Financial Gladiator - Fight for Your Financial Fre

The Economist Intelligence Unit compares the cost of living in some of the largest metropoles worldwide. They have been compiling this annual global ranking for 30 years. In the ranking they compare a basket of 160 items against a base of prices in New York City. According to the ranking Singapore has been the most expensive city in the World five years in a row now. What’s worse, not a single Australian city has made it into the Top-10 this year. Sydney came in 16th, Melbourne 22nd, Brisbane 41st, Adelaide 51st, and Perth 54th. I cannot believe these results having lived in almost a dozen countries including Australia and Singapore. We need to set the record straight and debunk this ranking. Today I’m writing to you from cheap-o and wonderful Buenos Aires which ranks 125th.     Ranking of the most expensive cities in the World – Economist Intelligence Unit (Source: EIU, 2019) In a nutshell, I lived and worked in Australia for close to a decade. Later, I moved to Singapore for five years. As a result my quality of life increased while my savings quadrupled. Impossible? Let’s check the facts/ math. Don’t get me wrong, I truly love Australia, but from a financial perspective, it just doesn’t stack up. If you want to achieve financial independence you are better off making a living in a country like Singapore. This blog post is particularly relevant to highly skilled professionals who consider moving to Singapore or Australia. I have based my analysis on an single expat without kids earning a salary of $180,000 annually. Do not worry, I modelled a $90,000 scenario as well which turns out even more surprising, believe it or not. If you would like to understand the financial pros and cons between working in Australia versus Singapore, this post is for you. Let’s compare the actual costs of living in Singapore versus Australia. We are about to break down the real numbers based on my experience. Geo optimising your income and expenses can greatly accelerate saving up for your first million.   Income Taxes Australia Most people don’t think of it but the number one cost item in Australia is mandatory income tax and superannuation. In addition most people need to pay the so-called medicare levy of 2% (basic public health insurance). There is no way around these. As a high income earner you will be required to pay an additional 1.5% medicare levy surcharge but this can be offset by buying private health insurance (at additional expense of course). I included it as either way you need to pay up. In summary as a high income earner in Australia, say you gross $180,000, you would be required to pay $56,415 in income tax, medicare levy and surcharge, and superannuation contributions tax. The $56,415 break up superannuation tax of $2,342, medicare charges of $5,753.52, and personal income tax of $48,319. The $15,616 in superannuation contributions you can only choose to invest in a government approved superannuation fund. You are basically forced to buy paper assets by law. You can not touch this fund to invest in your Principal Place of Residence. This is unless you create a self managed super fund which comes with huge additional costs and doesn’t make financial sense for most people. So before you spend a single dollar on housing, your taxes add up to a staggering $56,515 annually. The effective tax rate comes to 31.3%. You pay this tax with each of your paychecks. They call it Pay As You Go (PAYG). You basically work from January till almost the end of April just to pay your tax bill in Australia. Further, one can deduct a few thousand dollars a year as a professional in some instances. You can also deduct interest for investment properties. The government incentivises you to take on debt and negatively gear – a terrible idea in my view. As I have written before, you should avoid the debt trap at all cost. For the purpose of the comparison I have excluded deductions as they vary based on individual circumstances and don’t impact the overall result much. Let’s compare Australian income taxes to Singapore. Doing so we will disregard exchange rates for ease of comparison. The Singapore dollar has been more or less on par with the Australian Dollar for a few years now.   Income Taxes Singapore In Singapore a $180,000 gross income would attract a total tax of $17,350. The effective tax rate comes to a mere 9.6%. That’s it. As a foreigner you don’t contribute to the Central Provident Fund (CPF). This is the equivalent to the Australian superannuation, or similar to an American 401k. You don’t even need to lodge a tax claim, because there is no meaningful deductions. It’s all automated for most of the companies and it couldn’t be more straight forward. You pay after the tax year has ended and can choose to pay in arrears over 12 months (interest free!). Investing your postponed savings can additionally reduce your effective tax rate. Effectively you work just over a month for the Singaporean tax man. By the way, If you earn significantly more than $180,000 and travel a lot for business you can reduce your effective tax rate to 10% or even 0% provided you work more than 95 or 183 days outside of Singapore. You would need to apply for Non-Ordinary Resident Tax (NOR) status which is valid up to five consecutive years. I used this to reduced my already low tax bills in Singapore even more.   Housing Costs Australia versus Singapore Looking at Sydney prices you need to spend around $33,000 ($2,875 monthly) for a well-located one bedroom apartment. When I lived in Singapore I paid the same amount for a brand new apartment. In addition my two storey apartment came with a guest bedroom, a second bathroom, a terrace and a balcony. Did I mention my private Jacuzzi and a swimming pool? Having said that you get some world class beaches in Sydney. I have written another blog post on Renting versus Owning in Australia which you might find interesting. I only look at renting because it made sense to do so in the past 20 years for most young(er) professionals. What most people however don’t know is that as a foreigner you can rent so-called HDB apartments. Those are apartments that were built for Singaporeans by the government. Some of these are for rent. They don’t come with balconies and amenities (like swimming pools, tennis courts, etc.). They are also half of the cost to rent as compared to private apartments. You have a huge choice in Singapore on what to rent, at which quality, and what price point. From an Financial Independence view this second highest cost bucket can make a huge difference to your saving rate.   Transportation Costs Australia versus Singapore Transportation is a bloody huge expense in Australia. You need a car to get around. Infrastructure and public transportation is relatively miserably developed across Australia. I get that there is no fast trains connecting major cities given population and land size of Australia. However there is no excuse to have such a terrible public infrastructure across the bigger state capitol cities like Melbourne and Sydney. Most professionals would need a car and partially use the public transportation system. It’s a double whammy. Public Transportation will set you back some about $2,064 p.a. (172$ on average a month). BudgetDirect estimated running the average costs for a car in Sydney at $22,292 per annum in 2017. You read that right. This sum includes all running costs, incl. tolls, gas, parking, maintenance, financing, etc. We can argue surely optimise here, but I have assumed a high income professional to use a combination of car and public transport (as I have lived myself in Australia). In contrast, you truly do not need a car in Singapore. Buses, light rails, and subways connect the entire city state. It’s a fast growing state of the art public transportation system, which is subsidised by the government. They don’t want you to use cars and clogged the street. Consequently, there are limited effects during peak hour compared to other cities of this size. Personally, I used a mix of taxis, walking, busing, and subway transportation. It costs me less than $12,000 a year. If you would want to save and only use the public transportation, you probably can get easily away with less than $1,200 a year at today’s prices. But let’s say you use taxis a fair bit for comfort of getting from A to B.   Food Singapore versus Australia This one is really difficult to compare as taste and preference in food and nutrition in general various greatly. I can tell you this: In Singapore I never ever cooked once. Not in the entire five years that I lived there. I would simply go to various hawker centres (they are like non air-conditioned food courts) across the entire island and get my meals there. A meal would come as cheap as $2.50 (1 meat, 1 veg, rice) and a more elaborate meal would set me back $10 or so. I don’t think you can go to McDonald’s in Australia and get a meal for $10 these days. Of course, in Singapore, you have another 7,000 restaurants to choose from and food would be more expensive there, but in Australia the same quality would cost even more in my experience. For various basic food items and today’s prices I looked at Numbeo, which compares and updates average prices regularly. I don’t believe all numbers are accurate. Having said this you will get the trend that Sydney is a lot more expensive than Singapore when looking at the detail here. If you were to cook basic meat and vegetables at home it would cost you about $200 a month or $2,400 per year. In Sydney this would be around $437 a month or $5,245 per year.   Goods and Services Tax Australia versus Singapore Whilst this doesn’t seem to be a big one, it actually is. Australian GST is 10%. Any good or service you purchase attracts a 10% GST. All your remaining disposable income is basically taxed one more time by the government. This is common today but there are differences. In Singapore the GST is 7%, one of the lowest in the developed World. This equates to an instant 30 percent saving comparing to Australia. Think of the thousands of dollars saved here again. Of course the actual saving amount is difficult to estimate. Given most people live paycheck to paycheck we can estimate a 3% saving on the average saving potential. This equals $1,236 a year more disposable income in your pocket in Singapore than in Australia (based on the Australian Disposable Income).   Summary of Basic Living Costs in Singapore and Australia on a $180,000 gross income   Comparison of Cost of Living in Australia versus Singapore on 180k I have compared the biggest living expenses in Singapore and Australia above. These include taxes, housing, transportation, food, GST and utilities costs in Sydney and Singapore. In our illustrative case we took a young individual grossing $180,000 in income a year. The saving potential is almost triple in Singapore compared to Australia. But wait, there is much more. Think about holidaying, investing savings, the opportunity cost of your time, and fun things like drinking beer.   Vacations Singapore versus Australia You can buy a return flight in Singapore for $150 to visit Thailand, Malaysia, Indonesia, Vietnam, Taiwan, Hong Kong, etc. There are even cheaper promotions available if you look for them. That $150 wouldn’t even pay the international airport tax in Sydney or Melbourne, let alone the actual flight. Vacationing in Australia is extremely expensive, whereas all around Singapore is extremely affordable. Your disposable income takes you so much further. Having said this I will never trade my experience wandering out into the hugely diverse Australian wild. Camping in and exploring magnificent Australian National Parks and Outback is truly amazing.   Investing Australia versus Singapore So what are you doing with all the savings in Singapore? You invest them at zero % capital gains tax. Yes you have to pay income tax on your dividends (if applicable), but gains from sales of shares is 100 % tax exempt. In Australia you would have to taxes, again… sniff.   Drinking Beer Australia versus Singapore Drinking beers like the locals do in Singapore is about half the price of drinking beers in Australia. A 650ml bottle of beer in the local hawker centre sets you back $6.50 in Singapore. In Australia the same amount in the cheapest locale would be at least double that price. You can buy a bottle of whiskey in a bar in Singapore from $80 including mixers. In Australia “responsible serving of alcohol” prohibits you to buy in bulk. The average spirit has 24 shots and costs $6 per shot. We are looking at $144 and queuing up 12 times to drink a few rounds with a buddy. All the meanwhile we are being assessed if we can take more?   Well, What If I you $90,000? Sydney actually stacks up even worse here. I looked at how a low to medium income salary would compare in Singapore and Australia. You’d think $90,000 is not considered low to medium income, right? However, according to the Australian Tax Office this group of people can save on medicare levy surcharge of 1.5% and are eligible for an additional tax offset of $1,080. In Sydney your saving potential would actually drop further to a mere $12,242 per annum. Assuming you keep the nice one bedroom apartment, still cook mostly at home, you would no longer be able to afford the average car and rely on public transport. Quality of life just reduced significantly. I assumed a similar scenario for Singapore, with the exception that we would cut most spend on taxi fares. In Singapore you could still afford a very nice life plus save almost four times the amount you would in Sydney. Below are the numbers.     Comparison of Cost of Living in Australia versus Singapore on 90k Opportunity Cost Singapore and Australia There are many costs we can measure but some are just priceless. We are pursuing Financial Independence to gain time after all. This is our ultimate goal. And time is the biggest saving in Singapore. Think about it for a minute. You don’t need to shop groceries, get stuck in traffic jams, look for a car park, maintain your car. I saved tremendous amounts of time as everything is around the corner in Singapore. Whether it’s commuting, going to the gym, doctor, airport. If you think of the endless opportunities to generate additional income, or simply live healthier due to lower stress, this is what I valued about Singapore the most. Of course if you prefer to pay thousands of dollars a month more for Sydney Beach access, that is ok to, but don’t count on becoming financially independent as fast as you could in Singapore.   My Experience in Singapore versus Australia In my personal case I saved thousands of hours and unnecessary stress, besides hundreds of thousands of dollars in just five years. I vacationed much more frequently for far less money, in many exotic places. It was amazing to pay a fraction of the taxes while enjoying a far superior infrastructure and much more convenient lifestyle. It’s safer, easier and at least as much fun to live in Singapore. I hope I showed you today that it’s far cheaper than working and living in Australia. Like everything in life it is all about the choices we make. If you are after Financial Independence, living in a country like Singapore can greatly accelerate your Financial Independence Day. For Freedom and Living Your Dreams, Your Financial Gladiator Listen to the Podcast here: The post The True Cost of Living in Singapore Versus Australia appeared first on Financial Gladiator.

A lot of readers have asked me how I manage my properties while traveling for months at a time. Is it possible to manage the properties remotely? Over the past 4.5 months I have been traveling South America. So what happens if something breaks during my trip? What if there is a change of tenants? How do I pay taxes due? How much work is it to maintain rental properties. These are common questions which I often receive. With this post I want to bust the myth that rental properties are more work than managing a stock portfolio. Today I want to address these questions for you. Property management doesn’t take the life out of you usually as commonly believed. I believed this myself once. If anything, speaking from experience now, it is more stable and predictable than observing and worrying about equity market swings. If you pick the right property and select the right tenant, chances are you spent minimal time on property management. I basically built little networks, systems, and processes that help me automate as much as possible. This way I don’t have to spend time on the phone or worst case interrupting my travels. Maintenance and Repair Work Over the past three years I have grown a network of handyman, builders, and other owners that can pretty much handle any situation. I prefer to keep in touch via WhatsApp and with people that actually know how to use a smartphone. In fact it is one of the key criteria to work with me, as I don’t want to be required to be onsite for a minor and or even larger repair. I select my tenants equally, if they don’t use WhatsApp, I for sure won’t let them rent a flat from me. A tenant can instantly let me know if any issue he or she cannot take care of. Often only seconds or minutes later, I let the right handyman know of an issue and request to schedule a visit. I do not need to be in the same city at all. A professional and smartphone savvy handyman is able to go onsite, assess a problem, take photos, and explain a solution to me online. In case of complication I can call and we can discuss. An additional side benefit is that I have important communication and decisions documented and backed-up in the cloud. Since I started buying property in Poland a few years ago, I have not had any major repair issues. I might have had two three issues, but I probably spent less than two hours on this so far. Knock on wood. In fact, I got to use the internet to remotely fit-out and renovate most of a brand new flat while I was scuba diving in Spain last year. Change of Tenants This one is a lot more tricky but again I found a way to make it work remotely. The important thing is never to rush the selection process. A bad tenant can destroy the ROI of your investment in no time. Secondly I have the my advertisement automated. I can reactivate a rental unit ad from the past at any time to attract new tenants over the web. I make it clear to communicate via WhatsApp only from the get go. This way I eliminate a significant population from the application pool. I saves me time and if somebody doesn’t have a smart phone I couldn’t deal with them anyway while traveling. After all I’m doing this to be free to travel, right? Additionally to advertisements, I use a network of agents. These agents approached me for any one of my properties in the past. I keep in touch with about 5% of them. They are the ones I found useful, professional, and who actually brought me leads in the past. I pay them 50% of a single month’s rent if they bring me somebody I sign a sign a tenancy agreement with. They know the deal and they know what kind of tenant I expect. Legally, I have a contract template prepared for each apartment. I share it with the agent, they print and organise signatures. I have power of attorneys signed in place to have either my family, or my trusted lawyer sign in my name while I’m traveling. They don’t cost a lost but are a game changer. In my case it is good to have my family living in the same city to help with viewings and tenant selection. But a good agent could do all of the work. The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life My Physical Presence is not Required An agent takes care of all paperwork. This includes protocoling, damage assessment, meter readings, modifying and signing tenancy agreements. They also take over an apartment when a tenant moves out and handle the process of a new tenant moving in once selected. You see I don’t really have to be there. During the change process and repair process I don’t need to be around. I have active contracts with all utility providers for all my apartments. I charge our the costs to the tenants separately on a monthly basis. My contracts require tenants to let me know of actual usage and meter readings regularly. Based on the information provided I calculate the fees and charge my tenants. These bills include heating, water, sewage, internet, trash collection, and electricity as separate line items. I built my simple excel tool to help with the utility calculations and it takes about 10 minutes to update all properties on a monthly basis. This helps me avoid surprises and identify any issues with water leakages. A damaged pipe or malfunctioning toilet can quickly add up to hundreds of dollars in wasted water costs that nobody wants to pay. Both tenant and I have full transparency and history of usage. Filing and Paying Taxes Taxes declarations are produced once a year and I pay taxes monthly on the income earned. In Poland that is 8.5% for the first 100,000 Zlotys (about $26,000) in income and 12.5% thereafter. There are no deductions in this simple tax model. I could run a one man company instead, but then would have to hire myself and have a complicated setup, including running accounts and balance sheets. The base tax would be flat at 19% but I could deduct all costs and depreciation of the income, only to end up at a similar tax I pay now. There is really no point doing it the complicated way. It does however make sense, and is legally advisable, if you own many properties. I can file tax declarations online these days, but I prefer to use a tax professional and pay a minor fee to double check all my work. I simply provide the tax professional with what I earned each month and they fill out a physical declaration for me. It costs like $50 so it’s really not a huge cost and worth the check-up on the numbers. Time Requirement to Manage Properties Remotely Over the past three years that I have been managing properties remotely I estimate to have spend around one to two hours of pure management time a month. so effectively my hourly rate is netting me $2,136 post taxes and all fees; and it’s growing each year. Most months I spent less than 10 minutes just producing and sending out bills to my tenants, but then there are months I spend five to six hours selecting a new tenant, discussing tenants with agents and my family, or checking up on contracts and bills. I attended several owner association meetings, but usually I vote online or via email on important decisions. If I compare that to the time I look at equity markets, my superannuation in Australia, it effectively ends up being the same but my returns are higher. So you see managing my properties remotely is totally doable, it has some additional costs and complications, it takes time to set up the processes and systems, but the benefits clearly outweigh costs. I spend the same or less living and experiencing parts of Asia and South America as staying home. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 30% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. He recommends Personal Capital – Net Worth Calculator. It helped him gain control over his spending habits. Over time he reduced his spending by over 50%. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post How To Manage Investment Properties Remotely appeared first on Financial Gladiator.

