 ).

Podcast

Podcast

The Recording

Our host was pretty relaxed and even came to our house to do the recording. She actually was really good at interviewing! Smart questions, moving the whole interview along without pressuring and keeping the tempo up. Overall I enjoyed the experience, but I like talking about money and investing (go figure?!), so this was not a real surprise.

What I did  find frustrating about the podcast is that what comes out of your mouth is what is being broadcasted. When blogging you have time to think about what you write and how much. It’s hard to add a note once the topic has ended.  I only “really” figured this out halfway the recording. Where in the beginning I talk like I usually do (too much, too fast and all over the place topic wise), by the end I was trying to give more short and to the point answers.

The “annoying” thing about a podcast is that you can only scratch the surface, there is so much more to discuss and review! There are also so many boundary conditions and limitations to each subject discussed, you cannot point them all out in a podcast. For example, just giving only 3 blog (or book) recommendations (at the end of the Podcast) was way too little! For blogs we like and would recommend do check our blogroll!

Still, it was fun to do and I (we?) would do it again! No, this is not a hint, just saying.

The Final Result

Ok, I’m now probably going to disappoint about 75% of you. Because, and you probably guessed it already, the podcast is…… in Dutch. Sorry! So unless you already know Dutch, or want to get started, the podcast is likely rather useless.

Anyhow, you can find the final result here:

The interview and associated editing (down from about 50 min to “just” 37min!) was done by Meike van Zandvoort. She is an entrepreneur who gave up her 9-5 and started as a freelancer/one-woman company. She’s a pretty cool lady (and I’m not saying this only because she brought beer to the podcast!). Check her out at https://www.rijkerleven.nl/

 

For those Dutch among you that have taken the time to listing to us babble, what’d you think?

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I Quit! No, not with the blog, I quit my job today. I will officially be unemployed as of the beginning of May. You have no idea how good this feels. But what is next? Well, there first will be the 9 week road trip, some home & rental property renovations and then I will start my new business!

I Quit!

Albeit we are getting close(r), we are not yet FI, so cannot RE either. However, we are more “free” than we sometimes realize. Mainly because we do now have a pretty decent cash-flow income from real estate and dividend. Plus we have a nice stash of cash. With all this wealth we are now able to “buy” ourselves some extra freedom. Both literally and figuratively.

The peace of mind you get from have a nice pile of money and investments is amazing! The other benefit is the luxury that you get in making life choices. Where Mrs CF loves her work, I don’t. Now having the ability to say “F-you” to my employer, because I have a safety net, is a luxury position I only now start to grasp.

The interesting thing is, that even with just Mrs CF’s job I could have made this decision sooner. But there is something strange about quitting your job if you always had one. There is this fear of losing that steady paycheck. Even if you technically can easily do without. Emotions are a strange phenomena!

I Quit!

I Quit!

What’s Next?

Beside the fund stuff of travelling and doing renovations. I’m getting really excited about the starting of my own business. The scary part of stepping into the unknown and doing something completely new is very thrilling. I’m loving that feeling! As crazy as that may sound.

I’m not about to reveal my new business plan and business name (yet?). Mainly because I would loose whatever “privacy” I have here at Cheesy Finance. I’m not comfortable with that much exposure, especially as a lot of financial details are available on the blog. Perhaps this changes in the future, but for now I’m going to (try) to keep the two apart.

I Quit! Next I start up

I Quit! Next I start up

As my new business is completely different from what I (still) do in my daily life, I have a very steep learning curve ahead. I’m going to make lots of mistake, but due to the type of business the failures will have a limited financial impact. However, to limit the amount of mistakes I have already reached out to several more experienced people that could help out. All of these folks have their own business, albeit in wildly different fields. Funnily enough, they have very similar tips and tricks, guess there must be something to it? 🙂

Things that are on the “to do list” include:

  • developing a business plan (actually revising it, as we already made one)
  • registering the company, arranging insurance and website (latter is already up and running in basic form)
  • developing of various products
  • marketing
  • getting my first paying gig.

How hard can it be? 😉

In future posts (as of Q3-ish) I will reveal more about how I’m going to start up my company, the mistakes I will make, the things that go well and if I actually will make any money at it. The plan is to make both passive and active income streams, the passive to pay “the bills”. The active because I actually enjoy doing it.

 

Any of you that are freelancers? What are the most important tips you have for me?

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