Hi RIP voyeurs,
October 2016 is gone. Amazing autumn here in Switzerland, colourful leaves all over the places and still not as cold as expected. As end-of-month routine I’m here showing my numbers with shame, since our spending level is still above my desires and next month won’t be better.
Need to wait till December to see the final comeback of our saving rate. Probably.
The reference document for the following considerations is my Net Worth spreadsheet. I’ll post a screenshot every month in these financial update posts.
Last month we had a nice +11.5K EUR, this month we achieved another surprising +13.3K, way above expectations, given market performance and high expenses. This is mostly due to EUR dropping few points against CHF and more against USD. From a USD point of view NW increased by 3K only.
Major wins of October 2016:
- The EUR lost terrain against CHF and the USD skyrocketed. Since I’m measuring my wealth in EUR, it means a nice increase in our Net Worth.
- Base salary higher than expected due to September bonus and leftovers from Hooli stocks automatic sale at vesting time to pay withholding taxes.
- Initiated procedure to switch to 80% “part-time” at Hooli. Well, that’s not a “win” from a financial point of view, but I consider it as such on my FIRE path since my life quality will surely improve!
- Tasted bits of freedom along the Appian way.
Major losses of October 2016:
- Market performances have been fastidiously negative, with all my ETFs valued less respect the beginning of the month.
- Milan’s apartment is still not rented out. Third wasted month in a row. A couple of person showed interest, none of them actually rented it. Thinking about selling it.
- Still too much money spent, ~6500 CHF. November won’t be better. Mexico trip expenses so far don’t account for a week-long hotel stay (~1500 USD) and other local expenses for food, tickets and other stuff. These expenses will be in November update. Another >6000 month in sight. 🙁
- Too many expensive gifts. In future we need to switch mindset and give time instead of stuff.
- Paid off 6,000 EUR of family loan to RIP Sr. Only 3,000 left, planning to kill this only liability of mine in mid 2017.
- Having redone all the math about my cash flow till January 2017, I allowed myself to invest another 11,000 USD into my S&P500 ETF.
Income for the month was 13,309 CHF (cell M55), a below average month essentially due to no stocks vesting.
- ~10000 CHF my base net salary.
- ~2200 CHF my Swiss pension Pillar 2 contributions.
- 1000 CHF Miss RIP contribution to shared economy.
- 35 CHF Migros points redeemed in Blue Cumulus coupons. I consider this an income, since they are technically just money. We go to Migros (one of the top grocery store in Switzerland) for our grocery on a weekly basis.
- 10 CHF Debit Card points redeemed in SBB voucher. Same considerations as above. Voucher already used for December Milan’s trips.
Total income in 2016 so far is 148,110 CHF (cell P55).
Average monthly income in 2016 so far is 14,811 CHF (cell R55).
Forecast for the end of 2016 is still ~190K CHF. No surprises here. Actually, the linear forecast says ~177.7K but I explained that December will drastically be nonlinear.
No target set by end of year.
Total spending for the month was 6,526 CHF (cell M56). Another over the top month. Next expensive trip I’d like to book all at once and have a single bad month instead of splitting costs of the Mexico trip over 3 months. It looks like a death by thousand cuts.
Here’s the detailed list of expenses (in CHF):
- 3151 – Travel & Transportation (Local, Trains, Planes). Yes. Unbelievable. Let’s break it down:
- 2291 – Mexico tour. 2320 USD (2×1160) a week traveling from Cancun to San Cristobal, including an internal flight, hotels, entrance tickets and a tour guide and car rent with a driver.
- 563 – Appian way. Lodging and food for a week. Cheap. It’s Italy. Actually I could have lowered this expense a bit, but I offered to pay for lodging to help my friend who came with me who is financially struggling.
- 168 – Trains. 2 December trips to Milan, mainly for Project X (and Christmas). We purchase tickets in advance to pay them as little as 21 CHF each one (2 people, 2 roundtrips: 8 tickets).
- 96 – Local Transportation. I biked to work till mid October and then took a monthly pass till mid November (then we go to Mexico). Next month I expect almost no local transport costs.
- 33 – Gas. We used Miss RIP’s car while in Milan.
- 1440 – Flat rent (1300) and condo fees (140). Business as usual.