In today’s blog post I would like to introduce you to my somewhat interesting family members and most impactful friends. Typically family and friends are those that influence your values and behavioural patterns the most. In my case it has been a somewhat controversial mix with many different backgrounds. The mix of experiences I had is what fuelled my personal desire for financial independence. If you are in a tricky situation, I want you to know that getting through it will enhance your life eventually. There are lessons of knowledge and wisdom to be gained from all your experiences, especially from the negative ones. It might not seem this way at first but the future you will thank you for collecting those experiences and using them to your benefit. Knowledge is power, and power is what you can use to create your success. Whilst you cannot pick your family, you most certainly can pick your friends. Pick them wisely and they will enable you to grow beyond the constraints of your family. Besides your family it is the choice of friends you make that will have the biggest impact on your life. I will now introduce you to my friends who passed away, to psychopaths, to lavish spenders, to time-poor colleagues, and to savers. Read on for some seriously valuable life lessons I received. I am sharing all these personal stories so that you can learn from these lessons without going through the painful experience yourself. My Stepfather – The Criminal Psychopath I enjoyed an interesting, somewhat negative and colourful upbringing. My parents divorced early on and I had a psychopath as a step dad. That’s right a crazy man. Those were interesting times. The psycho was living off the negative energy he was gaining from inflicting physical and mental pain to others. He consistently tried to hurt me and others around him. Working illegally as a tax professional without a license was an additional surprise we all learnt only later on. Interestingly however was that he himself was on a path to financial independence. He negatively geared real estate, but he cut corners, believing he could outsmart the German tax system.  Needless to say that didn’t end well for him. Eventually he went bankrupt losing everything he worked very hard for.  It taught me that no matter how fast you can run, Karma will get you eventually. The second thing that became clear to me was that it never pays off to do illegal things. Today he has to hide from his previous friends, his family, the government, and ex-clients who sued him in a class action suit. I drew many valuable life lessons from that once negative experience. Most importantly, I would never want to end up like this guy did. My Mother – The Spender My mother never learnt to manage her money properly. She has been spending everything she has for as long as I can remember, consuming like there was no tomorrow. At some stage she went bankrupt and our lives were turned upside down. She always has been leading a very consumption-oriented lifestyle. To her, value is measured in the price tag and still is. Today, she owns four mobile phones, two TVs, a luxury car, sixty something pairs of shoes, a tonne of designer and branded bags and clothes, two dogs, etc. You get the picture. She also used to complain about her 110 sqm ‘small apartment’, in which she lived alone, because it was barely enough to stow her many clothes. She certainly has been leading a life of luxury and consumption. I always admired how you could just live and figure out the financials later. For all the financial flaws I described above, my mother did spend a lot of time educating me, sparing no expense, and helping me through my early school days. She taught me that to live a full life, money is important. She enabled me to learn and study so that I could make that money to support such a lifestyle one day. For that I will always be grateful. I learnt that life must be lived. The word frugality has no meaning to her. Carpe Diem and don’t worry about tomorrow. My Father – The Saver My dad, on the other hand, always saved like a obsessed man and lived a very frugal life. The last car he bought was some 20 years ago but he almost never uses it as he prefers to walk. During a recent visit I wanted to borrow it for a day trip. My dad couldn’t quite remember where exactly he parked the car three years back. He reminds me a lot of Mr Money Mustache. My Dad, in contrast to my mother, saved so much that he stopped working when he reached 45 years of age. He saved himself to financial freedom. My dad knew he couldn’t do his job forever for medical reasons. An allergy eventually forced him to quit practicing as a doctor and he had to establish new income streams mid career. Eventually he focused on international trade where he made a decent amount of money. A few years back he started traveling the world following some deep discussions on the meaning of life. He visited almost 100 countries now. I can’t believe he overtook me a few years back. He is still frugal, and albeit being able to afford it, he always travels with a few loaves of bread and Polish sausages to save on eating out. Spending money in restaurants and bars is something he thoroughly disagrees with. My dad taught me to value every dollar, save my first million dollars, and live frugally. Value is derived by utility to him. Well, I am really terrible at being frugal but I took his value approach on. He taught me to invest safely and not to take any unnecessary risks when it comes to money. He was the first to show me directly how someone can live off passive income streams. These were all lessons which I will always treasure. The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life My Grandparents – The Cautious Survivors My grand- and great grandparents survived the outcome of World War I and World War II in Germany, Poland, and the Ukraine. They had to flee their hometowns, rebuild their lives from scratch, and their families scattered across France, Canada, Germany, and Poland. We have lost touch with most of them over the decades, I personally only met a few. My Ukrainian side of the family used to be filthy rich in the past, even owning oil fields, large amounts of real estate, and were all educated. When war breaks out all of the wealth doesn’t matter unless you are diversified. You just need to run for your life, hoping to start over elsewhere. Their real estate and businesses were appropriated by the state never to be returned. Nobody really remembers how rich they were, or how much they lost. We only know that future generations needed to start from scratch, rebuilding the family wealth step by step on foreign lands. My ancestors endured unimaginable hardship during the wars albeit faring better than many other families. It was good they had the foresight to have at least some of their assets in precious metals and stones which they could easily carry along while fleeing across borders.  Through their stories, my grandparents taught me the value of having a backup plan, being diversified, and being prepared just in case. The best preparation is your knowledge, experience, and most importantly skill base. That you can always take with you wherever you might end up. Knowledge is power. My Corporate Family I consider many of my former colleagues and friends at work ‘my extended family’. I spent over 12 years with many of them, working for the same employer. We were climbing the ranks together, helping and coaching each other along the way. I am in close touch with many of them today, even after two years. It is part of the reason why I wouldn’t mind returning and working with them again. We kicked goals left, right, center on a mission to success. I have many memories. I chose to discuss my plans before leaving two years ago. It is interesting to observe that just like in my real family my corporate brothers and sisters come from all sorts of background and their approaches to money vary greatly. I’ve met extreme savers, savvy investors, and glamours spenders. Most were in the last category, living rich, not wealthy. No surprise most were having some issues regarding the lack of time while the job was eating up most of their life energy. I didn’t want to continue this path. I wanted to try something new and that is why I chose to semi-retire early in the first place. Many could have been financially independent, but chose not to be, some out of ignorance, others because they prefered to work and keep busy. My Dead Friends I have lost friends along the way. Some really close ones. I want to focus on a financially independent one since this is the focus of this blog. Let’s call him Alex. Alex was 48 when he retired and sold his company for four million dollars. By that time he already acquired over 30 rental properties in Sydney. I’ve been to many of them over the 12 years I knew him. Most certainly Alex taught me alot about real estate and investing. Originally an immigrant, he arrived to Sydney at age 15 with 90 Dollars to his name. He worked hard, put himself through school and university, built a small tech business and diversified assets in property and stocks. He had done more than well in my book. Alex just turned 51 when I met him for the last time over beers in Sydney. He was recently diagnosed with pancreatic cancer and lived for another two months. Alex just returned from Switzerland where he met a world renowned cancer doctor who said it was just too late for treatment. He missed the window by a couple of weeks. If he didn’t, the doctor might have bought him another 3-5 years for a few million bucks, Alex noted, knowing he would never spent this money to live his last years in pain. I will never forget when he told me that he worked too much, too hard, and too long. He put career and saving first, but had overdone it. We were crying together in a bar, biding each other farewell with lots of hugs. I haven’t cried since the days of my psychopathic stepdad mentioned before. Alex taught me the life is short. He reminded me that life is there to be lived. Everybody needs to balance living today and saving for tomorrow. The Financial Gladiator – A Mix Between Prepared Frugality and Luxury So you see, I am a mix of all of the above key influencers in my life. I enjoy luxury and great experiences. I never save on good food, quality accommodation, self-development, or travel. Life is too short to do that. That is why I worked hard to increase my income throughout my early career. I also diversify my personal risk by acquiring as many citizenships as possible (legally of course) and investing across various borders. I hold small cash holdings across four countries today in four different currencies. Cash was king – it is no more. It is just enough to survive if I have to run for whatever reason. Whilst being a global citizen who enjoys some luxuries, I also liked to see my savings grow over time. Consequently, I adopted some of the practices learnt from my dad and other more frugal but successful friends. Strategies that made me a Financial Gladiator today include not falling for the debt trap, living below my means especially when it comes to accommodation and cars, and to not spend on stuff that doesn’t improve my happiness levels. I’m curious to hear from you about the people that influenced you on the path to financial independence. Are you depriving yourself today to support the future you tomorrow? What motivates you to achieve financial independence? For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 50% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. He recommends Personal Capital – Net Worth Calculator. It helped him gain control over his spending habits. Over time he reduced his spending by over 50%. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post The Family of a Financial Gladiator appeared first on Financial Gladiator.

Machu Picchu, Peru The dream to travel South America ingrained itself in my life ever since my first visit in 2008. Back then I rushed through Buenos Aires and Rio De Janeiro. The Argentine and Brazilian mixed culture, rich history, and protein-rich cuisine instantly converted me into a huge fan of the continent. I returned to my job after almost three weeks only to ever dream of coming back. Countless days I was wondering when the day would come. Like a shark tasting blood, I was hungry to travel and explore more of South America. In 2012 I had a chance to take a three month long sabbatical. I could have traveled South America then. It would have been fully paid through my long service leave which accrued over the years working in Australia. I declined and had it paid out to me instead. During that part of my career I was focused on developing my skills and building my nest egg. In retrospect, it was a somewhat costly mistake as I had to pay full income taxes on the accrued leave, basically decimating the value of my leave by almost 50%. I learnt from that mistake, and read up on tax law before making decisions like that these days. Returning to South America Today I am back; I have been here for almost four months now. Over the years I learnt from experience and new skills regarding budgeting, travel hacking, and how much it is worth to be financially independent and being able to slow travel. I took several trips since I became financially independent in 2016. Amongst others smaller trips, I traveled most of Europe and Asia in 2017 and 2018. This is my third major excursion since leaving the office. My travel today is relatively cheap, only a fraction of the costs of what it used to be. Would it surprise you to learn that slow traveling is at least 78% cheaper? It is so much better as you can soak in the experience fully, instead of just whizzing through each destination. Let’s have a look at some of those mentioned skills, expenditures and experiences in this blog. South America Adventure – Part 1 after 3 months of travel Trip Summary Over the past 117 days Mrs Financial Gladiator and I have traveled Peru, Bolivia, Chile and Argentina. We are now in a bus back to explore the last bit of Chile’s Patagonia, Torres del Paine. I am writing the draft for this blog post in our bus to Puerto Natales. We are both not particularly frugal travelers. We don’t like backpacking albeit owning and using the backpacks for ease of travel. Most other longer-term travelers we have met are bunking in hostels, or campsites, share showers, and eat mostly pasta and canned tuna. We were told that we “glampack” as we use nice hotels/B&Bs with private bathrooms, dine out several nights of the week, and participate in some more costly but organised and amazing experiences along the way. Looking at our expenditure over these past 4 months, we spent roughly USD 20,000 for the two of us. My share was USD 10,781 as we keep our finances separate. Given my income from my Polish real estate investment and my diving gigs last year I’m still looking at a +35% saving rate. I could do this forever and grow my next million over the next 15 years without going back to work at all. However, as mentioned before we are planning a family, so it’s back to work for a few more years following this ‘trip’. We should finish most of what we wanted to see in about 2 or 3 months. Great timing for European summer and maybe a last dive gig in Indonesia before returning to the office. La Paz, Bolivia The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life Most Most Favourite Travel Hacks Benefits of Slow Travel Traveling slow is so much cheaper than traveling while employed full-time. My trip costs for my trip to Argentina and Brazil back then were AUD 7,600. Looking at inflation that would have equate to AUD 10,009. This is if you believe inflation numbers provided by Statistical Bureaus based on changing and ever limiting CPI goods baskets. In US dollars this is roughly USD 7,375. Let’s be conservative and take that number despite currency fluctuations. In 18 days of travel, a single day of travel cost me on average USD 409. I got jet lag and a feeling of needing another vacation following this one. Now, let’s look at the average cost per day of traveling slowly. Having traveled 120 days and spending a total of USD 10,781 equates to USD 89 per day. That is less than 22% or a whopping 78% reduction of cost. Mostly this comes from optimising travel to be on the shoulders (before of after) of regional peak seasons, minimising flight costs (buses and trains, flying mid-week and mid-day), fine dining during lunch rather than evenings, staying longer in rental accommodations and negotiating significantly better rates. We don’t do this all the time, but keeping these basic principles in mind helped us save a fair bit here. Mrs Financial Gladiator used to believe she needed at least USD 200 per day, while I argued USD 100 would be maxing it out. Most travelers we met in South America spent on average USD 30-50 per day, so we are definitely not depriving ourselves too much during our adventure. Uyuni Salt Flats, Bolivia Reducing your Accommodation Costs Accommodation is one of the biggest cost items in your travels. We spent about 20% of our daily budget on accommodation. Staying short term doesn’t give you any benefit to negotiate your rate. Staying longer (say seven days days and more ) does. On average we save 20-30% on the advertised cost per night simply by offering to stay more nights. AirBnB is our favourite in larger cities. We prefer condos with washing machines and excellent wifi to save on laundry and communications costs with our families and friends. Santiago, Chile Saving on Flight Costs Flying costs are the second biggest cost line item typically. We optimise our flying costs by using apps like kayak and flightscanner to find the cheapest flights from A to B. We browse flights ‘in cognito’ or through VPNs to avoid being price hiked by airlines with subsequent flight price quotations. When you fly as much as I do, you learn that airlines take note of your devices IP and if you don’t buy a flight on the first visit to their site they tend to increase their prices. It can quickly double your flight costs. Secondly, we reduce our costs by either booking in advance (though we rarely plan months in advance) or look at mid-week and mid-day options. It’s actually the nicest way to fly. No rush hour business crowd, no families using the weekend to get away. Flights outside those peak business hours and weekends tend to be dirt cheap in comparison. I think our one way flights from Europe to South America were around $400 per person. When you are working you pay a heavy price for flying Friday evenings and Sunday evenings. Travel Rewards and Credit Cards Lastly, I used to pay for my holiday flights exclusively through credit card bonus programs. I also flew a lot in my corporate career which certainly helped. Often credit card programs offer a nice sign-up airline miles bonus. If you can optimise your point collection while not incurring credit card fees you get to fly for free. The trick is never to sign up for a credit card unless you can afford paying off the balance in full and on time. If you spend a lot with a given credit card you might be able to negotiate the annual fee. I paid my platinum American Express and VISA annual fee once in 12 years by calling them up and telling them I would leave if they don’t waive it. I did spend over 50k a year via credit cards. At the same time I would negotiate bonus miles and other perks. If VISA charges say 2% per transaction, they would make $1,000 from my transactions, so why should I have to pay an annual fee and miss out on free flights? Our total transportation costs are around 15% of our expenses in South America. Volcan Villarrica, Chile Luggage Optimisation Keep it simple. I only carry what I will definitely use. If I forget to think about a potential situation I simply buy it along the way. I prefer my luggage to weigh not more than 7 kg. Ideally packed as hand luggage so I can accelerate check-in and avoid luggage pick up. If you have ever seen George Clooney’s “Up In The Air”, that was me during my working days. I kept those habits. The financial benefit of traveling compact is that you often don’t have to pay additional fees. I don’t know how many flights I had where my luggage fee was more expensive than my seat. What a rip-off if you don’t watch out. One can optimise costs between 30-60 % of all flights just here. Plus, it is so much nicer not to carry a heavy bag. In my case I carry Mrs Financial Gladiator’s 18kg luggage, my 7kg backpack, and my 7kg Camera gear carry on – we are good! Experiences and Tours When you don’t know, you don’t know. Tours of local highlights and sights are the biggest rip-off opportunities for local operators. Because we have time, we typically spend half a day while exploring a new town talking to tour operators. This way, we can shop around for the best value deal. You think you can do all the research from home online? Often you end up paying 3-5 times the price you would pay locally. This goes specifically for South America and Asia. The stuff being advertised on Viator and other Tour sights is often a complete rip-off. When shopping locally and onsite, we ask the operator in detail what is included, what is not, how big the groups are, and for a discount if we book multiple tours with them. Finding good tour operators make the difference between a lifetime memory and a bad aftertaste. We save in general around 10% to 25% on the tours. So don’t shop online for tours if you can avoid it or ask your friends and network to recommend operators they have utilised in the past. Overall we spend about 20% of our expenses on Tours. I reckon it would be at least double or triple if we were to organise our tours from abroad or over the internet. Lago Puerto Tranquilo, Chile Food and Beverages Mrs Financial Gladiator is from Asia, so food is like the most important thing ever, while I could get by with a ham and cheese sandwich for 6 months to accelerate my FatFire Independence Day. On the other hand we only live once and we both love to eat great food, often dining in the best restaurants the city or village has to offer. We spend 15% of our daily budget on food and beverage, mostly eating out and 5% on groceries. When visiting fancier restaurants they often have a set lunch and dinner option. We tend to pick the set lunch option as it’s far less busy than night time. In South America they often have set lunch options that can be up to 100% cheaper than the same food during the evening. Those percentages I love. Cochrane, Chile The Rest Travel and Health Insurance accounts to about 5%. I use a ultra packed coverage with World Nomads Travel that sets me back some $180 a month. A further 5% goes for miscellaneous like clothing, souvenirs, phone and connectivity, etc. I haven’t roamed in a few years and buy a local travel SIM each time I cross a border. It is so much cheaper than using your internet and phone plan or package from home.  Glaciar Perito Moreno, Argentina Cerro Fitzroy, Argentina Cerro Torre, Argentina Like so many other costs in life, when you stop working full-time, and have an abundance of time, travel cost reduce significantly. It makes financial sense to travel longer and slower, while being aware of travel hacks as described above. Have you tried to slow travel? Did you take a sabbatical from your job before? Are you traveling full-time already? Please share your experience in the below comments’ section. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 50% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post The Financially Independent Road Warrior appeared first on Financial Gladiator.

