I want to be rich
It's been a while since I started reading more about personal finances and investments. My primary motivation was to escape the tempting treadmill of scaling up costs as the income increases. It's never late to learn about it, but the earlier, the better, so I'm glad it clicked in my head when I was 28.
As a software engineer, a fortunately well-paid job, it's easy to fall into the treadmill trap. You earn above the average (prompter), immersed in a planned obsolescence culture (temptation). You want to have the latest iPhone, a new Macbook, a large TV, an Apple watch... We become friends of Amazon and spend without thinking about our financial future.
The first thing that I learned is that it's important to have insights into your cash flow for two reasons. First, you can see whether you are spending too much money on things that bring no value. Second, you can see your family's net worth and know how much money you can invest.
This leads to the following question: what's my investment strategy? We first invested in a property in Berlin. That's what people do in Spain, so we had a strong bias towards this move. Is it the most brilliant move to start with? I don't think so. Was it a good idea in hindsight? I think it was by looking at the market and considering the interest rate of the mortgage. Then I read further and learned that it's wiser to defer that type of investment and use the liquid money to increase the net worth through other investments.
The next move (and serious mistake) was seeking financial advice. We came across DVAG, a Deutsch corporation whose goal is to sell insurance. We naively fell into their trap of thinking that we needed all the insurances they offered us. The person who sold us those products was a Spaniard living in Berlin, so her selling strategy was to "teach" ex-pats how Germans do it. We got the following for my wife and me:
- Riester and Rürup pension plans
- An income protection insurances,
- A lawyers insurance,
- A bausparvertrag for our mortgage
- An investment product (that invests in funds)
- Private health insurance for me.
In hindsight, we were too naive. Planning to move to Spain allowed us to see everything from a different angle:
- It is a company that follows a pyramid scheme earns commissions per sold product and from the products sold by the people under them.
- We were sold products (the pensions) that were not designed for our profiles. They asked how much we earned and filled the costs as much as they could, ensuring there was a tiny bit of space for breathing.
- They never shared the costs with us, and as you can imagine, they were pretty high (over 2% annually).
We canceled everything except Rürup that cannot be canceled but paused. We lost some money, but it was nothing compared to what we'd have not earned if we stayed with them. This was something positive about considering moving back to Spain. When I told her I was canceling everything, her answer was: Don't expect the same service from me anymore. Of course, I later discovered that Generali would make them return all the commission they got for bringing me as a customer. Funny thing, she insisted a few times on getting my Germany deregistration confirmation (i.e. Abmeldung) to prove that I did it because I was leaving the country. If you ever come across this company, DVAG, watch out.
I learned a few lessons out of that experience, but the most important lesson is that no one will manage your finances better than you. Or in other words, investing money comes with the responsibility of learning how to invest it.
After that, I continued reading further. I started investing in ETFs (a mix of accumulative and distributing funds to take advantage of some tax benefits in Germany), individual stocks from companies that share dividends, and alternative investments such as microloans, whisky, and cryptocurrencies. As part of this effort, I created an additional spreadsheet to keep track of them. In particular, In particular, I'm interested in the diversification scheme and how investments are performing over time. If you are interested, the following two resources have been handy for me: Index Fund (European) Investor, El Club de Inversión (Spanish), and Banker on Wheels.
Alright, Pedro, you save money, which you decide to invest, but what's your goal? My goal is to be rich. But not the definition of rich we are all used to. The definition by Robert Kiyosaki:
If you stopped working, how long could you survive?
I want to work less or even better, stop working, and not have to worry about money anymore. Right now, I have two dependencies. My employer, who is my primary source of income, and the future public pension from the Government, which we all know it's getting harder to sustain. Unless I do something, the default is to continue working as much as I do until I retire. But there's a better alternative to that, which I learned in the book "The cashflow quadrant": I can be a mix of a business owner and an investor and leverage people and money to make money. Achieving that independence is also possible by being employed, but it often leads to working harder which is not healthy. It's not a matter of working harder, but being financially more intelligent.
I've always been in the employed quadrant and worked hard, which has allowed me to grow a lot professionally. But I feel I'm approaching an inflection point, and I'll have to take a leap. I might start using my spare time more wisely and gear it towards being the owner of my own business in the future. I think I have some necessary traits to get there, but there are some other areas I still need to work on.
I've you've followed me for a while, you might notice a shift in my relationship with open-source work and the content in this blog. If this intrigues you and you would like to chat about it further, don't be a stranger and send me an email. These topics are always taboo, but I'm open to talking about them.