- 442 – Health Insurances (mine 213, Miss RIP’s one 229). We’re both insured with the cheapest insurance in Switzerland (Assura) and with the cheapest model (Family doctor + Pharmed) and highest deductible (2500 CHF). For the third consecutive year they’re going to raise premiums in January. I have time till end of November to change insurance company. We need to take action here. Variables are: which insurance, which model (telmed instead of family doctor), which deductible (probably lowering it to go to doctors more frequently) and accident coverage or not for Miss RIP (should save this extra 16 CHF, since she should be covered by her employer’s accident insurance).
- 364 – Gifts. A lot. Too much. This is a category that we should cut a lot, but Miss RIP is so much into gifting friends for everything: birthdays, having kids, kids’ birthdays and other events like friends moving into new apartments. She’s so southern! 🙂
- 289 – Groceries. I guess that’s ridiculous that we spend more on gifts than groceries.
- 200 – Cleaning lady. every other Friday, 4 hours per Friday, 25 CHF per hour.
- 200 – Project X. Yes, a secret project! We spent roughly (not all have been tracked and few expenses in the context of Project X have been categorized differently) 200 CHF but we think we’re going to spend a couple of zeroes more on this project from here to next summer.
- 175 – Dinners Out. Not bad, considering that the most of it has been a single 102 EUR, four person amazing dinner in Milan to thanks a couple that’s helping us with Project X. Well, now that I think about it, this expense should be debited into Project X category.
- 135 – Health. Miss RIP visit to doctor and blood analysis.
- 70 – Utilities. Television, Internet, Phones. Energy’s missing here since they moved bills a month later. I’m paying my usual 55 CHF energy October bill in November.
- 31 – Fees. 11 USD Trade fee on Interactive Brokers, 10 CHF for banking fees. Other minor fees .
- 14 – Leisure. Flowers for our apartment. Miss RIP loves them 🙂
- <15 – Not tracked. Good.
If we don’t consider travel (Mexico, Appian and Milan) expenses it would have been an acceptable month for our Switzerland standard. Expenses would have been ~3.5K.
Total spending for 2016 so far is 50,153 CHF (cell P56).
Average per month: 5,015 CHF (cell R56). Ouch, we are above 5K per month. Shame on us again.
Forecast for End of year: 60,184 CHF (cell S56). That critical 60K number…
Target for End of the Year: 60,000 CHF. Next month will still be above average, expected another 6K expenses (Mexico second week Hotel – 1.5K USD – and other extra expenses while in Mexico, like all the dinners). December might be cheaper in theory, but Project X may kick in brutally and bring our spending level unboundly high. Anyway, if nothing unexpected happen, we can still make it below 60K. We have ~10K margin for 2 months.
Savings & Saving Rate
Total savings for October are 6,783 CHF (cell M57). Low income, high spending and still ‘stashed 6.7K. It’s totally ok.
Yearly savings so far are 97,957 CHF (cell P57).
Average monthly savings are 9,796 CHF (cell R57). Ouch, below 10K. This is the month we broke few numeric walls in the wrong direction.
Forecast for end of year say 117,548 CHF (cell S57).
Saving rate for October is 51.0% (cell M58). Again, shame on us.
2016 saving rate so far 66.1% (cell P58). Goodbye platinum badge in Mustachian Post’s ranking of European bloggers saving rate indexes.
Target saving rate for End of the Year 70%. We won’t make it though. December’s income would be stellar due to thirteen month and 3 stock vestings together but yearly bonus will be credited in January. 70% is unrealistic. Maybe something like 67-68% is achievable.
This month we crossed the 50% mark! Let’s celebrate!
Net worth at the end of the month is 505,968 EUR (cell M39 or P39). I’m half millionaire! How does it feel? Nothing special.
Delta for October 2016 is +13,313 EUR (cell M40). Better than last month!
Delta Percent October 2016: +2.70% (cell M41).
The logo of this blog changed accordingly:
With another steady jump of +1.33% toward the (cheated) big goal.
Net Worth cumulative 2016 Delta so far: +123,455 EUR (cell P40), just a Euro below a Full Straight in Maxi Yahtzee!
Net Worth cumulative 2016 Delta Percent so far: +32.27% (cell P41).
Forecast end of year 2016 Net Worth: 530K EUR (cell S39), +148K EUR, +38.73%.