Accelerate your Path to Financial Independence Investing part of your portfolio in emerging economies makes sense for various reasons. Chances are your investments will outperform over the long term. Below I summarise the biggest benefits of investing in real estate in emerging economies. The focus in this post is comparing Indonesia and Poland to neighbouring economies of Germany and Singapore respectively. As a frequent reader of my blog you know that I prefer purchasing tangible assets over equities. In particular, I prefer to invest in real estate and finance my purchases exclusively with cash. I have done so successfully in Poland by timing the market. There, I saw an opportunity to get in in 2015. I did so because it didn’t make any financial sense to invest in Australia, USA, Singapore, or Germany. These four markets were the ones I was observing for years. Today even a 50% drop of my Polish investment wouldn’t hurt me much, as I have never counted on such massive capital gains and would still be in the black. Mostly I live of the 6.5% or net rental income which is in complete alignment with my goals. Key Reasons to Invest in Emerging Markets In a nutshell, the main reasons to invest in emerging economies are highlighted below: Economic Growth Outpaces Advanced Economies Lower Capital Requirement to Enter the Market Typically Lower Taxes on Generated Income Higher Salary Growth Higher Capital Growth Diversification of Risk in Portfolio Cheaper Retirement Option Increased Learning Curve Bigger Bang for Buck 1. Economic Growth Outpaces Advanced Economies Take a look at growth rates of emerging economies. You will find that they generally outpace advanced economies. These are opportunities for an investor to buy into a market below at a fair value. One of the best sources to compare countries is the OECD Data Website. As with all statistics that I haven’t faked myself, I take these with a pinch of salt. Having said that, they work just fine for comparison and indicative purposes. Two leading indicators for me is the growth of the overall economy and the growth of disposable income. Growth of wages is also tightly related to price increases and spending power. The higher it is, the better from an investment perspective. Let’s have a look at the growth of disposable income in Germany and Poland for example. The data is directly taken from the OECD website. We can clearly see that Poland has outpaced Germany across most years. OECD Wage Growth Germany Poland Comparison (source: OECD Data Website) In 1995 Germany’s GDP per capita was around $19,000 while Poland stood at $6,000. Germany’s GDP per capita was more than 300% of Poland. Today Poland sits at an output of $30,000 while Germany only grew to $54,000. This equates to Germany’s GDP per capita being now a mere 180% of Poland’s. In a quarter century Poland has recently become a developed nation, the first amongst all new Eastern European Union member states. Few months ago, I wrote about Poland in my blog post titled ‘The Art and Science of Investing in Poland’. Let’s have a look at another developing country I am getting more and more interested in. The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life I’m Watching Indonesia Indonesia is a lovely country in South East Asia. Growth and Inflation are generally high, currency fluctuations are volatile. From a property perspective one can buy in relatively affordably. This means that for the same deposit amount in a developed country, you are able to buy for cash in Indonesia, omitting any bank loans. Let’s have a look at Indonesia’s historic growth rate. I pulled this chart from Trading Economics. This is a wonderful source of information. If we were to draw a trend line, you would notice that Indonesia’s growth is actually accelerating over the long term and outpacing many of its neighbors, like developed Singapore. GDP Growth Rate Indonesia (source: Trading Economics) Because of the high growth, chances are on your side that your investment will pay off quicker and generate a better return. Indonesia has been growing like not many other countries for decades now. Comparing Investing in Singapore versus Indonesia Now, let’s compare what an investment of say SGD 150,000 would be worth in Indonesia versus Singapore. We assume a GDP Annual Growth trend of 2% in Singapore versus 5% in Indonesia. I’m always conservative in my calculations. That “mere” 3% difference would equate to a whopping $351,000 difference over 30 years compounded. Mind you, you could not even buy a shoebox in Singapore for $150,000 to start with. Chances of additional capital gains are high as inflation tends to be much higher in Indonesia than Singapore. Here’s a table further illustrating the investment growth between these two countries. Indonesia vs Singapore Investment Growth Rate Comparison Indonesia vs Singapore Investment Growth Rate Comparison As a passionate scuba diver and management consultant, I have visited Indonesia for many years. I even lived there briefly in 2018. The growth is absolutely tremendous and one can notice the difference with each subsequent visit. Further it has an amazing growth potential. There is still a long way to go to meet the Western level of development. In my opinion Indonesia is a gold mine. But with higher returns comes higher risk. I wouldn’t recommend starting to invest in such an exotic country if you are a novice investor. Prior investment experience, a good handle over the market and its (ever changing) rules and regulations are a must have. 2. Lower Capital Requirements to Enter the Emerging Market In Indonesia the minimum capital requirement to purchase any real estate is USD 105,000 for foreigners. Foreign ownership regulations are rather limited but are improving. With a square meter price of around USD 3,000 in Jakarta, purchasing a small apartment is much easier than in Singapore. With an average price of around USD13,000 it is “slightly” more expensive than Indonesia. Because of the lower capital requirements, the need for financing through a loan is also much lower. 3. Lower Taxes In Developing Countries When calculating the returns, one needs to understand all taxation requirements. There are typically taxes for the initial purchase of a property and annual taxes due for rental income and property tax. These tend to significantly vary across countries but in general are cheaper in developing countries. Over the span of an investment it can make a huge difference in your Return on Investment (ROI). In Indonesia that total rental income tax is around 30% whilst the property tax ranges between 0.1% to 0.5% of the annual value of the property. In comparison Singapore rental income tax starts at 12% while property taxes hover around 0.3% for small apartments. At first glance this seems favourable for Singapore until you understand that Singapore has a 20% tax for foreigners to buy. So buying a million dollar property you need to chuck out another $200,000 in additional stamp duty. You will likely need to finance the purchase which would add a huge additional cost to your investment. Shaving off 30% rental income tax off your gross rental yield of 7.5% in Indonesia provides a higher bottom line than shaving off 12% off 2.5% in Singapore. So just for the cost of the foreigner tax to buy a small 1-bedroom condo in Singapore you could buy 1-2 more apartments in Indonesia and start generating a net positive income flow. Re-invested, it would make for a far superior ROI and one hell of a compounded wealth over decades. In the end it is cheaper to buy outright in Indonesia even while paying higher ongoing taxes. 4. Higher Salary Growth Indonesia has consistently ranked highly for salary growth globally. The growth rate has been around 10% between 2008-2016. This is a good indicator for a growing and developing market, especially when real wage growth has been declining significantly in the Western World. Chances for capital growth are much higher if people are earning more. House prices have been stagnant in Indonesia for a few years. With continuing growth of salaries, home prices will eventually increase to close the widening gap. 5. Higher Capital Growth Capital growth beyond inflation is not required if you have a net positive investment (of course it is nicely seen!). The Rent-to-Price ratio in Jakarta is one of the best across Asia. I tend to frequent the Global Property Guide for some excellent information. The graph below is from their website. Price Rent Ratio Indonesia vs Asia Comparison (source: Global Property Guide) Chances however are that over the long term the capital growth in a developing economy will outpace the capital growth of a developed country. This is mainly due to the wage and GDP growth discussed earlier. Looking at the ten year capital gains, Indonesia looks pretty good. However the real increase (net inflation) has been closer to zero. 10-Year Home price growth in Asia (source: Global Property Guide) 6. Diversification of Risk in Portfolio Most of my portfolio consists of rental property in Poland. At the moment I’m highly exposed to the Polish Market. In order to diversify I am eyeing opportunities in Australia and other markets next. The main reason for this is diversification. Growing and de-risking my portfolio is top of mind for me lately. I don’t like investing in equities and prefer tangible assets risk -free of hyperinflation. There is a huge risk in holding cash in a bank these days and an even greater risk of being invested in the stock market at present. Valuations are at all time highs, bubbles surface everywhere, and I expect a global recession in the coming 18 months. The EU, China and the US have a huge impact on the global economy. All are showing signs of weakening demand, revising mediocre growth rates and exposing themselves to inflationary pressures. Meanwhile Central Banks all around the world are keeping interest rates at historic record lows. 7. Cheaper Retirement Option One of the most important criteria for me when investing in real estate is the potential of retiring in one of these countries later. I actively plan to spend a majority of my next decades in one of the countries I am investing in. Quality of life, healthcare, and associated costs are important factors I look at already despite having a fair bit to go being 37. If I decided to live in Poland, I could easily support a family and myself indefinitely from my current investments. I could even still save about 50-60% of my income to continually re-invest and grow my passive income stream. Instead I plan to go back to work for a few more years to increase my asset base, diversify my risk exposure, and grow my passive income streams. I want to be able to thrive and take care of my planned family anywhere in the world, including more expensive places such as Singapore. Investing in several countries will give me the option to choose later on where I want to live. More importantly, I could be traveling with the sun and enjoy endless summers. I really hate the cold! 8. Increased Learning Curve One of the best things about investing in developing economies is the opportunity to learn, adapt, and thrive. Your learning curve is greatly increased by investing across borders. Beside the financial diversification, you can enjoy the travel and pick up a new language, understand a different taxation system, learn about another legal framework, make new friends, and immerse yourself in new cultures. There is so much to learn out there. Striving towards being a global citizen not only provides massive opportunity to self-develop, it is also great fun. 9. Bigger Bang for Buck There are many good reason to invest at least part of your capital in emerging markets. If you are a calculated risk taker, like I am, you might choose to invest most of your capital there. The first million is the hardest but you can absolutely get there. Ultimately the return is what matters with investments. I prefer to have a lower but safe and steady return. Comparing gross rental yields globally, we can quickly gauge gross rental yields across some selected countries. Gross Rental Income Emerging Economies versus Developed Economies You can make twice or thrice the net return compared to investing in a developed nation. And this is before maintenance costs and property taxes. In Australia for example, property taxes and maintenance fees can easily eat up several months of your gross rental income before you start making any money. Before you know it, your investment property makes less than a savings account. I have compared renting versus owning in another blog post, if you want some details on the fee structures. If you are on your path to financial independence, you can greatly accelerate your financial independence day by investing in developing countries. Assess if it makes sense for you. In my case Poland was a perfect choice since I have family ties to that place. Maybe you have other opportunities that make sense. In any case consider the option of investing abroad versus at home if you live in a developed economy. Lastly, if you are interested to learn more, I have recently published my first e-book on how to purchase your first investment property. It is focused on the criteria I use to assess city rental units and you can get access to it by subscribing to my newsletter in the form below. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 50% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. He recommends Personal Capital – Net Worth Calculator. It helped him gain control over his spending habits. Over time he reduced his spending by over 50%. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post Why Investing in Emerging Economies Makes Sense appeared first on Financial Gladiator.

Karl Lagerfeld recently passed at the age of 85. He became famous by speaking out, often controversially, and more importantly as leader of the world famous Chanel brand. A true leader, a trendsetter, a fashion guru. As I have no sense for fashion or need for 100,000 Euro dresses, I much prefer his cheeky metaphors about life. However as a Financial Gladiator I have to disagree with some of his views. Lagerfeld was famously quoted for saying ‚sweatpants are a sign of defeat, you lost control over their life so you bought some sweatpants‘ and ‚work is making a otherwise boring life liveable‘. Happiest Clothes Ever He made me take a hard look at the clothing choices over my past two years of my financial Independence. There were two types of clothing I preferred. They were my beach wear while diving and  my sweat pants when not. I believe that I enjoyed my time the most because I was in full control. Lagerfeld wouldn’t have recognised me as a human, I reckon. A Little Eye Opening Anecdote Have you ever had a run in with a custom officer? Given I traveled most of my life I most certainly had my unfair share. By far my favourite time, however, was last year when visiting Indonesia.  A custom officer stopped me politely just after immigration and requested to inspect my belongings. My luggage consisted of my diving gear, a laptop, a drone, a compact and DSLR camera, two heavy camera lenses, chargers, batteries, my passports, a pair of board shorts, a tooth brush, and two t-shirts. The officer then asked me how long I was planning to stay in Bali. I replied about 100 days but it depends how fast I will complete my dive instructor training. Looking again at my hand luggage and my diving bag he inquired if I was being serious and where all my clothes were. I replied with a smile on my face. “I came here to dive, and I have everything I need to be happy with me.” He let me pass with a baffled expression on his face. A Diver’s Wardrobe There is no choice required in the morning, limited laundry, no ironing my shirt or suit. Everyday I would get up, take on my board shorts, brush my teeth, and take my scooter to the dive shop before heading to the sea.  By the end of the day my board shorts were washed naturally by the seawater and without detergent. I would have a quick rinse after the dive, and would not need lengthy (wake-up) showers or deodorant anymore. I am minimising my contribution to polluting our planet. My head is free of unnecessary choices on what to wear or needing to do my laundry frequently. My body is well oxygenated from spending all day outside and the physical workout. The best thing, however, is that I enjoy full control over my day. A Manager’s Wardrobe There is something about dressing up for a highly paid office job that I never liked much. It took me a while to understand why. It’s not the fancy clothes. It was the need to look professional, impress others, conform with the norm, and living up to someone else’s expectations. You do give up a little control over your life when you conform with somebody else‘s expectations. Having said that, if you want to earn serious dollars in a corporate environment you need to ‚wear the jacket‘. In upper management we occasionally slapped middle managers’ wrists because they didn’t take ownership or failed to deliver one of those Big Hairy Audacious Goals. ‘Why is nobody wearing the Jacket?’ was asked frequently in the decision room. For many wearing a jacket, shirt, and tie was a synonym for seniority, leadership, and success. But for me it was literally suffocating me slowly. The tight neck collar, jacket, and tie just wasn’t comfortable. I could have produced the very same results wearing my sweatpants and flip flops and feel a lot better. Thankfully today the professional dress code is loosening up. I recently read of a company with a barefoot policy. Love it! Change of Control Satisfying other people’s expectations is no longer my motivation nor goal. Before, others were deciding what is appropriate and what isn’t to receive a salary. Today they no longer control me nor my choice on what to wear. I wear my sweatpants frequently, with pride, and self confidence. Contrary to Lagerfeld I actually believe that wearing sweatpants is a sign of control over one’s life. Nobody tells you how you should dress (except Lagerfeld). Nobody tells you what you should be doing during the most productive hours of your day. The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life Be a Gladiator – A History Lesson Like a Gladiator I bought my freedom a few years back. In the old days gaining freedom from your master was close to impossible. Is it much different today?  You either had to win an extremely important battle (and survive). Alternatively you had to fight many times and save up your winnings to eventually buy yourself out. Most gladiators never made it. They died on the battlegrounds or never amassed enough to pay their master out and set themselves free.  Modern Slavery It is striking how little has really changed over since the Roman Empire flourished two Millennia ago. So many of us live a very similar reality to those slaves and peasants hundreds of years ago. They still do not teach you to take control in school, they do not teach you how to think for yourself and live free. In a broad sense we still have owners and slave masters. Granted, life for the average ‘modern slave’ improved significantly, lifespans doubled but the control over the masses hasn’t changed much. Slavery by definition is somebody holding a grip over somebody else for exploitation. Few asset owners control most of the global wealth. Inequality is rising. We still fight wars in the 21st century; still falling for propaganda and mass media. More than 50% of US stocks are controlled by the wealthiest 1%, 17% are controlled by the 0.1% of all American households. A few billionaire families own the majority of the World’s wealth. How is that different from the times we had Emperors, Kings, and Slave Masters control and exploit the men and women? Fiscally irresponsible consumerism is modern slavery in my view. The illusion of freedom and free markets is unfortunately quite real. We are controlled by  debt today. There is no denying this with the majority of the Western World being in debt. The best way to avoid control over one’s destiny is to never go into debt. Few of us resist the temptation to follow the masses into a life of debt just to conform. Instead, I suggest, choose to train your financial acumen, be a saver, investor, and work hard to set yourself free by acquiring tangible assets and passive income flows. Achieving something grand is never easy, but gaining financial independence is quite possible. Control, Debt, and the Illusion of Freedom Many of us do not manage our financial lives well. We live the way we were brought up. We are constantly exposed to marketing and advertisements to consume and go into debt. The banking sector is celebrating when they make record profits from fees of people in debt. When the economy is producing record amounts of new debtors, we are all doing well, right? Whatever happened to producing goods and services that add tangible value and quality of life? Our Neighbors and family criticise us when we don’t consume according to our income levels. Further, we are incentivised by our governments to go into debt to avoid paying higher taxes in many countries. Think for a minute. Which country isn’t in neck-high debt? Which countries don’t have a central Bank today? How much of your taxes go to service a government debt you never elected to have? Financial shocks and debt levels have been escalating for consumers, corporations, and governments over the past ten years. Meanwhile central banks have acquired massive levels of assets in form of bonds and stocks. People perceive Australia, Switzerland, the US to be the richest countries in the World when in fact they have some of the the highest consumer debt levels per capita. Model Citizen They make you think that you are a great citizen when you consume especially by borrowing money. You support the economy. You keep this (central banking) system alive. Go ahead and support a rich lifestyle, you actually cannot afford. You will make a lot of bankers rich and happy. Being wealthy is not how many assets you posses. It is much more about how much control you have over your destiny. Today, the banker and Uncle Sam have huge control of our lives across most countries. A lot of us sign a large chunk of our adult lives away on 30 plus year mortgages. Often the average person over-leverages leaving little to live for. Banks are happily allowing over-leveraging as we have seen over and over again. Many debtors spend 50-75% of their supposedly ‘free time’ every year just to pay due taxes and the home mortgage. So You Think You are in Control of your Finances? For those of us who think to be in control of our finances, be weary of the central banking and government manipulation of the ‘free market’. It only takes a few history lessons to understand that the Roman Empire, too, was consistently devaluing their currency to fund their wars to expand or protect the borders. Germany did the same during the Weimar Republic. The US dollar has devalued over 96.3% over the past century thanks to central banking‘s monetary policy. Inflation is great when you own appreciating assets. Less so if you do not possess any assets. In the latter case you finance asset holders for free. Should the dollar value crumble under the mountain of US debt your cash savings are quickly going to be worth a lot less. Tangible assets can protect value of your savings however. Time for a Financial Reset I see too many of us investing a bulk of their hard earned savings in ‘paper assets’ such as index funds, stocks, other paper assets, and fiat currencies. We are not in control over the currency devaluation and debt generation process – the Federal Reserve is. Through floating exchange rates and the dismissal of the gold backed dollar they now control all major interlinked global currencies. Derivatives, probably the most toxic financial invention ever, have grown so outrageously big, we now talk about banks too big to fail. Bailing out fiscally irresponsible banks and countries seems the new norm. Negative interest rates, as a consequence of a very sick system, are the last attempts to keep a dying system alive. Central banks and governments are printing money on such a scale and frequency that we consider it normal. We forgot that this is unsustainable, it is just a matter of time before the system melts down. Take control now. Conclusion Karl Lagerfeld‘s life reminded me how important it is to take control. Take control over your finances and more importantly your life. Speak out even if politically incorrect, and don’t follow the masses. Be a trendsetter, be a leader, be a financial gladiator. PS: If you like sweatpants as much as I do, wear them with pride. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 50% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. He recommends Personal Capital – Net Worth Calculator. It helped him gain control over his spending habits. Over time he reduced his spending by over 50%. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post Gain Control Through Financial Independence appeared first on Financial Gladiator.

