Stairway to Freedom

Investing as such can be a complex issue: there is a lot to take into account like asset allocation, type of products, accounts to use, dividend vs indexing vs value investing… To simplify, I look at my investments as  stairway to  freedom. It outlines the big steps to make. Once this is clear, I then can focus on the individual steps. This approach is not unique , it is very often used and described. (This post was finalised after reading this blog.) I bring my personal version, adapted to my current understanding of the Belgian game rules Freedom Stairway Emergency fund: check

A rule of thumb is to have 6-9 months of expenses stashed away to be used for any unforeseen event like a new car repair, a serious health issue, jobloss. This emergency fund is the foundation that keeps you standing straight in a turmoil. The cash is there, ready for you when you need it. It is not cash that will grow. Typically, it is put on a savings account or any other capital guaranteed product that has easy access.

My adjusted version: every month, we save a set amount of money in our emergency fund, no matter how many months we have set aside already. The reason for doing so: save upfront money for bigger items that come around every now and then. Not emergencies, but renovations, furniture,… that you start dreaming of and that you will buy in 3-12 months from now.

However, if after a while the fund grows too big, then this cash surplus is channeled towards one of the pure freedom funds.

Tax sheltered pension saving: check

Each year, we are allowed to invest up to 940€ in a tax sheltered pension product. This can either be an insurance product or a mutual fund. Both my wife and I save each month in a set and forget mode (automated by the bank) 1/12th of the annual maximum. There is a 30pct tax refund on the investment by the government. The funds are only released around pension age and there is a one off tax at age 60.

Long term fiscal saving – mortgage – check

We can deduct from our yearly taxes a certain “home bonus”. This amount is calculated based upon a number of parameters, using the principle mortgage payment and the interest  (this is a simplified version). There are some disqualifying rules. In our family, my wife uses this.

Long term fiscal saving – saving – check

If you can not use the mortgage version, there is the savings version. It is a sum of money that can be deducted from your taxes, under certain conditions. For now, I have only found the insurance variant of this. This does not make me totally happy, but it has a 30pct tax discount that makes up for it. If anyone knows a better alternative, ping me.

Company Pension Plan – check

As discussed in I can not have a 401K, this is a pension plan that is optional, offered by your employer. There is also an optional contribution from your salary towards this plan. You get the money after the taxman takes his piece. This usually happens at the age 60-67 (different tax rules apply). We are very fortunate to both have a plan like this.

Individual investing – check

Any money that is not deployed in one of the above options, is put to work in the individual investing accounts. We have mutual funds (more on that later), we are passively indexing and might add dividend growth later on. I do not exclude that going forward there will be real estate investments (rental property is not for the short term), but there are some real estate trusts that I look at.

Contribution towards individual investing needs to be balanced versus early debt repayment.

By being consistent in the above high level investment approach, I will complete my stairway to freedom sooner than the official retirement age of 67. What is your approach?

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4 thoughts on “Stairway to Freedom

  1. I like the chart, the thought process is solid. When I was younger, even though I didn’t know what I was doing but I basically follow the same. I was very skeptical about 401K, retirement seems to be far far away when I was 25 years old. I was thinking I don’t get to retire until I turn 65 (now 67). But once I make the income, and have the first step of emergency funds, things started to open up. It’s been a great journey.

    Like

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