Target for End of Year: ok, if the market doesn’t crash dramatically (which is kind of happening) or the Euro doesn’t sink (which is kind of happening too) reaching the Billion Italian Lira (516,456 EUR) may happen in November. Let’s set the ambitious goal of “meeting forecasts”, i.e 530K EUR.
Forecast for 100% FIRE: 40 months left, i.e. forecast Fire Date is March 1st 2020, (cell T20). In line with previous data. Last month we were 41 months far from ER.
Current Monthly allowance: 1,405 EUR (+37 EUR, cell T26). It represents how much I could withdraw indefinitely per month (at my desired WR) in case I decided to call myself FI today. This month I created another 37 Euro per month, forever!
Current Withdrawal Rate – Real: 10.96% (+0.11%, cell T29). This represents the WR I need to support current spending regime with my today’s NW. It got worse this month (again) because we increased actual yearly spending forecast more than we increased our NW.
Current Withdrawal Rate – Ideal: 6.59% (-0.18%, cell T32). This represents the WR I need to support my desired spending regime (lower than current, since I plan to retire in Italy and not in Switzerland) with my today’s NW. This went down, since ideal expenses didn’t go up but our NW did. When this number will match the desired WR (cell T11) we’ll be FI 🙂
I moved enough money to my debit card to pay for Mexico trip remaining expenses (hotel and food, I hope that 3.8K CHF will be more than enough) so there’s no need to account for it with my checking account.
Project X just started and I guess till January won’t bring many unexpected expenses. Anyway, for now it can be covered with the ~3K EUR I have on my Italian checking account.
According to the investing tab of my NW spreadsheet I have too much cash sitting on my checking accounts. Apparently, 12K more than the planned “emergency fund”. There are 3 options here:
- keep cash “because the market is going to crash tomorrow” (which is kind of happening).
- invest in ETFs as usual.
- Invest in Pillar 2 and/or Pillar 3 (Swiss pension funds) that I consider similar to bonds.
The Pillar 2&3 decision needs to be taken independently before end of year, so I need to decide whether it’s worth or not. Let’s break this down:
Pillar 2 analysis:
Pillar 2 is employer pension. You and your employer contribute each month to this plan. At Hooli we have a generous plan which is: Hooli contributes 8.5% of my insured salary (yearly salary + bonus) and I contribute a variable amount of my choice. I used to set it at its minimum (4.5%), I switched to maximum (8.5%) starting in 2016. This is pre-tax money, exactly like a 401K for the US friends.
For those who didn’t start contributing to this pillar at legal working age (17 in Switzerland, if I remember correctly) there’s the opportunity to fill in the gap via voluntary tax-free contribution.
Money in the Pillar 2 fund grows via interests. My pension plan currently offers a guaranteed tax-free interest of 1.25%, probably going down to 1% next year.
At age 65 you can withdraw your money as a lump sum or ask for an annuity or a mix of the two. Money withdrawn as a lump sum from pension Pillar 2 will be taxed by a tax bracket which is 20-25% your current tax-bracket.
Withdrawing before age 65 is possible in 3 cases: buying a primary residence (not just a property), starting a company with at least an employee and leaving Switzerland (bingo!).
… but you can’t withdraw voluntary contributions before 3 years. You can’t throw in 100K the day before leaving Switzerland and withdraw it the day after to pay less taxes!
So, the actual cash flow for my Pillar 2 voluntary contribution of X would be:
- instantly save tax on the top X portion of my taxable income (tax bracket: ~30-35%). Well, not “instantly”, but I’d get back this money roughly after 2 years with 1/1.5% interests.
- Earn 1% on this amount for the following N years (N>=3) before leaving Switzerland.
- Pay ~5-6% at withdraw time after N years, probably because leaving the country.
Is it smart to do a buy in? Of which amount?
Well, it depends on what else I could do with the same amount, i.e. what’s the opportunity cost of X. What return should I expect from throwing X into the stock market?
Another factor that matters is: when do I expect to get this money out?
I’ve added a sheet to my NW spreadsheet to do some math:
This analysis shows 3 scenarios under few assumptions: tax saving is in the order of 33% (I should move to Kanton Schwyz…), taxes on lump sum at withdrawal time will be 5.3% and interests on Pillar 2 will stay at 1%.