Does the prospect of working half a century in an office, in a job that you might not really like, scare you? Do you have a solid retirement plan? Would you like to spend (much) more time with your family and friends? Do you spend most of your income paying bankers (servicing your loans or mortgages) and/ or the government? If all of your answers are a “Yes”, but you haven’t started saving at least 30% of your take home pay yet, read on to change your life. Start Building Your Path to Retirement The secret to financial independence and possible (early) retirement is spending less than you make – consistently and from an early age on. The bigger the difference and the longer you have been saving, the faster your financial independence day will approach. It is never too late to start saving. It really doesn’t matter how much you make, as long as you systematically save significant amounts and invest the savings safely over the long term. Significant meaning at least 20% of your salary. Obviously, it becomes a lot easier to save if you make an above average salary. Contrary to many other bloggers, I am a huge fan of timing the market. The results are far better. Saving a million dollars is really not that hard over a career. Learn how compound interest works, save systematically, invest safely, be aware of your budget, avoid lifestyle creep and geo-optimise your income and expenses over time. Master the above categories, and early retirement is in the realm of the possible for most of us. Chris Hogan’s data-driven analysis in his new book  “Everyday Millionaires: How Ordinary People Built Extraordinary Wealth?and How You Can Too” shows exactly that. Most study participants achieved the million dollar milestone before turning 50, with average incomes below $100,000 a year. The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life Gaining Financial Independence while Having Fun I gained my financial independence early by working my butt off over the first 12 years of my high-flying corporate career. The truth is I probably worked much harder from young on than most people would. However, I most certainly didn’t live as frugally as the average FI blogger. I don’t like to be particularly frugal. Instead I love to exchange my money for maximum value gained. I spent a tonne on things that gave me happiness. The secret is to consistently save, avoid the shackles of debt, and invest safely while not being greedy. I have turned 37 and it has been 717 days since I wore a suit and tie whilst spending most of my waking life in offices. Whilst I truly enjoyed my career, I don’t miss sitting all day in offices, conference rooms, airport lounges, planes, or taxis. Know your Expenses and Net Worth It is surprising how many people don’t know how much they spend. I, myself, used to go through life like that for the first 12 years of my career. It cost me tens of thousands of dollars, if not more. Today, I use simple smartphone apps to track my daily expenses and net worth today. These two activities keep me on track and I truly enjoy seeing net savings every month, reinvesting these effectively, and watching my wealth grow over time. Starting to track my expenses allowed me to reduce them by over 80% over time. I understood my spend and gradually stopped buying stuff that didn’t make me happy over the long term. If it didn’t make me happy and I don’t use it frequently, then I won’t purchase it. This is a simple but powerful code. For expense tracking the most recommended app is Wally.me. It covers international currencies and is ideally suited for people who like to travel. It has made my life much easier, not having to convert expenses and currencies everywhere I travel. For the easiest way to track your net worth try Personal Capital. It is a simple yet very powerful account aggregator which provides great visualisation tools. Alternatively and/or in addition, you might choose to simply use a spreadsheet, but that is only if you are a geek like me. I love playing around with tables, figures, percentages, and visualise them. Below is an example from how my net worth has changed over time. As I like to time the market, I really like to see my assets visualised this way. Net Worth and Portfolio of Assets Understanding the Power of Compounding Interest This blog is focused on proven strategies to save yourself to financial freedom. The strategies will have the highest impact if you are planning to join the workforce soon at a young age. This is because compounding interest and returns multiply over time and exponentially rise over time. Saving $100 each month from the early twenties can make a huge difference over 40 years. With a very conservative return of 4%, you make an additional $70,190 beyond your principal saving of $48,000. Imagine if you saved $500 a month at 7% over 50 years. You would make a staggering $2,424,035 in interest alone while only saving up a principal of $300,000. This is the power of compounding interest in real life. Start saving early and invest consistently in safe assets. Can You Save $500 Every Month? I am a strong believer that anybody can save $500 a month while living within their means. Believe it or not, but I actually started my career working on a recycling yard, also known as dumpster. Later I worked in kitchens and hotels where I was waitering and cleaning. Getting my hands dirty was never an issue for me. To top off my early career path, I gained additional experience as a DJ, translator, management assistant, dance teacher, rock band member, provided basic IT Services and even ran a school newspaper for over a year. None of these jobs paid particularly well. Then again, I was still in high school or university and I did it for the experience and to make a living. My life used to be much less rosy than it is today. Having said this, even during my lowest paid jobs, I easily saved $300-500 every month without depriving myself too much. It wasn’t luxury, but it was a good life. Creating a sustainable life is not easy for most of us. Unless you had massive financial help during the early stages of life, chances are it was quite hard. Thankfully persistence, good attitude, and education will pay off in 99% of all cases. Saving By Deprivation? No, Thanks! I’m no advocate of saving by deprivation. We are only young once; all of us. There are things you simply cannot do once you have to support a family or get old. Typically a young professional can triple the take home pay by way of climbing the corporate ladder within ten years. There is no point saving most of your savings while missing out on life. A lot of the Financial Independence and Early Retirement (FIRE) community members recommend to save aggressively while I prefer to have solid savings AND fun along the way. In fact, I spent a lot of money on fun activities during my career. It is paramount to develop, have fun, save and have a great time simultaneously. Purely focusing on saving all year long is going to get boring real quick. I cannot imagine depriving myself of almost everything just to bring my savings rate up. Each day has to be lived and with each day we have to improve ourselves a little. I probably spent way too much money in my twenties. Sure, I could have reached financial independence much earlier, maybe at 28, but I hold no significant regrets choosing a good amount of fun along the way, instead. Rule Number 1 – Focus on Increasing Your Income There is no better way to increase your savings rate and amount than by focusing on increasing your income. This could be by diversifying your income stream and building new ones, or by actively managing your career. Personally, I’m a fan of the latter for the first part of your retirement funding accumulation phase. My plan was always to make serious money by focusing on my career growth AND living the dream. Gaining relevant and valuable job experience was my primary objective, never the pay check or the savings rate. In most cases the money would follow, as would the savings. Several times I chose to take lower paid roles just to get the better experience for the long term. I didn’t jump companies to get ten percent pay bumps. Instead, I would used offers to renegotiate my pay at my employer of choice periodically.  Meanwhile my secondary focus was set on building my network. The power of a well-established network is absolutely priceless. It gives you opportunities that are not accessible to everybody, and it helps you improve over time by leveraging the knowledge and experience of your senior co-workers. Pick the Right Path for Yourself I mentioned earlier that you can triple your income over ten years of hard work. However in the context of financial independence, it is more important to pick a career that pays well from the start. Tripling an average salary is great, but tripling an outstanding one is even greater. I always recommend young people to do as many professional internships as possible. Your internship experience is often more valuable than your expensive degree. And more importantly than money, you find out what kind of roles will provide you with satisfaction and happiness. Gain initial experience across various functions in a business and pick something that you like for your career. This is incredibly important and I need to stress this. Whether you believe in reaching financial independence or not, you will likely stay in this career for a significant amount of time. Choosing a career path without knowing anything about it is a recipe for disaster. Equally risky/ costly is swapping career paths later on. Once you are branded, let’s say as an HR or Supply Chain person, it will be difficult to move across functional areas. Personally, I interned across eight roles in five industries before I had a feeling about what I truly like. More importantly I learnt what I definitely didn’t like to be doing in my future career. It took almost two year’s worth of full time experience before I decided to become a full-time management consultant. Geo-Optimise your Income I lived, studied and worked in several countries to optimise my take home pay over the years. When you are young you can look to establish a career in a country which pays better than others, after taking living costs and taxes into account. The differences can vary hugely, from country to country. The net income for the same role I had in Australia was more than double compared to Germany. It was a whopping six times more than in Poland. Sure living expenses vary, but the larger your net saving potential, the better the location to pursue financial independence and retire early. It was a conscious choice for me to live and work in Australia. I sacrificed being in a foreign country without the support of my family. By the time I finished my postgraduate degree I knew exactly what I wanted to work as, where, and for whom. My starting salary was AU$90,000 and it grew to AU$187,000 over 6 years. It sounds great but I paid relatively high income taxes in Australia – around 32%. Additionally I had to participate in a mandatory 9% superannuation retirement fund (similar to a 401k). Despite the higher cost of living, I could save a lot. After nine years in Australia I moved to Singapore to advance my career further. It was there that my savings significantly accelerated due to several promotions and a redundancy at the end of my employment. My final annual pre-tax salary was a staggering SG$295,000 excluding some varying stock bonuses. Optimising Your Expenses You already learnt that growing your salary is the easiest way to increase your saving power without depriving yourself in the process. Another way is to reduce your spending. The combination of both is what lets you jump onto the “financial independence and retire early” bandwagon. Optimise your income and your expenses and you will be able to retire much earlier. Tanja Hester, a fellow Blogger, running the Our Next Life blog has just recently published her book “Work Optional – Retire Early the Non-Penny-Pinching Way“. It’s a brilliantly and simply written book to set you on an early retirement path. Budgeting I wrote in a previous post how I managed to reduce my spending by over 80% since I took a break from the corporate world to try living financially independent. I used budgeting tools like Wally to help me better understand my spend and stick to my new income. In addition I based myself in Poland, a low living cost country to maximise the value of my rental income. I am still saving each month despite living off my very low taxed rental income and the occasional scuba diving gig. The Proper Usage of Credit Cards I actually saved a lot of money by using the best credit cards. Of course I have never paid any interest or late payment fee by always fully paying off my balance on time. By channelling my spend through strategically chosen credit cards, I earned millions of additional frequent flyer points over my career. I maximised collecting discounts and cash back systems through holding varying credit cards. The biggest benefit to me was being able to invite my family or friends to travel with me for free. Occasionally I treated myself to business and first class flights all over the globe. At the peak of my career I was earning well over a million frequent flier miles through the credit card and the actual travel. If you are not much of a traveler, there are also quite a few cards out there that provide a cash back system. Geo-Optimsing Your Expenses Depending on which country you choose to live and work in, either taxes or housing seem to be the largest expense items in general. Both can be optimised to achieve a much larger saving rate. My rule for housing costs has always been to not spend more than 12.5% of my income on it. It didn’t matter to me how the Joneses were living. Whilst in Australia I regularly paid more than 32% of my salary in income taxes. I would basically work the first 4 months of the year for the government. I later optimised my taxes to 10% by choosing to move to Singapore. In addition I no longer had to pay 9% of my gross income into a mandatory retirement fund. My absolute savings increased significantly by geo-optimising my income tax rate. Granted taxes have recently risen in Singapore, but they are still half or less of most other developed countries. There are few countries like Singapore in this regard. You can earn significant amounts of money if you are highly skilled, pay very little taxes, and enjoy a developed country standard of life.  Vacation and Holiday Hacking When it comes to vacations, I typically reduced my cost by picking places in surrounding developing countries. In addition, I also tagged on short getaways to my business trips in developed nations to save on flight tickets. This allowed me to visit beautiful places for a fraction of the cost of a normal holiday. Avoiding Lifestyle Creep When starting out my career, a colleague once told me that my place was so small that he could smell the toilet from my kitchen. He was right, but why would I rent a 3 bedroom place when I work mostly internationally, travel for leisure and only need a bed to crash 15%-20% of all nights of the year. If I truly needed more space I would rent more but until today I don’t see the need to pay for space I don’t use. Think about how much space you truly need. The downside of choosing work that is associated with a lot of travel is to be rarely home. As a young single guy, this didn’t bother me at all, but it is certainly not for everybody. I loved working with customers in other cities, countries, and continents. It allowed me to explore a huge chunk of the planet, while most meals, transportation, and petty expenses were covered by my work. The Cost of a New Car Most cars lose 20% of their value in the first year. By year five the average car is worth 50-65% less than when new. Do not ever buy a new car, unless you can’t spend your income fast enough while still saving 50% or more each month. It only ever makes financial sense to buy a five to seven year old car once it has lost most of its value. A well maintained and reliable used car (i.e. Toyotas are known for their reliability) can get you to where you need to be for many years to come. Calculating the amount opportunity cost of a $50,000 dollar car, you would realise that it would cost you an effective $405,825. How? By investing $50,000 and let it compound over 30 years at 7% growth, you would effectively miss out on that compounded growth. So buy the cheaper car, or stick with your old one, while re-investing the savings instead. These days I am still driving the same car I had as a student when in Poland. The car is 27 years old now but still functions. There is no reason to change it despite some friends and family wondering why I don’t buy a new car. Why would I? It still gets me from A to B. Again, I see no reason to keep up with the Joneses. Minimalism and De-Cluttering In 2016 I started to reduce my possessions. Everything that I didn’t use for more than a year I sold. It was an amazing and liberating feeling to declutter my home. Today I own exactly 241kg of ‘stuff’. I know this because I weighed it while moving back to Europe in 2017. I used my frequent flier miles to redeem a first-class ticket for two trips back. It wasn’t easy to check in for my flight initially but the first class staff was very helpful despite looking a little puzzled. I saved myself some $13,000 altogether, which would have been the cost of moving my belongings the traditional way. Living in Japan for six months I first learnt about living a life without clutter in 2015. It was eye opening and implementing some tools were truly liberating. Check out Marie Kondo’s “The Life-Changing Magic of Tidying Up” for some inspiration. Conclusion There are many ways to increase your income and reduce your living costs. The decisions you take during your accumulation phase will make or break your million dollar plan. By being aware of income opportunities and ways to optimise costs you can shave off years of work. Avoid the debt trap and don’t let other people dictate how to spend your money, and educate yourself to invest safely. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 50% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. He recommends Personal Capital – Net Worth Calculator. It helped him gain control over his spending habits. Over time he reduced his spending by over 50%. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post Saving Your First Million Dollars appeared first on Financial Gladiator.

Searching for “Timing the Market”, you will find countless articles and controversial opinions. Is timing the market a terrible or great idea? The truth, as so often, lies in the middle. Often this is referred to as balancing an asset portfolio periodically. Having said this, I have greatly accelerated my financial freedom by timing the market(s). Furthermore, I’m in the process of protecting my assets and income streams from an oncoming potential downturn. Why it Makes Sense to Time the Market So what exactly do we mean by “timing the market”? An investor trying to time the market is anticipating an opportunity. He/ She will aim to buy an asset at a low price and and sell it with significant gains. One of the most famous investors of all times currently carries well over 100 Billion US Dollars. That is a sizeable war chest waiting to be invested. It has been growing since his latest spending spree following the last financial crisis in 2008. In my humble opinion, Warren Buffett of Berkshire Hathaway, is clearly timing the market. This is despite his famous advice to not try to time the market. The basic premise behind this is avoiding downturns to maximise gains and accelerate compounding over time. What’s the difference you might ask? It’s truly unbelievable, really. The SP500 grew by an amazing 15,508% since 1965, the year Berkshire Hathaway was created. Over the last 54 years Berkshire Hathaway’s market value grew a mindblowing 1,088,029%. When You Invest Makes a Difference Most articles are associated with only the stock market or equities investments. Many completely disregard varying asset classes and the interconnected growth cycles. Again looking at Buffett, he built an empire over the decades spreading his portfolio among all asset classes. He did so mostly by acquiring direct or full ownership of undervalued businesses during market downturn. Let’s have a look at the acquisition timing for most of his fully controlled assets. It reveals a direct correlation to historic market downturns. Disclaimer: By no means am I a savvy investor. This blog post is written to provide my personal perspective and understanding on maximising returns. I have practiced this method to successfully to win my financial freedom. Asset Classes and Growth Cycles Let’s go back to the asset classes. All business cycles and asset classes are interlinked. Looking at varying asset classes and their cycles, there are better or worst times to invest. Asset classes include equities and bonds, resources and commodities, cash and foreign exchange, housing, and precious metals. In times of economic growth, equities outperform most asset classes. During uncertainty, precious metals provide a safe haven and we often see Silver, Gold, or recently Palladium outperforming. Then there is the housing market which generally grows alongside inflation in developed countries. In developing countries, housing tends to outperform, where salaries are rising quicker than in the developed World. The above are just some general observations and each market should be assessed individually. It is very lucrative to understand the basics of asset classes and their growth cycles. It can significantly protect your investments as well as grow your return over time. Berkshire Hathaway, as mentioned above, is a prime example of this. Before we move on, please keep one last thing in mind. Investing across borders can provide significant opportunity for additional exchange rate gains. I used this technique to hedge against my investment in Poland. It took a few years, but I waited till the Polish Zloty was the weakest in years. I exchanged my hard earned dollars before my investment in Poland. This allowed for an instant 10% gain (today) or at the time 20%. This saving was basically worth one small apartment! Advice for Novice Investors It takes years of learning, observation, and understanding to effectively invest across cycles, markets, currencies, and asset classes. Reading a few books won’t make you a great investor. Practice, constant analysis, experience, and doing will make you one. This is the reason for why a savvy investor will advise a novice investor to spread their risk. This can be achieved by creating a balanced portfolio across asset classes. Take the time to observe, make small mistakes, and eventually learn. Novice investors are best advised to invest in low fee index funds and simply ignore all business cycles. Grow a sizeable war chest and then look for the best opportunities to multiply your savings in a safe way. Avoid being greedy especially at the start. It could set you back years or worse decades. In the meantime read, learn, practice investing by starting with small and safe investments. My Mistakes Cost me Dearly I didn’t do this for the first 12 years of my career and it cost me dearly. My career started just before the Global Financial Crisis. I had no clue about investing and decided to put my 401k equivalent (Australian superannuation) in a so-called balanced portfolio. This portfolio was actively managed by a seasoned fund manager. It consisted of housing shares, commodities, precious metals, company shares, and a little fixed interest. What I didn’t realise at the time was that I was paying excessive management fees. Over the years I learnt not to trust financial advisors, bankers, real estate agents, or anybody that handles cash really. They just don’t care as you and I would about our money. Observing the Global Financial Crisis and following Great Recession was very disconcerting. Learning how the banking and monetary system works was even more sobering for me. My misguided trust in the financial system and financial advisors cost me over the years. I calculated that my financial mistakes amount to roughly $75,000. Over 30 years, until I officially reach my government retirement age, this is worth around $500,000 at 7%. Ouch! Sometimes ignorance is (truly) bliss. Time for Change & Self-Education Unfortunately nobody is teaching basic personal finance management in school. While working professionally, we do not have the time to educate ourselves well enough. Most of us are too busy to read 30-50 page financial product legal disclaimers. If you don’t, you might need to pay up for letting gamblers fund managers overcharge you while underperforming. I certainly did. Today, I have educated myself with the bare basics of investing. By reading about an hour per day about markets and asset classes, I can today anticipate arising issues to some extent. More importantly I can identify where and when it makes sense to invest or how protect my assets. Unfortunately I never took the time to do this while I was working full-time. Goal: Timing the Market to Beat the Average The average has always been my benchmark and I thoroughly recommend this measurement scale. I know it doesn’t sound particularly exciting. Please trust me, however, if you constantly beat the average you will end up with a pretty good and stress-free life. Making fast money, risking everything, being greedy are the foundations for a rollercoaster life. I haven’t met many people on that latter path that are still walking the Earth. Don’t be one of them. You should try to be slightly better than the average Joe. When it comes to investing, this is two-fold. Your goal is to gain more than the average during periods of growth. Analogically, you should aim to lose less than the average during recessions. Ideally you set modest growth goals, anticipate when to get out of the cycle correctly, and rebalance your portfolio periodically. My Strategies regarding Timing the Market I have been timing the market several times to beat the average by following simple tactics. Invest when assets are sold below their actual value, and hold them for the long term. Transaction costs and associated work can destroy even the best returns. Australian Property Firstly, I didn’t buy property in Australia when prices were rising faster than wages for decades. The average Joe did however and that created a bubble. First the average person feared missing out on getting into the market, now the average person fears of not getting out. Renting was cheaper, I calculated in 2007. It is still not a good time to buy into Australian real estate. Polish Real Estate Secondly, I bought real estate in Poland, when I calculated it was undervalued in my city. In fact I got very lucky and gained 26% in value last year alone. Of course since I have bought the real estate for cash, I will decide when to sell it. Currently I believe this will be in about 15-20 years time. It is still a good time to invest in Poland. Minimise US Dollar Risk Thirdly, I have minimised my Dollar associated cash holdings in anticipation of the US dollar falling over the next years. I prefer tangible assets for the time being. All global economic indicators are slowing. The Financial system is still weak and recovering from the last disaster in 2008. Holding too much cash is an unnecessary and quite dangerous risk. The global banking system stands on shaky legs and the bail-in plans could result in disaster for the average saver. Protecting my Retirement Fund Equities Fourthly, I have hedged against the Australian Market, by swapping my equities from shares to fixed interest. I anticipate real estate prices in Australia to further fall over the next 2 years. This has the risk of dragging down the economy overall. A potential US and Chinese recession would most certainly add to an Australian economic downturn. My preference is to ‘only’ earn +2% in cash over losing -40% in equities for my retirement fund. I consider this fund as a potential bonus in retirement, as it is only accessible to me over 60 years of age. Going Back to Work Whilst I consider myself financially independent on $40,000 a year of post-tax and fee passive income, I am planning for a family soon. There are several variables that I cannot fully prepare for. I do believe my income is too low given the uncertainties. Meanwhile global economic indicators signal for problems on the horizon. To bolster my safety cushion, I have recently decided to go back to my old profession. The longer I wait, the smaller the worth of my established network and associated revenue generation capability. In addition this might be the best time in years to return to the workforce. I anticipated hiring freezes due to a economic slow down. The overarching aim is to increase my asset base to $2,500,000 and generate a passive income of $100,000 a year or more. I hope you find the above article and the five market timing strategies inspiring. Maybe you can adapt some for your own situation. As always, do feel free to share any thoughts below. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post Successfully Timing the Market appeared first on Financial Gladiator.

Time has passed quickly, and I’m slowly nearing the end of my two year experiment of trying to live financially independent. The day I packed up my things in the office held a lot of uncertainty for my future. Read my story on how I retired here. I wasn’t entirely sure if I could live on the rental income or if I would need to tap my savings to supplement my reduced income. Giving up an amazing income stream didn’t come as an easy choice either, but my body was telling me it was time for a break. I had an intense career in technology and management consulting requiring me to be on the road over 90% for well over thirteen years. Initially, I had two rental units with one being fitted out and not rented yet. My net income from my rental unit was a mere 4% of my previous corporate income. “How could I survive on that?”, you might ask. Well, 4% equated to about $6,700 net a year, or $580 a month. It is possible to live a frugal life on that in Poland. But, boy, it was a change, as I was used to netting $15,000 a month and easily spending roughly two thirds of that. Yeah, I admit I had a pretty amazing paycheck. But before you think it, luck had little to do with it. I worked very hard for a long time to move up the ranks in a very competitive industry. Time for a Re-education At the time I left my career I was truly awful at managing money and investments. I never took the time to do it properly. Further, I recognised the need to learn to live significantly more frugally. My expenses, while somewhat justified compared to my income, were truly mostly unnecessary. My education didn’t stop there however. I started budgeting and managing my cash flow like a Chief Financial Officer, actively looking out for opportunities to save, increase the value for the spend, and create or maximise additional income streams. I learnt about minimalism and I found out about the likes of the Mad Fientist and Paula Pant from Afford Anything. They and so many other bloggers inspired me and provided a tonne of great advise. I love listening and interacting with this community. LeanFIRE and FIRE Most Financial Independence bloggers would consider having earnings below $40,000 pre tax as being in the LeanFIRE camp. That is a pretty American view and that’s totally cool. Let me tell you that I had an amazing past two years on far less than $40,000 per annum. I traveled almost 1,000,000km across Europe, Asia, North and South America. Hostels and the cheapest hotels were completely avoided – I feel definitely too old for that kind of adventuring. Since I took the jump into semi-retirement I added three more rental units to my portfolio. I converted my cash into assets not only to increase my income but also protect it. One of these apartments is actually my base for when I visit Poland. Over the past two years I grew my income to some 3,500USD per month mostly from my rental units. This equals roughly to 23% of my past corporate income and is probably considered entry FIRE level. Meanwhile, I reduced my living expenses by about 80% from previously over $100,000 per annum down to $18,000-$24,000. It really depends on where I travel to and how often. My saving rate when staying in Poland can be as high as 80% but it significantly reduces when I go travel abroad. Moving up the Ladder to fatFIRE The past two years have been amazing and I have self developed a lot. I improved my spending habits, learnt what truly makes me happy, grew my passive income stream, gained experience in property investing, expanded my financial literacy, and lived a much simpler but extremely happy life. Having said all that my dreams have also grown meanwhile and Mrs Financial Gladiator and me decided we want kids. My income needs to increase to realise our ambitions in a safe and sound manner. I estimate that I would feel very comfortable with about $100,000 of passive income per year. With the above in mind, I decided to return to the corporate world for a second stint. The goal is to improve my financial security and built the basis for a family in a high cost of living location (HCOL) in Asia next. Guess which is the most expensive place in Asia these days. Yeah exactly, right there in Singapore, at first glance not a FIRE friendly place. At second glance, income and taxes are extremely favourable to save a lot in a short time if you have desirable professional skills. Reasons for Going Back to Work According to some conservative calculations I can more double my asset base and passive income. At the same time I plan to reduce risk in my Polish portfolio through geographic diversification. I plan to include property ownership across Australia and Indonesia in a only a handful of years. Of course I will not break my iron rule and avoid going into debt. As I have written earlier I believe we are nearing a once in a lifetime chance to invest in Australian Property. The Indonesian economy is one of the fastest growing globally and has still a lot of potential; the exchange rate is and will likely stay favourable for a few years from a Dollar perspective. Indonesia is a great country I could see myself and my planned family moving to in the future. Secondly I believe I can still develop my career while having loads of fun. I always enjoyed my roles in the corporate world, especially working with my colleagues and demanding customers. It would be waste to not leverage my years of study, work experience and earning potential to that end. Thirdly, I have achieved what I set out to do. I became and investor, a diver instructor, my Spanish skills improved, and I am in the process of realising my number one dream right now: Exploring South America. In fact Mrs Financial Gladiator and I are in our third month of traveling this beautiful continent. Doubling my asset base would mean reaching the two and a half million dollar net worth mark and increasing my passive income stream to about $100,000 a year. This is the entry level considered by many bloggers for fatFire, others call it Financial Abundance. For me it would mean reaching the ultimate stage of freedom. The Math of Doubling my Income Returning to my professional career I would expect to earn similar figures as when I left. Over 5 years I expect to work towards two further promotions calculating a 20% pay rise each time. In total that would net around $1,143,000 over five years. My living expenses would be much lower than before, having learnt what I did over the past two years. I estimate the costs to be around $230,000 over five years. Meanwhile my passive income from my properties should generate most of what I will spend. Reinvesting the net savings should generate approximately $118,000 over the course of 4 years. I am being conservative in my approach at 6% return. Overall my savings rate should hence hover around 84.3%. See the table below for details. Looking at my net worth (see table below), I estimate an increase from around $1,100,000 to roughly $2,500,000. This is when I enter that fatFIRE range. Life for a family should be sorted there after anywhere in the World. None of these calculations include Mrs Financial Gladiator’s income nor assets, the platform business I am building at the moment, nor any other potential side hustles. The calculations assume that my property investments will increase in value at 3.5% per year (it’s been 5x higher over the past 2 years). My equities invested plan for a 7% on average. I’m banking on the fact that my rough calculations are realisable. If so the value of my assets should increase to $2,500,000. If I manage to keep netting +6% after taxes, costs, and fees from my investable portfolio, my passive real estate income should increase to around $138,000. Of course being the conservative Financial Gladiator let’s look at 4% return only. In that case passive income will equate to roughly $92,000 per annum. Quite a respectable sum. The truth will likely lie somewhere in the middle. Whats comes Next? From there on I would I plan to move with the family to a lower cost country, where I would increase my lifestyle significantly for the same expenditure and saving around 30-60%. This would allow to grow my cash funds for reinvestment and growth of the passive income stream even further. This should more than cover additional and unplanned costs like a little lifestyle inflation, increasing health care and education costs for the family over time. Fingers crossed! What do you think? Would you go back to work for 5 years to double your monthly income for life? Of would you stay happy with a passive net income of roughly $40,000 a year. How much is enough for you? For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post The Move from LeanFire to FatFire appeared first on Financial Gladiator.

Ever since I have become a Property Investor in Eastern Europe and retired from my corporate career a couple of years ago I have been looking out for the next investment opportunity. Having said this I have been observing macro economics, exchange rates, world politics, and property markets in Poland, Australia, England, Germany, the USA, Singapore, and Hong Kong for just over a decade now. It all started with the Global Financial Crisis shattering my belief system in the financial services sector in 2008. I believe that this is the right time now to prepare for an investment in Australia. Based on current knowledge I expect the market to bottom out sometime around mid to end of 2020. Soon after starting my professional career in 2006 in Australia I simulated that renting property would likely be more favourable over owning. Nonetheless I still saved up a deposit for a one bedroom apartment mortgage deposit in 2008. Later I decided to keep renting in Melbourne. I had a high paying job and could easily buy in but I wasn’t convinced of the way the market was developing – it sounded too good to be true. It was a sound decision as it turns out as I would have been tens of thousands of dollars in loss had I bought into the market then compared to today. The government opened up the Australian Property market to foreign investors with aim to stimulate growth as the financial crisis panned out. The rest of the world went through a great recession. I couldn’t believe this particular decision. In disbelief I decided to move to Singapore and continued saving and waiting for a better time and/ or place to invest. I waited for years while steadily growing my income and ‘war chest’ readying it for the next opportunity. Last year’s Australian property news might have surprised some Australians and overseas investors alike. Average home prices started declining and accelerated their nosedive with 9.9% and 8.4% in Sydney and Melbourne respectively in 2018. The final quarter of the year was particularly bad. These two cities alone account for roughly 43% of the Australian Economy and house 40% of Australia’s 25 million strong population. One of the hottest debated questions is how far the market will drop and how long it will take to bottom out. Today I read a very interesting view by Michael Yardney’s on his Property Update Blog predicting a 3-6% rise of property prices by 2021 based on further research. With inflation being already at 2.7%, this would suggest we will see a moderate inflation adjusted drop in prices or a stagnation scenario at best. Personally, I think we have a fair bit more to go before prices stabilise. If property prices were to fall by another 20% over the next couple years, I will be purchasing my first Australian property after all, albeit a decade later than I planned originally. Together with the almost 10% in Melbourne and Sydney in 2018, this would bring property prices back to 2007 levels (inflation adjusted). If prices stabilise before this much needed correction, and as some analysts are predicting this, I will look for a better market to invest instead. Key indicators for why Australian home prices will continue to fall throughout 2019 and 2020: 1) China (Australia’s biggest trading partner) and the US (third biggest trading partner) will likely go into recession within the next 12 months. This would significantly impact Australian business. Australian exports have risen from below 10% to over 30% over the span of the past two decades, effectively making Australia heavily dependent on the Chinese economy. Samsung’s sales have often indicated weakness in the global economy before significant downturns and they just announced an anticipated drop in profits of around 30%. Apple, NVIDIA, and other global giants have all unexpectedly downgraded their profit and sales forecast in recent weeks triggering massive stock price declines. Last but not least all global production indicators have changed directions and are now trending downwards. The economy is most definitely slowing and a proper business cycle recession in the US is overdue when compared to the historical 7 year cycle. 2) Heavily over inflated prices: The Australian Government and the Royal Bank of Australia changed legislation and interest rates respectively in 2008 to allow large inflows of foreign capital. This effectively (over-)inflated Australian prices to an unsustainable level. Yes, those ‘heroes’ saved the day for the Australian economy in 2008. However, in my view they robbed the people of Australia of a much required breather in the form of a decent property price correction. Prices were already getting out of reach for many people in Australia back in 2007. 3) Housing ownership fell drastically from about 70% to below 65% since the Global Financial Crisis (GFC) in 2007/2008 signalling a growing affordability crisis. This constitutes one of the lowest figures in 60 years. 4) Australia made it to a top of the World now ranking second only, right behind Switzerland, when comparing “household debt by GDP” (almost 123%). Australians households are way too much in debt with an average of $167,800 in 2016 which was based on a two trillion dollar total debt figure. In June 2018 this figure was revised by the Austrian Bureau of statistics showing 2.5 trillion Australian dollars in personal debt. Net saving rates is now below 5%, the lowest in 9 years. 29% of Australian households have unhealthy debt-to-income ratios, meaning debt is at least 3 times of their annual disposable income according to a 2015-2016 ABS survey. Today on average household debt is 199% of annual disposable income and expected to grow to 205%. Auto loan delinquencies have risen to the highest level since the GFC. 5) Property prices increased over 100% in Sydney and Melbourne since the GFC, far outpacing the growth of average wages. Living standards have dropped significantly in Australia with stagnating wage growth and increased housing costs impacting disposable income. 6) The Chinese government has severely restricted Chinese capital leaving the country since 2017. Chinese investors (together with speculative investors and Australian in “fear of missing out”) were largely responsible for the inflation of the Australian housing market between 2012 and 2017. Chinese real estate investments have since dropped by some 50% between 2016 and 2017. 7) 30% of Australian mortgage debt is Interest Only (IO) debt. This is one of the highest figures globally. While 2018 showed a large amount of IOs being reset to include Principal payments, 2019 will have the highest number IO mortgages that will need to be renewed. An average of $120 billion worth of IO loans will reset annually throughout 2021 increasing the cost of the average mortgage by 30-40%. The recent change of heart of APRA to loosen restrictions on banks regarding IO lending will only slow down the inevitable correction but it will probably prevent the market from crashing and sending Australia into recession. 8) Investor and Home buyers’ housing market confidence has plummeted to 2012 levels and awareness of the perils of over leveraging and interest only rates is at an all time high. 9) With net rental yields at an all time low (about 3%) in capital cities thanks to ultra high levels of taxations (some of the highest in the World comparing to the markets I look at), falling average rents will force some investors to sell their investment properties. If rental yields equal inflation of 2.7% you made no money at all while bearing all the risk and work associated with owning an investment property. It is not sustainable for the common investor. 10) Affordability is an ever growing concern: If the average income in, say, Melbourne is $80,610 per annum, taxes and super alone shave off $23,409 of gross income. The average living expenses for a single person per year are on average $21,840, with an average rent expense of $18,040. It would take close to 10 years to save up just for a deposit for an average house. Of course the median income is almost 30% less than the average used here and most young people don’t earn anywhere near the average coming out of school. The house price data is based on December figures after taking into account the 8.4% drop in Melbourne home prices in 2018. Today the average home costs $833,321. I think realistically it would take the average young person much longer than 10 years of saving up for an average Australian house unless they receive some form of financial aid. So here you go, these are my top indicators of why I believe that Australian property prices will continue to decline. Let me know your thoughts. I’m curious to hear if you think prices will fall further and by how much. Do you look at other indicators? For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the iTunes Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post Will Australian Property Prices Fall in 2019? appeared first on Financial Gladiator.

I saved some 70,000 Australian dollars renting versus owning an apartment in the eleven years I lived in Melbourne between 2007 and 2018. Well actually I left Australia in 2012 but I modelled the figures for you if I had stayed there. This was one of the most important factors which allowed me to be financially independent today. I never committed to any sort of major debt. I did the maths and I am happily sharing it with you so you don’t commit to a Godzilla size home loan before understanding the true cost of home ownership in Australia. Having said this very approach can be applied to many other Western countries on this planet when assessing if it makes sense to rent or buy. With the property bubble slowly deflating in Australia starting in 2018 the Australian Dream of house ownership is dead and beyond resuscitation for many fellow Australians. This is thanks to several decades of the economy booming without a recession, a seemingly uncaring government, and a hyperactive construction, media, and real estate propaga machinery. You see, I knew back in 2007 that something was off in the valuation of property, shortly after I joined the workforce as a young management consultant. To illustrate I was in the top 15% of tax payers from the get go but several years after starting to work, increasing my salary significantly to the top 1% of taxpayers. I noticed that while saving up for a deposit I could barely afford a tiny one bedroom apartment working a top job for top dollar – this was a big red flag to me. But before we go into the math on how I saved so much a little bit of history to enlighten you how “Shit hit the Fan” in Australia. During the Global Financial Crisis (GFC) of 2008/ 2009 Australia didn’t go into recession. “How? Why? This can’t be”, I was thinking to myself holding out on the property purchase and observing against all advice I was given, especially by financial planners and real estate gurus. “Get in early”, “Don’t miss out”, “Home prices will always increase in Australia because of Immigration” were typical phrases you heard everyday. One person shared advice with me to “borrow as much as you can, it will pay off”. I was young, dumb, and naive then and I almost fell for it I have to admit watching the ever increasing property prices while I was paying off somebody’s mortgage renting. I didn’t understand at first how Australia managed to get through the global recession unharmed versus the rest of the World. Everything is connected, right? Today I do understand; I understand so much that I utilised this knowledge to fast track my own Financial Independence a few years ago at age 34. The Main Reason for Rising Houseprices I only learnt after the GFC that the main reason for not going into recession was due to the government opening up borders and regulations to let foreign investors in. Billions of billions of dollars (some honestly earned and some less so, I guess) poured into the Australian property market from overseas investors. The Government made a killing on pricey stamp duties and the construction business continued to boom. In my humble opinion the Australian Government had sold out its people to predominantly Asian investors that wanted to protect their capital from the crisis which they were experiencing in their own countries. It looked fantastic on paper when Australia announced not to have gone into recession, everybody was tapping themselves on their shoulders. However, as it turned out, this came at the cost of shutting many doors for Australians who experienced a well over 15% drop (from close to 75% to 65%) in homeownership rates since the crisis while the average household debt as percent of GDP increased by a majestic 50% (from 80% to 120% of GDP). 30% of Australians experience mortgage stress today, meaning the struggle with the costs to service the banking industry’s loans. This has been coupled with a very significant drop in lifestyle quality for many Australians who till today are paying for their government’s decision to open up the doors to foreign investors. I left in 2012 to continue my life and career overseas because I couldn’t stand watching this anymore. The Mother of All Bubbles Properties bubbled up in value way too fast following the government’s decision. Counting on every increasing capital gains it spiraled completely out of control to the point that it was common to hear about overseas investors paying cash at property auctions outbidding Australians sometimes by more than 50%, regularly by 20-30%. The common Joe reacting by offering more and more just to get into the market. Whether this is true or not, I don’t really know as I didn’t participate in those questionable but very common property auctions especially in Sydney and Melbourne. In fact i stopped caring about the market completely for a while being fed up with the news. One thing is for sure however: property prices escalated versus real wage growth to the point the the 2018 Australian Royal Commission found that well over 20% of Australian home buyers would fabricate income and expense statements to get loans approved and get into the market. Meanwhile the lenders (aka Banks – my favourite “professionals” I want nothing to do with) allowed people to get into debt that they cannot possibly afford while cashing in billions in commissions. Australians, today, have a staggering 360 Billion Dollars in Interest Only (IO) loans; this is roughly a fourth of all home loans, with the bulk expiring in 2018 and 2019 and more to come in the two years following. This is a country of 25million people but only a third having mortgages. The proportions are stifling in global comparison. At the same time the Chinese government made it much more difficult for Chinese money to leave China – with the Chinese having been the number one overseas investor in Australian property for years. Interest rates have been at record low levels and will have to rise to avoid the devaluation of the Australian dollar now to keep inflation in check. China being Australia’s main trading partner is also experiencing significant difficulties. All along the US and Europe are signalling a slow down in business activities going forward. Low Australian rental yields on investment properties have already shown declines as a record amount in construction of new apartments and housing is being completed over the next two years following a construction industry boom cycle. The perfect storm is brewing up in Australia right now at record speed. I would be surprised if property prices wouldn’t fall by another 20% at least following a decrease of 7% and 10% in 2018 in Melbourne and Sydney respectively – the two biggest Australian cities who account for a bulk of the Australian property market. Modeling the Cost of Renting versus Owning in Melbourne Many realise this today but I had guessed this back in 2007 when I did my initial calculations on whether to buy the place I loved or keep renting it from my landlord. It was not worth buying in 2007 or today. I was renting a small but beautiful one bedroom apartment in the Docklands (walking distance to the city center) with magnificent views and excellent lighting, a large terrace, on a high floor, a monitored garage, a three lane 25m swimming pool, a modern gym, two saunas, and had all the fancy amenities you would expect to have living the expensive consumerism driven life I was working in a bluechip international company, working my butt off to fund this lifestyle while saving moderately off my fancy pay check. I thought for a couple of years, this would be a nice place to own and started investing the process of purchasing it. Slowly the complete sum of varying cost items driving home ownership became clear to me: Banking Fees: Valuation Fee, Mortgage Fees, Mortgage Insurance Building Fees: Strata/ Body Corporate/ Building Maintenance and Administration Fees/ Renovation Fund Government: Stamp Duty and Council fees/ property taxes Legal: Property Deed Transition fees Brokerage/ Agent Fees Apartment Fees: Maintenance and upkeeping costs The True Cost of Owning Australian Property Is simply put Nuts I couldn’t believe my eyes when I added all these cost items up. My rent already was way smaller than the sum total of all these fees. It felt like I was supposed to be feeding the Federal Government, Bankers, Local Government, Agents and the entire Construction industry one percent at a time. Eventually I decided against the purchase and kept renting the apartment for another 5 years. I avoided several rental increases, which were common quarterly or half-yearly at the time, by paying on time and generally taking good care of the investor’s property. In the end of the five years I rented the apartment some 2400$ annually below the market value and my landlord begged me to stay. He still made great money with me as he bought in before the market craze began (quite some time before I started looking). The table above shows you the difference between renting and owning a one bedroom 54 square meter apartment in the Docklands since 2007. Five years are actual costs and the rest is extrapolated based on real inflation. Had I purchased this particular (or similar) apartment I would have been some 356,000 dollars out of pocket after year 11 versus paying 249,000 dollars over the same time period. Granted I would have acquired some 93,000 dollars in additional equity and a capital gain of 179,000 dollars but it would have come at a cost of 355,818 dollars – this equates to a net loss of 3,219 dollars. Note that the council fees in particular have increased an average of 6% per annum during this period versus a modest inflation rate that was less than half on average. Instead of buying this property I invested my property deposit plus the difference between the rental and ownership costs in a savings account which basically generated the equivalent of a 6.35% effective return. All this sitting in a lame savings account over the same 11 years. Actually this is a conservative view as I was constantly optimizing my savings return taking advantage of promotions offered by banks to attract deposits (which in turn they used to leverage off to provide home loans to others through the fractional reserve system). Instead my deposit and savings from renting versus owning plus the lame savings account interest and cumulative gains came a long way from initially 72,000 to 145,444 Australian Dollars. I effectively doubled my initial deposit by sticking my savings in a low yielding savings account versus buying the apartment. Of course I didn’t stop saving or earning money there. I focused on my career and continued leading a debt free life and later moved overseas. Today my net worth increased to well over 1.5 million Australian dollars while owning over 300sqm of premium property spread across 5 rental units overseas, debt free, and generating enough cash flow to live off nicely and continue to save and invest. However my main goal these days is to grow and protect my assets as I can see some dark clouds on the horizon. Also, would you believe me if I told you that combined my overseas properties attract less taxes and fees than this single 54sqm Australian unit which I was contemplating to purchase back in 2007? The net rental yield from my Polish properties allow me to travel indefinitely and lead a financially free life spending time with my loved ones, working on pet projects, work part time in a physically demanding job with aim to keep fit, and developing myself. Owning a property in Australia was and still is an extremely costly proposition today and it would have been a mistake to purchase it my personal situation. Be aware of all (hidden and ever increasing) fees and taxes associated with buying a home before you commit to taking on large debt. In many cases the numbers don’t stack up especially if you compare it to the opportunity cost. Of course there is many people who fared well during the property boom and I don’t want to dismiss their successes. Having said this you are the master of your destiny and you should assess your situation individually. Last but not least I want to paraphrase Warren Buffett who once said: Don’t get into debt when young. For me that made most certainly sense. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post The True Cost of Owning versus Renting in Australia appeared first on Financial Gladiator.