In all three scenarios I compare two investments of value 100: one on Pillar 2 and one on the stock market. In the buy in investment I assume the tax saving (coming cash at the end of year 2) will be invested in the stock market.
Pillar 2 buy in is awesome in the short term thanks to initial big tax savings. Then, unless stock market returns will be asymptotically lower than the Pillar 2 fund’s interest (1%), there will be a moment in the future when the stock investment will perform better than the Pillar 2 buy in.
How far in the future is the break-even? It depends on the market performance, obviously. In the return range considered for this analysis (5-9%), the break-even happens after 4-8 years. It means that if I do a Pillar 2 buy in and expect to take my money back within 4 years (buying a house, leaving Switzerland or hiring YOU, my friend) I’m good to go. If I expect to need this money before the 3 years (end of 2019) or at age 65 I’m better off not doing it.
Ideally, if I plan to get this money back in 2020 I’m better off doing this buy-in thing.
Wait… did I say 2020? When does my forecast say I’m going to hit FIRE?
Bingo! Let’s do it!
How much? Well, the more I invest the lesser percentage I save in taxes. This is because the first CHF I deduct from taxable income would be at my highest tax bracket, probably the second and third CHF too… at one point I’d be deducting money in some lower tax bracket. Ideally I should invest an amount I’m comfortable with that doesn’t fall into a low tax bracket. My target is 20K, like I did last year.
Pillar 3 analysis:
Pillar 3 is an individual volunteer pension contribution. It’s pre-tax and it’s capped at a fixed amount per year, which this year is 6,768 CHF. It’s been at ~6.7K since I moved to Switzerland. While Pillar 2 plan is employer driven (you can’t pick one of your choice), Pillar 3 is free market and you can go talking with banks and other financial institutions to check their Pillar 3 investment options. By law, they’re not allowed to offer investments that have more than X% on stocks… I’m not sure about it, need to investigate more.
Same rules apply for withdrawing the money: either leaving Switzerland, buying a house or starting a company (or reaching age 65). But there’s no 3 years waiting period after a buy in though.
That alone would make investing in Pillar 3 a better option for your first 6.7K CHF. My problem with Pillar 3 is that I opened a shitty one with my bank. It all happened back in 2012, on my second day in Switzerland, and I had no time to investigate more. Since I’m lazy, I kept investing 6.7K per year in 2013, 2014 and 2015 and now my account is ~21K (cell P15). Interests on this account are ridiculously low. Something like 0.25%.
Either I find a better option for Pillar 3 and invest there 6.7K (and the rest into Pillar 2) or I invest the whole 20K into Pillar 2. I’ve seen some interesting Pillar 3 funds, the problem is that they have high TER and they are mostly based on the Swiss stock market. Not exactly the hottest one.
I think there’s enough on this post about Swiss Pension system that it deserves its own post asap.
Action Item: explore Pillar 3 opportunities and take final buy-ins decision.
Ok, what about investing more into stocks/ETFs?
I think I need to first come up with a better plan and a better balance in my portfolio: I need to write my IPS first. I expect an amazing cash flow in December (a lot of stocks and thirteen month) and January (yearly company bonus, at least 15% of yearly salary, i.e. at least 22.5K gross). I want to invest heavily in January, according to my “coming soon” IPS.
You still here? I can’t believe… we’re getting close to 3000 words and you’re still here with me!
Ok, this blogging thing is really one the most fun and useful activities I’ve done this year! I’ve met new friends, had skype calls with them, got “suggestions” (actually got scolded) on my Asset Allocation, had a guest post and an “interview“, joined a Swiss FIRE forum and fought against facebook…
I’m so behind with reading new blog posts. I have so many post ideas and so little time to actually write them down.
…a new project is coming! A FIRE podcast is coming! It will be in both Italian and English, hosted by me and Andrea (incassaforte.com). We don’t have an E.T.A. but we’re experimenting with technologies, collecting ideas, looking for the podcast name and thinking about few guest star we want to invite!
More on this will follow 🙂
And I know I’m behind with the “investment” series. I hope to finish my ETF 101 post in November. The draft is very very veeeeery long and November is so short (Mexico, we’re coming!).
That’s all for this month!
How was your October?