I believe holding cash is one of the biggest risks of our time. The global currencies are predominantly too dependent on the US Dollar which is backed by nothing but belief and confidence of investors since it was decoupled from the Gold Standard in 1971. Because I have zero confidence in FIAT currencies these days, I have been busy transforming my hard earned savings into cash-generating tangible assets. Over the past three years I have reduced my cash holdings from approximately $800,000 to a bare minimum of about $30,000 which I consider as an emergency fund to help me ride out two years of disruption in a low cost economy. I have acquired new skills to survive a crisis in relative peace and away from the pain. I converted all but my emergency fund into tangible assets in the form of property and a growing stash of physical gold holdings. Central Banks and commercial banks have historically devalued the dollar by almost 96.3% over the past 105 years. Before the establishment of the Federal Reserve Bank of the United States, the US Dollar was stable and strictly tied to physical Gold, effectively meaning it stored value. Since 1913 the Federal Reserve increased the dollar supply by a staggering 1,900 times and consequently created inflation (devaluation of the purchasing power of the Dollar). Today 68% of US citizen have less than $1,000 in savings and 78% live paycheck to paycheck, accepting whatever interest rate is dictated by the Federal Reserve – the World’s largest central bank. Business leverage and Consumer leverage (debt) is at the highest it has ever been while growth of these enormous piles of debt has exploded since the last financial crisis. China and Japan have both over one trillion dollars in US treasury bonds respectively, counting on the fact that the Fed will pay back the interest but not necessarily the principal – ever. Meanwhile 20% of children in the US live below the poverty line, and a larger part just barely over the poverty line, defined as less than 50% of the median household income. Real wages have been stagnant for decades while inflation caused by multiple rounds of quantitative easing has reduced living standards for many households in the West. Over the past years crypto currencies have made first inroads towards replacing the dollar as the world’s reserve currency but failed. Having said that I don’t believe this will be the case next time round but personally for me, I am not willing to invest just yet in this new technology as a dominant and at the same time viable one has not been identified yet. The International Monetary Fund has been pushing for its very own SDR (Special Drawing Right) currency comprised of a basket of US Dollars, EUROs, Pound Sterling, and Japanese Yen while the Chinese RMB is gaining in global importance with each day and international investment. The Dollar as the reserve currency is being attacked from all directions and some day it will fall eventually. Today the US Government is in almost 22 trillion dollars debt, growing at a faster pace then ever. Whenever countries over leveraged themselves they destroyed the currency in the past. This is how the mighty Roman Empire fell but more recent examples are Venezuela, Turkey, or Argentina. Whilst maybe not completely destroyed, we have seen significant value erosion through a devaluation caused by hyperinflation in Germany, England, China, France, Hungary, Zimbabwe, and many more. The current budgeted interest only on the US government debt is about 365 Billion Dollars a year or some 8% of the Federal Budget annually with projections to reach 12.5% (almost 800 Billion dollars) of the Federal Budget by the mid 2020s. Obviously this is not sustainable long-term and the current sitting US President just cut taxes and increased Federal spending to a new high at over 1 Trillion USD in growth; effectively doing the opposite to relieve the aching fiscal situation and in my view only pushing out the inevitable steep plunge of the US economy into one of the worst recessions in modern history. Whether this is good or bad is irrelevant as long as we remember that it will hurt the recovery more the longer the US waits and that we can all prepare for this. Lastly we have to understand that when the US and China will go into recession (all signs point to that they already are at the brink of it) the global economy will follow into the recession. There are humongous systemic risks with the so called globally systemic banks (also known as Banks Too Big to Fail) that have not been addressed fully post the 2008 Global Financial Crises. Anybody claiming otherwise clearly never understood the fragile and well over leveraged system. Deutsche Bank, one of the biggest banks globally, for instance, lost 94% of its market capitalisation since the 2008 crisis, and while eroding a lot of its toxic asset holdings has not succeeded to eliminate it’s toxic balance sheet yet. Currently the bank is valued at less than $19 Billion and it holds almost 50 Trillion dollars in dangerous derivatives. No country in the World could bail out Deutsche Bank which last year alone reduced its operations globally sacking some 10,000 employees or close to 10% of its workforce. What is the plan? Current thinking evolves around merging Deutsche Bank with another very large German Bank (Commerzbank) which equally holds large amounts of toxic products and derivatives from before the 2008 crisis. This sounds like a very bad plan to me but maybe it will buy us some additional time to prepare. Did you know about the Bail in Strategy (a replacement of the Bail-Outs that occured during the global financial crisis)? Legislation all around the World has been passed and banks are now legally enabled to confiscate your deposits above a certain value threshold (around $100,000 usually) in case they need to ‘re-liquidate’ their over leveraged operations. Read up on it and then run for cover. Whether you are in Europe, the US, in Singapore, China, Australia, or elsewhere your hard earned savings are at risk if you have them sitting in financial institutions. This includes all assets made of paper and distributed by the financial industry. Only tangible assets will hold their value during the next global financial crises. We can only hope it is not going to be a complete collapse of the financial system. Judging by the demonstrated greed and dishonesty of the financial sector I rather prepare for the worst and hope for the best. So I ask you, how much confidence do you have in the Systemically Important Banks and the US Dollar today? In what ways are you protecting your assets? How long do you think the Dollar will stay the World’s Reserve currency? For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: Cash was King – Run for Cover.mp3 About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post Cash was King – Run for Cover appeared first on Financial Gladiator.

Thinking about investing in the real estate market but don’t have a single clue where to start? There are many criteria to think of when evaluating an investment property. What makes a good property versus a bad one? How do you determine a good location, how do you evaluate building quality, should you buy a one bedroom or a two bedroom apartment, or maybe a house? Should you buy off the plan or buy an existing property? These are just some of the question you might have and I tell you one thing: I have been there. Because I didn’t know better I trialled and error my way through the process; meanwhile learning along the way with each new property. When investing in real estate, just as any other asset class, what to buy truly depends on your strategy. Flipping properties, long-term rentals, short term rentals, or just parking cash without renting the property are just some of the common strategies and each involves inherent risk. Ultimately a combination of your appetite for risk and willingness to actively work for additional gains determines what type of properties you should invest in. This being an financial independence blog I am happy to share my personal story and preferences. I opted for buying brand new apartments in multifamily homes and fitted them out myself with aim to rent them out long term. It follows a strategy I picked up from my family and friends who have many more years of experience together than I will ever have. This strategy suited me best as my ultimate goals were to a) minimise work involved in managing and maintaining the properties and b) maximise long term rental yield to create a (fairly) passive income flow. This would allow me to focus on what I really love doing: traveling, learning, and working on my many side projects and dreams.  At this point I do want to point out that I spent just over a year fitting out 5 new apartments in new developments and make them ready to be rented out. I had contractor at times over 20 teams doing pieces of work but the supervision took a fair bit of my time. I did this while spending time with my loved ones (another dream of mine since I worked away from Europe for well over a decade). It wasn’t an easy process, but with each apartment renovation and fit out I learnt and developed myself. Today I’m free to travel the World while managing my apartments remotely with minimal support from some trusted local agents and my parents (mostly for viewings and contract signatures in my name). Whilst coming home to Poland frequently this year I did also spend three months in Bali, almost a month in Thailand, three months in Spain and currently I’m fulfilling one of my oldest dreams traveling South America with my girlfriend since November. Back to the topic of the post: Even with my (still) limited knowledge and experience, I could probably already write a small book about the various criteria that make up a good investment property versus a bad one. Hence this post is quite an extensive one. Each market (continent, country, region, city) and the specifics of a property will have their own individual attractiveness (or not). Personally I tend to be on the conservative side when looking at macroeconomics. Ultimately you want to have a combination of a well located property, a legally safe investment, which generates a positive return/ cash flow well above inflation (inflation is location dependent, but typically hovers around 2-3%) given your overall income and expenses. How high the “Return on Investment (ROI)” is depends on your risk appetite. Again, for me personally, I couldn’t care less about the exact ROI as long as it is a safe investment and it allows me to generate enough cash flow to enjoy a good and basic life. Of course the geek in me, enjoys quantifying the exact ROI and my desire to develop constantly drives a hunger for ever increasing ROIs with each investment and translated learnings. When it comes to investing in property the most common thing you hear when it comes to evaluating the attractiveness of a property is “location, location, location”. You might ask what does this actually mean specifically. When evaluating the local market some of the key decision criteria include the following: Market economics and the the local market are key, as are location and type of the property, the local tax framework, and the potential return on investment (ROI). My main evaluation criteria for investment properties are:  Market Economics Strength of the Economy Demography Demand for Properties and Property Types Business Growth Infrastructure Investments Foreign Direct Business Investment Tourism Growth Higher Education and Student Numbers Property Location Neighbourhood Safety Neighbourhood Amenities Public Transportation Options Distance to City Center and Major places of Employment Specific Property Floor Plan Parking Availability Quality and Reputation of the Builder Transaction Costs Maintenance Cost Legislation Existing Legislation Existing Tax Framework Potential ROI Market Economics Strength of the Economy The first thing I look at (most people never do unfortunately) is how is the economy is fairing and what potential of growth it has. Generally speaking I prefer to invest in fast growing and developing countries. The reason for this is simple: developing countries’ growth by definition outpaces growth of developed countries. So if I want to take advantage of the accelerated growth and compounding over the long term I will do better investing in developing countries. The average growth rate of the EU for example (source: OECD Statistics) has been anything between -0.4% to 2.9% per annum over the past 7 years. Investing in Poland, a growth engine in Europe, the economy faired far better between 1.4% and 5% growth. My investment there will grow twice or thrice as fast over the next decades if history is any indicator of the future. Of course there are inherent currency risks and risks of war. I just made the assumption that if Poland reverts back to a socialist country and gets invaded once more (as history has shown) it will be World War III in which case it really doesn’t matter where I invested on this planet. So I’m not worrying about these extraordinary circumstances too much. Secondly Poland is developing rapidly and the rental market is far less developed than in Western Europe (only 4% of people rent, versus some 50% in developed countries). This is another opportunity for accelerated growth. In my case earning dollars overseas in my previous job, I also took advantage of the currency exchange rate when buying the local currency to prepare for investments in Poland. If you can take 22% on the exchange rate why wouldn’t you, right? That’s exactly what I’ve done which allowed me to buy an additional small apartment generating a few hundred dollars a month of net positive cash flow. If you plan to invest overseas, make sure you observe the exchange rate for a while. Demography Most countries continue to urbanise at rapid pace. Cities are becoming more and more important. This trend has been going on for a long time with some countries being more urbanised already than others (the US and Australia lead the way). Most young professionals (the largest group of potential tenants) typically prefers to live within 5km of the city center. Investigate hence if the place of potential investment is attracting young professionals. Sources that might help you are newspaper articles, the country’s national bureau of statistics, property analyst reports, and other relevant resources. It is also important to look at the growth rate of the total population. Whilst Poland would look pretty poor (it is not growing) the urbanisation trend continues, so investing in cities is safe for now. Additionally Poland will open up, attracting more and more foreigners into the country to maintain the population levels. As the country develops it will attract more Poles to return home as differences in wages will equalise over the coming decades and the standard of living will increase to a Western level. Being there early helps you to capitalise on the opportunity at hand. This is true for many other countries, and has been proven over and over again worldwide. So whether you choose to invest in your country or a foreign take note of the demographics and growth rates of cities prior to investing. Demand for Properties and Property Types When I looked at Poland I started investing right at the end of a phase of stagnating property prices. That was luck. What wasn’t luck was my research into the slump and stagnation phase prior to investing. I guesstimated that Polish property prices hit the bottom of the phase in 2016 following 7 years of mediocre capital gains. Wages were rising but property didn’t – this was a good sign. Prices at this stage were stagnating for multiple years and I bet on future growth. Further I chose to invest in a second tier city, Katowice, which is in the middle of a transformation from being an industrial town to a services economy city. Other key markets such as Warsaw and Krakow had prices that were double and triple that of Katowice per square meter, but at the same time salaries were only 15-30% higher in those key cities. As it turns out it was a good choice, as when the property market turned to growth in Poland Katowice remains the fastest growing city when it comes to property prices in Poland. In 2017 some estimates vary between 21 to 27% gain in property prices making up for the difference to the other key markets. Look out of these kind of opportunities when selecting the city where you want to invest in. Overall my investments appreciated by 53% since I commenced buying property in Katowice (including some Forex windfall). Of course and again, I couldn’t care less in the short term, as I’m doing this for the long term investment and capital gains are not feeding me on a daily basis – the rental cash flow is plus my side projects. A word of caution, never get the ‘fear of losing out’ get to you. When everybody is storming into the banks for loans to take out for a new property, ignore everybody. It’s as simple as that. It is never a good idea to buy at that time. You losing out on your negotiation power, you know it is overpriced, and what is overpriced will come back to reality eventually. I waited 15 years for Australia to go into a property bear market and get back to reality when it comes to property prices. In my opinion this year is going to be a tough one for many over leveraged Australian property owners and investors. Many friends and colleagues were telling me to buy as soon as I can and get into the housing market when I lived there but simply found it way too expensive. If I did I would be paying off a mortgage for another 20 years now instead of drinking the metaphorical Pina Colada on a beach in South America. So be wary of following the masses. It is rarely if not ever a great idea. Another good example is BitCoin in 2017… what a boom that was. Rarely have I experienced such craze in my life and I am thankful that I didn’t invest back then either. When it comes to the property type I found that smaller properties (one bedroom and studios) are hot items in most markets especially when their are fitted at the upper end of the spectrum. Whereas larger properties not necessarily as less people want to rent when having a family – they rather own or build their house where possible. Personally I also prefer to rent out my properties to single, young, professionals who are busy with their life outside of the apartment mostly. Less usage of the property is extending the life of the investment before a major renovation is due. Overall I prefer having smaller apartments as they are easier to rent, easier to sell (liquidate), and spread my risk across various buildings. If I had all my apartments in one building and this one building would get damaged I would risk loosing my entire income stream at once. Not a scenario I am willing to entertain. Business Growth Investigate which businesses have recently invested in the market setting up offices or expanding operations. If business is good, work places are being created, expanding demand for property. This will positively affect property price changes over the long term. The other way around investigate that existing industries are not under threat of disappearing, reducing employment in the region and negatively affecting property price changes. The worst mistakes I have seen unexperienced investors perform in Australia was to invest in remote towns catering for high risk projects. The entire local economy depended on one company doing some large investment but there is no guarantee these business will stay on forever. Many people got stuck after the Mining boom ended in Australia with property mortgages over 30 years. Can you imagine paying back a heavily overvalued house mortgage over 20 more years after a Business shut down? Bleeding thousands of dollars a month and not being able to sell the property as demand simply disappeared. Detroit might ring another bell of a bankrupt city in the US following the demise of the automotive industry. Invest in a well balanced city that is attracting diversified industries. Infrastructure Investments You can look up planned infrastructure investments, zoning plans, and other important plans with the local city council (usually). Focusing on infrastructure investments for a moment, these can provide significant value add to your property. Especially if you buy in knowing of these beforehand – Knowledge is Power. For instance a new tram line (or other transport) is planned to connect a suburb, in which I invested heavily in, making commuting to and from the city center much easier for inhabitants. A new shopping center was established across the development complex making life in that suburb easier for my tenants. New city bike stations were build at the entrance of two of the buildings I bought apartments in. Meanwhile streetlights are improved, bike paths are built, roads are improved or built, and new public transportation routes are established. These are just some of the examples of infrastructure investments that increase the value of your property in the future. Foreign Direct Business Investments This is one of my favourite statistics and fact checks. Have a look at the amount of Services Industries Growth/ Investment. Key Industries to watch out for are Financial Services, Telecommunications, and Technology. Recently Amazon, IBM, Oracle, SAP, and other major IT giants have invested in my city of principal investment, Katowice, Poland. Tech being the key growth industry globally since the 1990s is a major indicator of where money is flowing. Suffice it to say that property prices increase 41% since Invested a couple years ago. Major international corporations investing is a good sign. I am already looking at Biotech and Healthcare Services providers are these are industries of the future in my opinion and will merge with technology. Tourism Growth Personally not a huge fan of short term rentals, and not practicing this at all, it is still wise to investigate the viability of your investment property for short term rental. Often this pays a higher return, but income can fluctuate, being seasonal, and generally it is riskier in my view to rent out to complete strangers while being on the other side of the world. Tourism numbers, growth of annual airport passengers for the property location. Look also at other indicators such as overall conference space, hotel beds growth number, number of international events, etc. Don’t forget to have a look at potentially competing existing or a growing number of booking.com and AirBNB properties. Higher Education and Student Numbers I think one of the key drivers for the services sector led business growth and investment is the availability of well skilled young talent at your fingertips. Hence looking at the overall number of students and its development over the years is a key criteria for an investment area. Again whilst I do not practice this, I learnt that converting large and old apartments into multiple dorm like student accommodations is a very lucrative business in a place of high growth student numbers. Returns of 30% are not unheard of in my city, but I’m not in the business to exploit young students and maximising on this opportunity. Ethics play an important role for me in business. Property Location Neighbourhood Safety Nobody wants to live in a dangerous neighbourhood. From an investment perspective I prefer to invest into established neighbourhoods. They come at a premium price but as I mentioned before I prefer to invest safely with lower risk. Statistics are usually available in local newspapers (their websites these days), by checking out local real estate portals who often survey folks, or by simply talking to people and asking them where they would feel the safest. I know of plenty of investor investing in up and coming neighbourhoods to maximise their potential return but this comes at the risk the a neighbourhood will pull an 180 on you and you might experience losses instead of gains longer term.  Neighbourhood Amenities This is probably one of the most important factors considering in which neighbourhood to invest in. The value of a property may significantly rise when you own a property that has all convenience factors provided walking distance and/ or very near by: Convenience stores, a larger supermarket, doctors, schools, restaurants, a pharmacy, a park or recreational area, and banking facilities are some of the daily amenities you want to have in your neighbourhood. Some people like to think of facilities of worship as well, but personally I think it’s better if they are further away given the masses it attracts and the noise it can produce. Public Transportation Options Investigate what the opportunities are to avoid driving your car to areas of major employment and the city center. The better the public transportation infrastructure available the easier it will be to rent out your property, short or longterm. Whilst acceptable commuting times vary from city to city and country to country, make sure your property lies within the locally acceptable limits. Distance To City Center and Major areas of Employment When evaluating the potential investment property it is wise to understand the distance and route to major work clusters. Distance to the city center or major recreational areas is also very important to your potential tenant. Nobody wants to pay big money to live in the sticks or commuting unnecessarily longer than required. Floor plan When looking at floor plans I tend to first evaluate the location within the building. What floor is it on, and if it’s not ground floor is there at least one lift available? Typically a lift will increase you maintenance costs significantly but as my strategy is to cater for high end customers this is kind of a non-negotiable for me. Make sure that if there is a lift you don’t buy the ground floor apartment since you pay for the lift anyways in most circumstances, so might as well buy higher  up. The second thing I look at the natural light entering the apartment. I assess (from the floorplan) the orientation of the windows towards the rising, midday, and setting sun. If you prefer (most people do) as much natural light as possible, a South Eastern orientation is the most desired. Of course if somebody prefers shade the opposite direction is the best. I also evaluate the light that enters the apartment. For me the more the better, it rents out easier when you have bright apartment rather than a dungeon. The higher the floor the more light, the lower the floor the less light. Next I look for balconies, terraces, and garden space attached to the unit. I found that apartments with terraces (especially large ones) are a) very rare, and b) provide you with a premium uplift for your rentals. All my apartments with a large terraces generate slightly higher than normal return and income for me. Look out for gems like this. Let’s talk a little about the interior design. For my first apartment I hired a professional to help me with the interior design. A great experience but it also cost me a significant amount of additional expenses. You do not only pay the interior designer, but also take recommendations on building materials, how to fit out, and decorate the apartment. I found that by doing the interior design at about half the price I paid for my first apartment, and it doesn’t look half price but quite similar in terms of quality and design. Often interior designer might recommend a carpenter or builder and I strongly believe they would take a few percentage points of a cut for their recommendation – so you pay for this without really knowing. Ever since I found my own team of builders and my carpenter I significantly reduced the fitting costs. I also got better and hunting or deals on building materials and buying in bulk. So now that we discussed the overall interior design let’s talk about the things I look out for when assessing the floor plan. I typically look at assessing the bedroom(s): is it big enough to fit a large double bed (queen size at least) and a large wardrobe? Is the door opening taking valuable space for a wardrobe? If so maybe look for a better floor plan. Is the corridor taking too much space compared to the overall size of the apartment? Anything more than 15% of the overall space is too much in my view as you pay for space you cannot utilise and nobody is going to pay you for space they can’t really use. How large is the bathroom; watch out for impractical bathrooms (door should open outwards ideally, it should fit a large tub or walk-in shower (>80cm width) and if possible fit a washing machine, sink, small cupboard.  Now, let’s imagine the living room, is there space for a comfortable couch, a coffee table and/or a dining table, and space enough to hang a larger TV? Is the afternoon light going to shine directly onto the TV making it unusable? These are little things I found that complete using and renting out a property.  Lastly, one of the biggest challenges I found with tenants is the amount of stuff they have. For me completely unimaginable to hoard so many things, I found that many tenants would reconsider renting a place because of the lack of storage space inside and outside of the apartment. When evaluating a property look at the available common storage space (for bikes, prams, etc.) and also storage space you can purchase with the apartment. Even a small chamber/ box will make life so much easier for these renters and they are willing to pay for it. Having the storage space will increase the value of your apartment compared to others that don’t. Parking availability  Land becomes scarcer in cities, while a growing amount of singles in the West tend to drive empty cars around the city causing massive challenges to city transportation and infrastructure planners. I did the mistake of buying an upper class two bedroom unit with only a single car space. Not considering that a couple, both working might need at least two car spaces, I didn’t anticipate the renting out the flat would be more difficult. Every couple that could afford to rent the unit had at least two cars. Think about your prospective tenants’ requirements for parking when evaluating your investment. In another example I bought a unit from a developer that did there mere minimum as per local legislation. The developers built one car space per unit, it didn’t matter if you bought a 40sqm or 150sqm unit, you were only allowed to purchase one car space. It took me over a year to acquire a second car space – suffice it to say I rented the car space out at a premium and attracted the right tenant for my property. Quality and Reputation of the Builder Probably one of the most overlooked items when people look for their first apartment. Developing a apartment complex on a loan can be a dangerous game. Many developers and builders are stretched in times of economic boom as personal is not easily available to be hired, disappears to hunt the next best offer and material prices are usually going up. Builders and Developers frequently go bust and disappear off the market. When you buy, make sure your developers has as little as possible debt (ideally none), has a perfect track record of investments in the past, and has sold a significant amount of units to fund the development till the end. You can request their financials and court filings to assure yourself on how the development is being funded in many cases. You can visit previous developments and have a look on how the looks 5 years later, 10 years, later, etc. If they have something to hide, you should notice it through your discussion with them and by asking the right questions, and maybe reconsider. Anything you are unsure regarding a future development make sure you have documented in writing by the Developer. They will often tell you anything just to sell you a property and later conveniently forget that they agreed verbally to something. I had this with a property when I was too naive to put a particular point into writing. It is very hard to proof something later if you haven’t documented it in writing. Transactions costs Be aware of all costs involving the purchase of a property. There might be agency/ realty fees, legal fees, notary fees, stamp duties and other taxes involved that can increase the property price by several percentage points. In extreme cases you might have to pay additional taxes for being a foreigner. Please make sure you are fully aware of all costs involved to avoid unpleasant surprises. In my case have never paid an agent to do my work for me. I’m a self starter and prefer to get things done quick and directly. I find agent commission fees all around the World way to exaggerated. This is own personal opinion and I do not discourage you from using agency services where they are appropriate and priced at value. Maintenance Costs This is probably one of the hidden items most people simply do no care about but it can make a huge difference on the lifetime return on investment for your property. When buying brand new property owners associations are often not established and a maintenance contract is not signed. The developer usually takes care of maintaining the building for a while. It differs from country to country and even within a single country. These costs to pay a cleaner, a gardener, an insurance company, common area water and electricity, window cleaning, technical maintenance of common property etc. vary by building and level of amenities. Generally the more convenient it is to live in an apartment block the more expensive it gets. I have seen a lot of cheating going on in this space and if a particular fraction has the majority of voting rights, you can get scammed badly. I used to loose about 2,000 dollars a year in one particular property because owners are being cheated. The developer who kept the majority of the building for himself (and the associated voting rights) voted himself to be the building manager and administrator setting up astronomical prices for services rendered between his secretary (administrator, employee) and himself (owner, administrator). Most owners didn’t mind paying triple the market rate, but I wouldn’t be the Financial Gladiator if I didn’t uncover this. It took a fair bit of effort and many letters, threats, intimidation attempts. But today I reduced the costs already by 40% with another 20% to go. I hence prefer larger developments these days from reputable developers and builders. The hustle is not worth it, trust me. Do you homework unlike I did when I purchased buy first apartment from an unknown developer. Like a certain famous president he was a brilliant Conman and I did not see the cheating coming at all. He ripped the owners off right, left, and center on every single occasion he could. My ROI for the apartment used to be 4.5% and I increased it through my additional work to 5.7% today. 1.2% net on 220,000US is 2,640USD or an amazing month of travel in Bolivia, Indonesia, Thailand, or similar. So every percent counts regarding your investments. Make sure you clearly understand what maintenance costs might look like or who will the building manager and administrator. If this can’t be told at the time of decision make sure you at least understand the process for selection and appointment. Legislation Existing Legislation This is probably the least understood area of real estate. Knowing your rights and obligations pays out big time and can avoid unnecessary stress and sleepless nights. Before you purchase a property understand what the process looks like. Key points are when the deed transfers and when money transfers. There are no stupid questions so ask your lawyer and the notary as much as you can possibly think of – they take a lot of money, so don’t be shy.  If you plan to renovate, understand what, when, how you can do to a building or not! Being fined is the least of your problems; but not being able to rent out your please because your renovation was not in line with requirements put forward by law might kill you investment for years. After you become the owner and any renovations are completed, trust me when I say, that simply downloading a lease agreement off the internet is not good enough. I spent a good few hours with a lawyer going through constructing the now ‘standard’ lease agreement. Having said that I’m constantly learning and modifying it to incorporate learning from other landlords from all around the world. I am part of several Facebook groups and Reddit groups to read and learn from other likeminded spirits. Legislation can change so be aware of the upcoming changes that might affect you. Every country has their own legislative framework so understanding it is part of running your passive income business. A good lease agreement protects your rights and the ones of the tenant. Be aware. Existing Tax Framework Tax can have a great impact on your return on investment. Land Tax, Property Tax, Income Tax, and or other taxes become a cost of renting out your investment property. Unless you understand what your doing exactly, make sure you invest in the services of a trusted accountant who can help you through the jungle of potential applicable taxes for a given property. There is nothing wrong with going to an accountant to simulate the tax impact of investing into a real estate property. In fact unless you are well versed in the tax legislation of the country you want to invest in (or your home country) spend the handful of dollars to understand it precisely. When I first invested in Poland I understood I had to pay 8.5% rental income tax (what a bargain in global comparison). Legislation since has changed a few time (the perks of investing in a developing country) but I keep taps on the changes and understand the impact on my cash flow. Return on Investment (ROI) Ultimately you want to understand the return on investment. If you are as conservative as me and don’t subscribe to gambling investing in equities you need to assess if the investment is worth the money. My general rule of thumb is: If I get significantly more out of my investment in property than if you were leave the money in a high interest savings account (this sounds paradoxical even today) then do not invest your hard earned cash. Counting on property appreciation, negatively gearing, and other crazy constructs, are idiotic in times of central banks flooding the market with freshly printed notes. The ROI needs to be positive after all maintenance fees and taxes taken out; in addition it needs to be more positive than leaving the money in a savings account (which usually is slightly above inflation if you are shopping around). So in my example if my savings account is generating 2% on average in Poland and taxes are 19% on capital gains, I need to have a return of from the rental income after taxes and all fees of at least 1.62% to break even. With a +6% net average return on rental income I am in save territory; very safe. An almost 400% higher return than leaving my money in the bank is a gold mine these days. I couldn’t live of 1.62% of my capital investment easily, but I can do so almost like a king on more than 6%.  So how can you you estimate the potential net return on investment on your capital put into property? Well, first of all be conservative. Have a look on property websites (they differ from region to region or country to country) to ascertain how much similar properties to the one you are eyeing are being rented out for. Rent per square meter or square foot are the most common denominator which you will need to ascertain and compare. For example if a property costs 200,000US including transaction costs and any renovations you have to do to it, your associated costs to maintain the property as well as pay taxes are $7000 a year and you can generate (a conservative!) $20,000 a year you divide your net income (20,000-7,000) by the investment: so 13,000/200,000=6.5%. If you can achieve this return you can consider yourself happy in my book. Of course this excludes any potential capital gains (or losses). Of course there are better returns available, but it depends on your risk appetite and willingness to work additional hours (i.e. short term rentals). So when you assess your property investment return, I beg you to be conservative. Looking at rental units take 10% of the expected rental price at least, and assume 15%-25% vacancy, expected 20% higher maintenance costs and if you leverage via a banking loan (which I absolutely don’t subscribe to), please estimate what your ROI would look like with an 100% increase in mortgage payments. If the numbers still stack up, go for it. I believe you will be able to manage if you need to. Otherwise do not touch the property. So that’s the time, after a long 6,000 words almost, that I would love to hear from you. Do you plan to buy your first investment property, or are you already a savvy property investor and are willing to share your opinion and advice. Love to hear it. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post How to Buy Your First Investment Property appeared first on Financial Gladiator.

Two years ago, when I purchased my first three rental properties in a single day, I had almost no idea what I was doing or how things would pan out. It was my first foray into the world of rental properties. I figured that I would learn along the way and work it out step by step. Back then I was in no rush as I was still employed by MegaCorp, though I already had some thoughts about leaving the corporate life behind. Today, I am still learning every day about rental properties. As you might have realised by now, I am ultra risk-averse and much more conservative when it comes to investments and money matters than most people. This meant that I had to be very careful when selecting my tenants. Unless you understand the legal basis for renting a property you probably shouldn’t I used to think that once I selected a rental unit for purchase, fitted it out, and listed it on the market, the toughest job was done. It often took two or three months for a rental property to be renovated and fully fitted. The critical work however starts when you are selecting a tenant and making sure you get the paperwork done in such a way to protect your interests and your investment as much as possible. Overspending on the renovation – I have done that before – or being slow does impact your ROI slightly but picking the wrong tenant can cripple your ROI entirely; so take your time. Listening and reading about countless horror stories, I decided to be extra careful especially as I was emotionally invested in my apartments. No harm could be done to my babies! Having lived in Australia, Singapore, Germany, and the US, I noticed the differences in the rental practices and landlord behaviours. Singaporeans, for example, will go through the effort to subtract anything of value from your security deposit if you return the rental property in any other conditions than when it was first rented out to you, including counting the light bulbs or slightly scratched tiles from normal wear. Australians were ready to evict you if you didn’t pass a bi-annual home inspection and replace you with another tenant right away as demand for rental properties is high – a rental property often attracts fifty or more applications in Australia’s major cities! In Germany and Poland, the tenant’s rights are simply ‘insane’, often protecting the tenant more than the owner, and almost impossible to evict any tenant even when they don’t pay their rents. For instance a pregnant woman or single mother in Poland who doesn’t pay the rent cannot be evicted. It would, in many instances, take years to evict a bad tenant on a standard rental contract potentially costing the investor 20-50% of a lifetime return with limited to no chance of recovering the losses. Thankfully though, if you read, understood, and leveraged the law appropriately, any landlord is able to protect their investment almost 100% against such pitfalls in most countries. That’s why I spent almost a week drafting my tenant agreement making it bulletproof, having it checked by notaries and lawyers rather than using the first template that came up online when googling ‘tenant agreements’. So now the fun begins with the listing of your property for a specific asking price and then awaiting the market reaction. I always love this time. You get to meet the strangest of characters and some really good ones: but how do pick the best tenant? I am still refining this process but here is what I learnt so far. In a nutshell, I prefer the likes of high-income professionals, business owners, lawyers, and doctors the most. I know I am discriminating and generalising here but placing your hard earned apartment into foreign hands, some few key criteria have to be met and as the owner you are responsible for picking the right tenant who suits you best. Tenant Selection Criterion 1: Punctuality I have experienced well over a hundred house inspection appointments by now, when searching for potential tenants for my five properties. While the potential tenant is looking at the apartment, I am using the time to evaluate the tenant for a possible fit, often quizzing him/ her for answers that could help me gauge a potential fit. You wouldn’t believe how many people rock up 15 to 30 minutes late for an appointment without an excuse. Chances are if they lack basic professionalism and courtesy, then they will most likely demonstrate the same character traits as your future tenants or even worse – do not count on the rental payment coming in on time and/ or in full. Being late without a valid excuse is an instant disqualifier in my book. Tenant Selection Criterion 2: Personal hygiene and cleanliness of their car I typically wait in front of the property to greet the potential tenant. This allows for a quick glimpse of their car (maybe even inside their car) which indicates if the person is clean and organised (or not). Obviously somebody not well groomed, wearing dirty clothes, or using their car as a wardrobe and/ or kitchen gives away a lot about the person. Tenant Selection Criterion 3: Regular Income Generally I don’t consider a potential tenant unless they are willing to volunteer proof of regular income. This can be a bank statement over the past 12 months or the most recent tax declaration. Typically, I do not consider tenants that earn less than 5x the rental price. I myself have always spent a maximum of 15% of my net income on rent and believe that anything above 20% is living beyond your means. Having said that I had people applying for my properties wanting to go as far as paying 70% of their take home pay to cover the rent – their math doesn’t add up. Tenant Selection Criterion 4: Net Worth I prefer the tenant to make so much money or have that many assets that he/she is able to purchase the apartment tomorrow if she/ he chose to. In many instances people choose to rent over buying even though they could afford it for various reasons – these are the tenants I personally prefer most. The fact they could buy the place gives me the greatest confidence that if they damage the apartment they can pay for the repairs. Yes, these tenants are rare to come by, but I am patient and so far have found them for all my rental properties. In Katowice it takes on average a couple days to rent out a place (if reasonably priced), however when I take my time in the selection process, and I always do, it often takes me three to four weeks to find the right tenant, and sometimes I even reduce my price just to get the right candidate. I know this will be positive in the longer term. Tenant Selection Criterion 5: Security Deposit/ Bond To gauge if somebody actually has enough safety buffer saved up, or rather lives pay check to pay check, I always double or triple the average security deposit asked for similar competitive units. If a potential tenant struggles to double the security deposit, I typically don’t consider any further engagement. Tenant Selection Criterion 6: Rental History If the person acts shady or evasive about answering ‘why they are looking for a new place to rent, where they rented before, how that fared, or if they could connect me with the previous landlord directly for a reference’, I would typically disqualify the person at this stage. I have a simple philosophy: you can ask me anything and I expect it to go the other way, too. If this basic expectation doesn’t match, a tenant-landlord relationship has no foundation to be built upon. Tenant Selection Criterion 7: Apartment Occupancy Occupancy rate, length of lease, and number of occupants have a huge impact on the wear and tear of a rental property. The more days and time are spent in the apartment and the more people live in it, the higher the wear. I usually prefer single, pet-less, children-less career driven folks who want to stay at least for one year, ideally longer. They tend to spend the least time in the apartment and have little time to socialise at home; when they do have time to socialise, they prefer to do that outside of their four walls. My rental agreement requires tenants to designate who will live in the apartment by name and identity card. Any changes are to be approved in writing by me. Should a tenant want to bring in their partner or kid to live with him/ her, this is usually no problem as I will simply ask for an appropriate raise in rental fees due to higher wear. Animals and young children are generally not preferred in my rental properties due to the unpredictable maintenance load and cost involved. I simply want to avoid any hustles associated with renting my properties out. One of my favourite anecdotes is about a man who wanted to rent my 48sqm one-bedroom apartment. The apartment was brand new and renovations just finished. He wanted to rent for three months only, meanwhile put in a dividing wall in the living room to make space for his Mother and have his two kids and dogs live on the large terrace in a tent. Seriously? I wasn’t sure if I should call the child protection agency right away or if this guy was for real. Turned out he was serious – ouch! Tenant Selection Criterion 8: Patience Often I receive a call from a potential tenant wanting to move in on the same day. Of course the person doesn’t realise they have just been disqualified, when I ask them why there is such a rush. It’s amazing to hear people being utterly disorganised, often starting to look for a rental a week or less before they have to move out (for whatever reason). For the organised people that get a viewing invitation from me, I often end the appointment with ‘Let’s both sleep over it and connect tomorrow morning about our decision’. This gives me time to evaluate the tenant, connect with my family to discuss the tenant, but also tests the patience of the tenant who often would be ready to sign on the spot. Tenant Selection Criterion 9: Social Media Presence Last but not least, and often the first thing I check, is the applicant’s social media presence. It gives me some level of confidence that the prospective tenant has a well maintained LinkedIn or Facebook profile. Reading about common friends, a past education history and verifying the workplace during a meeting is building confidence. Of course this is to be taken with a pinch of salt, as we all know that whatever you publish can be exaggerated or even be a lie. Tenant Selection Criterion 10: Reputation In addition to the above I maintain a social network with agents. Whilst I don’t directly employ real estate agents I share apartment availability with a few select good agents I have met throughout my landlord ‘career’. I connect regularly over coffee or lunch with them, and very often they are a great source to validate experience with a tenant. They also do share bad tenants and scammers with each other using WhatsApp groups or similar. Tapping into this knowledge base is invaluable. A short meet-up or a message exchange about a potential tenant can reveal things you might have overlooked and it can save you from falling for a professional scammer. The biggest scammers are usually published online in specialised knowledge bases, so simply googling the name of the tenant can expose the repeat scammer right away. Based on the ten decision criteria above, I have put together a list of my most used interview questions to screen potential tenants. Just asking these or similarly worded questions and gauging the reaction of the person gives you tremendous insight into a potential tenant. Just a word of caution: certain countries don’t allow certain types of questions. Before using the list, please make sure you use these within the legal framework you are operating in. Cheat-List: 15 Questions To Ask Potential Tenants: How long have you rented where you stay at present? What is the reason for you wanting to move? When do you prefer to move in? What do you do for a living? Would you be able to provide written evidence of your income and/ or assets? Who exactly would be living with you, if anybody? Do you smoke, if so, do you ever smoke indoors? Do you have any pets? Can you connect me with your current landlord for a positive reference? Were you ever evicted or sentenced to jail? Are there any issues I should know about before I run a background screening for all the adults in the household? Have you ever filed for bankruptcy or do you have any outstanding debts? Would you be able to pay the discussed security deposit at the lease signing? Are you willing to sign a minimum 1-year lease agreement? Do you have any questions for me about the process? Following the above criteria and questions to select the right tenants, I have enjoyed a full occupancy of all my rental properties since I started over two years ago. All minor damages have been repaired and paid directly by my tenants. To date no tenant has missed a single rental or utilities payment so far. Fingers crossed it will continue to go as smoothly hereon. Now some questions for you: What do you think of the criteria and questions? Do you use any other questions or criteria to screen potential tenants? What has been your experience renting out to your tenants? If you do not own a rental property yet, could you imagine investing in one? For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post How to Select the Best Tenant for your Rental Property appeared first on Financial Gladiator.

Introduction Poland was recently ranked by several leading analyst organisations as one of the best places to invest in. The World Bank has ranked Poland 3rd best country to invest in, given its high growth Gross Domestic Product (GDP), record low unemployment, and potential to keep growing over the following decades. Places 1 and 2 were taken by the Philippines and Indonesia respectively. Not surprisingly, I spent a few months there this year to check out investment opportunities but was put off by the fact that you cannot own land as a foreigner – a major concern for me as a property investor. Before I go on, please remember Poland was also one of the handful of countries globally that didn’t go into recession during the Great Recession aka Global Financial Crisis which took place between 2007 and 2009, so investments there are relatively safe while generating above average returns. I chose Poland to invest into real estate, generating over 6% returns after tax and fees almost 2 years ago. Before investing here I did my personal due diligence and research which I will try to break down for you here in this blog post. Poland – Macroeconomics and Demographics Poland is located in Central Europe and has been historically considered a buffer country between Western Europe and Eastern Europe. Its geographic and political location comes with both up- and downsides, being situated between two dominant economic super powers being the EU and Russia. Mostly though, you can expect to experience the upsides given it had joined the European Union in 2004 and Germany being Poland’s largest trading partner; both imports and exports hover at around 26%. The GDP growth since Poland’s independence in 1991 has been averaging 3.5% which is spectacular. With 4.4% in 2017, it has been amongst the fastest growing economies in the World, and was nominated by FTSE Russell to be upgraded from Advanced Developing Market to Developed Market next month (September 2018). It will be the first Eastern European Country to join the prestigious club of the 23 FTSE Russell developed markets in the World. Poland has an average GDP per capita of over USD 16,000, or USD 31,000 at Purchasing Power Parity (PPP) – this means your earned Polish income gets you a whole lot further (in Poland) than in other countries due to the relatively lower price of goods and services – half price judging by the figures. Population growth is stagnant at 38.5 million people, as many young Poles emigrate overseas to make a living, saving their earnings, and often bringing the savings back eventually to invest in Poland. There are millions of Poles working overseas right now. Meanwhile foreign talent is pouring into Poland’s high growth services sector, keeping the net immigration and population rate afloat. In addition the government has commenced a financial incentive program for families with kids which has had early positive effects on the new born rate which has been in line with other developed nations at about 1.3 children per female so far. Let’s talk about real estate macroeconomics for a minute. About 200,000 flats are newly built and sold a year on average, this number has been steadily rising to accommodate the demand for higher quality living and desire for Poles to move out earlier from the family homes. About 4% of the population rents at present (compared to 50% in Western Europe) and over 50% of flats are sold for cash without being financed through banks or loans. You can quickly see that the demand for rental property will stay up high if Poland is to move closer to the living standards of the Western World. Rental yields are generally still good in major population hubs like Warszawa, Wroclaw, and Krakow with well over 3%, sometimes even 5%. In 2016 and 2017 the highest rental yields however were achieved in Katowice and Tychy at almost 7%; second-tier cities which are growing at incredible rates and attracting the bulk of infrastructure and foreign direct investments due to their low entry prices to access talent and set-up offices. Purchasing Real Estate I bought my very first property in Poland on a non-EU passport, knowing very little about real estate investment there, whilst I was still working in Asia. You might wonder how you can purchase property in Poland as a foreigner? It is entirely possible and fairly easily done, as you do not have be a citizen of Poland or the EU to purchase a flat, together with your share of the land that the building sits on (in most cases). It’s safe and land ownership is transferred to you via the deed. Of course having family in Poland and having a grasp of the language did make me feel a lot safer when I first transacted. Having said this, I know enough people that have no clue about the law, don’t care to read the paper work, the deed, or the notary agreement in detail, so a foreign language wouldn’t make much of a difference, right? If in any doubt, and we should always be, the good news is that most educated and young people in Poland do speak fluent English theses days and a transaction document can also be produced in English. When I set out to build my income stream from real estate investments, all I wanted was peace of mind, long term and solid tenants, who would care about living in my apartments and take good care of it. I argued that peace of mind and lower maintenance effort was worth the potential foregone return in higher income generating real estate assets, such as student accommodation. I hence focused my investments on high-end properties in established and/ or up-and coming suburbs in Katowice, Silesia. For comparison, prices per square meter (sqm) in Warsaw were ranging from 7,000 to 44,000zl per sqm (1,850USD to 11,700USD) for an apartment while in Katowice you could buy in from a mere 2,500zl to 5,000zl per sqm (or about 650USD to 1300USD) – in my view a bargain especially given that business investment in the services economy locally was booming. Until 2015 the Polish property market experienced a halt in growth post the financial crisis which lasted from 2009. It was then the 6th year of property price stagnation while wages kept rising aggressively. I made the assumption that it was just a matter of time before property prices were starting to grow again – it helped that I knew the the average property correction takes between anywhere 3 to 6 years across history. Shortly after purchasing my first property, prices in Katowice began to rise strongly. I estimate my real estate investment capital gains to be around 30% today – but I am also fully aware this is all funny money until I transact – which I do not plan to do anytime soon. My actual long term plan is to have the value of the Polish properties increase and compound at a much faster rate that I would be able to see in the rest of the developed World, so that by the time I hit my actual government retirement age, the properties would have increased in value much further than if I had invested where I used to live and plan to live again in the future: Singapore, and Australia/ New Zealand. Meanwhile the rental income yield of over 6% should be sufficient to support myself living mostly in developed countries and traveling the globe. An additional option is to adjust rents periodically which in total should grow faster than my living costs in the developed World. My Numbers As I described in my story, my net income from my properties is about 3,500USD a month (this can go up or down 10%’ish given foreign exchange rates). I could never have this net income had I invested the same amount of cash in Singaporean or Australian property given the combination of high income tax, land tax, property tax, maintenance fees, etc which are much much higher than in Poland. When it comes to the actual income tax rate in Poland, the income tax rate goes up to 32% for individuals, similar to many other developed countries. But for rental property income, this is different. In Poland there are several ways to pay taxes for rental property, and I use the simplest way to declare income tax. Once a year I fill an online form showing my income and paying a mere 8.5% tax for the first 100,000zl of rental income and 12.5% on anything above that. Since I haven’t had a full year of all my properties rented out, I cannot tell you the effective tax rate but it will be much closer to 8.5% than 12.5%. The downside of this method of taxation is that you cannot deduct any costs (mortgage, depreciation, utilities, maintenance costs, property agent, etc.); the upside obviously is that you don’t have to keep a full accounting system and associated paper work. Having said this there is not a lot of costs associated with new properties and given I don’t work with banks or property agents (both I consider parasites of wealth), this is probably the easiest way to pay my taxes. Furthermore, I pay between 3-7% of my rental income to maintain the properties. It should be below 5% but one of my investment properties is owner association self-managed and produces a much higher cost because of it – this is something I am in the process of changing. Overall the costs associated with property ownership in Poland are extremely low compared to other developed markets. Taxation, as you can see, is highly favourable for the property investor, property and income taxes are low and the demand for properties in Poland doesn’t seem to slow down. Even if it does, a crisis is highly unlikely as most apartments were purchased for cash so investors are not squeezed to sell should when the markets will take a turn. Properties and assets have been growing or holding their value since 1992 for the most part. Questions for you: Have you ever thought to invest in developing countries? What is your experience if you invested in developing countries? Do you know of alternatively safe methods to invest your hard earned cash? I’m looking forward to your comments and thoughts. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post The Art and Science of Investing in Poland appeared first on Financial Gladiator.

Looking back at my working career in IT, I realised I made some terrible mistakes and missed out on several opportunities on how to make my money work harder for me. I didn’t understand the basic concepts of investing then, and how to properly manage my money. I was afraid, too passive, and thought it was all too complicated. However, as I expanded my knowledge and grasped the various concepts of personal finance management, I have eventually made my money work harder for me. Below are the key lessons that I learnt during this journey and would like to share with you, hoping that others would not make the same mistakes that I did. And as always, feel free to share your thoughts and experiences, as you read the blog, as I would love to hear your stories!  1. The Power of Saving Every Month Saving $100 every month is the minimum one can do to ensure one can retire more comfortably, as compared to relying on state pensions or others to take care of you when you won’t be able to work anymore. The average working life is 45 years and the state pension age is being pushed towards our statistical average life expectancy. Multiplying 45 years by 12 months, the monthly $100 gets us to a $54,000 deposit. If left uninvested, this won’t end up being much, given the inflation rate targets of 2-3% (we will get to more details about inflation later). Invested safely and compounded, this can easily triple or quadruple over 4.5 decades. I hear a lot of people arguing that saving $100 is impossible but it is not – below is my current example. I believe it boils down to the lifestyle choice that one makes and if you make a point of setting aside money every month for savings, you will soon see the benefits of growing that savings base.  I took a minimum wage job as a dive instructor recently and I’m trying to live within that income and still save. I earn about 950 Euros a month, working 6 days a week and 10.5 hours daily on average. That is way below the minimum wage requirement in Spain, but hey, it’s not new to be screwed over by the employer right? The job is physically demanding and I eat a lot more than before, burning roughly 3 times more calories a day than before. I still do indulge a little – hanging out with my colleagues for beers and cocktails, eating out in restaurants 2-3 times a week, never cooking but still managing to save about 30% of my net salary every month (almost US$ 350 a month). Most importantly, I’m not touching my income of US$ 3,500 that is from my real estate. I love how fit I became, losing 12 kg, and sleeping like a baby every night, while spending my working day out and about in the sun and warm waters. And what’s more, I’m surrounded by smiles of happy customers every day, teaching my biggest passion, exchanging travel and diving experiences with like- minded souls on a daily basis. If I were to keep my current lifestyle working for another 30 years on my current salary doing my dream job, and investing these savings alone, I could generate almost half a million dollars till I reach my official retirement age of 67. Not too bad for a below minimum wage job, right? 2. Compound Interest is the Strongest Force in the Universe Einstein was once credited to have said that compound interest is the strongest force in the Universe. He was absolutely right. Compound interest is basically taking your period interest income paid into your account, growing your principal (the total monetary value of what you have invested), and reinvesting that amount continuously. The growth curve of your investment basically shows a exponential growth pattern. This is exactly what you miss out on when you live beyond your means and have to pay out any sort of banking loans. You need to read up on compound interest if you do not understand it fully. It is what helps small investments grow into large portfolios over an extended period of time. 3. Understanding Inflation There is another force that affects the value of your investments/ savings and that is inflation. Inflation reduces the value of your money each year in most countries. The typical developed nation’s central bank aims an inflation rate of 2%. This is considered healthy for a moderately growing developed economy. The thing with inflation is that if you have your money stashed away under your mattress and not having it invested, you would lose 2% every year because prices for goods and services are inflating (getting more expensive) each year. Say you have $100,000 saved and sitting in a bank account that generates the typical 0.05% of interest. You would lose 1.95% each year due to a 2% inflation.That would be $1,950 a year or $162.5 a month! Never ever hold your money in such a bank account. A friend of mine had saved his whole life not investing in anything and had all his money in such an account. He stashed away a very respectable $500,000 but because the money was just sitting there, it was losing him almost $10,000 a year due to inflation in his country. 4. Investing in Index Funds  One of the more popular and easy form of investing is a low cost index fund. Rather than actively investing in particular companies and risking getting it wrong, the savviest investors choose for the bulk of their portfolio to sit in index funds. Investing in index funds is basically like investing in the average market growth of a given market. It could be US stocks, European Stocks, Asian Stocks, or global stocks. I missed out on this as I only recently learnt about it, which meant that I was leaving hundreds of thousands of dollars on the table when I did the maths (that wasn’t a great day, believe me). Whenever investing, it is important to remember that you are basically taking a gamble. Only invest what you can afford to loose. Timing is also very important with stocks so be aware of the cyclical nature of capital markets. Despite generally saying that index funds are a great way to invest your savings passively, I would not put my money in the stock market right now. It is highly overvalued, we see signs of weakness and stagnating growth, and I strongly believe in a massive correction coming up on the medium term horizon. Once the bear market eliminates a large chunk of the stock markets globally, I will invest in index funds for the first time. 5. Capitalising on Foreign Exchange Rates, Working Abroad, and Shopping Internationally for Deals Given the increasing interlinked global nature of the our world now, being more cognizant of foreign currency exchange rates is beneficial, as well as knowing where to get the best bargains. For example, I found that shopping for casual clothes in the US was the most economical with the factory outlets, buying working clothes was the best in Germany, and travelling for leisure was the most cost efficient in Asia. Plus, income tax rates in Switzerland, Hong Kong, Dubai, and Singapore are the best, while cost of living compared to income was the best in Singapore. a) Shopping abroad where it makes sense Being aware of the different pricing structure of your favourite brands is key. When I was living in Australia and Singapore, I avoided shopping there as the brands that I usually purchase are much pricier in those countries. Instead, what I did was to do my shopping whenever I had a business trip to the US or Germany. This enabled me to save thousands of dollars over the past years. Of course, you would also need to consider the currency exchange rate at that point in time but I have managed to get my casual clothes 3-4 times cheaper and also leveraging the exchange rates, which gave me another 10% – 20% savings.  Another example is working suits. In Australia and Singapore, the average Hugo Boss suit was about $2000 – ridiculous when you know that you can plan a trip to Germany and buy 10 suits for that price in the discounted section of the Hugo Boss Outlet Factory. Of course I would plan a side trip down to Southern Germany to visit the beautiful outlet village of Metzingen whenever a work trip opportunity arose (did I mention the 19% VAT that I could re-claim at the airport on my way back yet?). c) Country of residence and the impact on your savings When I was mid-career, I didn’t merely evaluate my next boss, team, growth potential, but added new dimensions to my decision criteria: Foreign exchange rates, Income tax rate, state pension requirements for foreigners, health insurance fees, and general cost of living. This helped me boost my savings tremendously. I chose Singapore as my location after growing my career in Australia for 9 years. I knew the mining boom was about to end in 2012 just before I moved to Singapore. I anticipated a drop in the Australian Dollar because of it and negotiated a package that was equivalent to my current pay. Three months after arriving in the beautiful tropical nation state, the Australian Dollar depreciated by about 30%, basically giving me a 30% income boost compared to if I had stayed. In addition my income tax rate dropped from 40% to to 10% and my state pension requirements reduced from 9% of my income to 0% in Singapore. I thought I hit the jackpot. I was suddenly saving 3x more than when I was in Australia, living a far higher quality of life and being closer to my family in Europe. Food was healthier and cheaper, flights were heavily discounted due to the intense competition, making travelling and South East Asia escapes much more affordable than in Australia, and the rent and utilities costs were similar. Career opportunities were amazing coming from a small office at the end of the world to the Asia headquarter of my company and I managed to grow my salary by 50% in only three years by taking up the right opportunities.  c) Foreign investment in real estate I have been saving 13 years without actively investing any of my money. It was okay when I enjoyed 4-6% interest rates in Australia, but once the GFC hit, I was down to below inflation or 2%. Not a good deal and something had to be done to avoid inflation eating up my savings. I started assessing where to put my money, looking at exchange rates and investment potential across the UK, Germany, US, Australia, Singapore, and Eastern Europe.  And what I found that had the most potential was investing in real estate in Poland. There were a couple of reasons for that: the Polish Zloty was the lowest in a decade; there was still untapped growth potential in some of the cities in Poland when I researched on the yield returns, and it of course helped that I speak the language. By picking a good timing for the exchange rate, I transformed my hard earned Australian and Singaporean Dollars into Polish Zloty at the peak exchange rate in 2016. And instead of transferring the funds via the traditional banking system, I utilised sites such as OFX.com and TransferWise.com to transfer my dollars at minimum fees ( I paid an average of 1% for the exchange rather than the 7-9% my traditional bank offered). At S$ 800,000, an 8% difference equated to an almost S$64,000 saving! (Did I mention I can’t stand banks?) or almost another spanking new one-bedroom apartment in Poland. In addition I saved another 20% or S$ 160,000 with the favourable foreign exchange rates. This is big money and I waited years for an opportunity like that to invest. Instead of buying 200sqm of apartments in Poland, I ended up buying 299sqm at the same price – now that is a deal. It was almost 100% more than if I wouldn’t have taken advantage of the exchange rates and money transfer platforms that help avoid those horrendous banking fees. So even if the Polish real estate market crashes by 50%, I wouldn’t be bothered much as I was still 50% ahead – my hyper conservative self felt secure.  These days I’m filling the war chest again to enter the Australian Market which is showing first signs of a decline following an almost 30 years gain. The average time for a real estate bubble to bottom out is 3.5 years. I will be observing while preparing for the next opportunity. 6. Employer Loyalty does Pay Off Last but not least, I’m aware that my generation (Millenial) is crazy about going after short term job advancement opportunities and switching their employer on average every 2 or so years. Personally, I highly advise against it. Following a mentoring discussion with a McKinsey partner early in my career, my plan was to develop within my company longterm, become a hard to replace company asset, fulfilling various functions across key business units, and grow my income exponentially through internal career advancement, rather than switching jobs for another US$ 5,000 more a year. First of all it truly paid off, as I grew my average income over 14 years in my company by S$ 17,600 a year. Secondly, I purposefully set myself up for a potential company retrenchment package to support the jump into my new FI life, picking my last role as one that wouldn’t last forever, nor could I be offered a similar role, salary, and seniority, ensuring an offer to leave my company eventually. This helped me reduce the time to save enough capital to become financially independent by approximately 3 years (or 6% of my anticipated working life). I negotiated a redundancy package worth over a year’s salary tax free (in Singapore you do not pay income tax on redundancies). I left on very good terms with my ex-company and a highly active network. The doors are open to rejoin the company anytime. In fact the offers I received after leaving were better than when I was there and the pay ridiculously tempting. I’m not excluding going back for a second stint to boost my Financial Independence level from LeanFI to AbundantFI but that is for another post! If you have any other experiences worth sharing, please comment below. I would love to hear from your learnings and updated this post periodically. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a  retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post 6 Things I wish I knew about Investing when I Started Working appeared first on Financial Gladiator.

Financial Independence Financial Independence (FI) is a state in which an individual or household has sufficient wealth to live on without having to depend on income from some form of employment. Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses. Having achieved Financial Independence doesn’t mean you are retired. It means that you can choose to work or play on your terms. There is several levels of Financial Independence but that will be covered in a future post. Savings Required for Financial Independence Typically the FI community assumes a safe withdrawal rate of 4% from your investments (assuming you generate over 4% a year) so that you don’t have to impact (reduce) your principal investment. An issue I have with this is it doesn’t account for the inflation rate (rising prices). Realistically, one should factor in withdrawal rate plus inflation rate – typically between 1.5-3.0% in the developed world – when doing long-term planning for retirement. This means your passive income has to grow by 5.5-7% for you to be able to withdraw 4% safely. Historically, investing in real estate or in a major stock market index have been the main avenues to generate such rates, however this doesn’t mean one can rely on it. Whilst historic performance is a good indicator for future performance, surprises in the stock market and financial markets are not uncommon during these days of financial system instability. Personally I tend to be ultra-conservative when I do my retirement planning – crunching numbers, evaluating assets, always assuming the worst parameters and choosing the ‘safest’ assets to invest into just to be on the cautious side. This has served me very well in my planning and executing my plans to date. So what does it mean to aim for a 4% withdrawal rate? Assuming a 4% withdrawal rate means you need to have amassed savings of at least 25x your annual expenses. These differ based on the lifestyle you lead. So if you have annual expenses of $30,000, you need savings of $750,000, and invest this at a rate of return of at least 5.5% (assuming 1.5% inflation) to consider yourself financially independent with a annual budget of $30,000. Here is a table of what you need to save up based on your living expenses: Annual Expenses Required Savings for Financial Independence  $10,000 $250,000 $15,000 $375,000 $20,000 $500,000 $30,000 $750,000 $40,000 $1,000,000 $50,000 $1,250,000 $60,000 $1,500,000 $70,000 $1,750,000 $80,000 $2,000,000 $90,000 $2,250,000 $100,000 $2,500,000 For me it was particularly difficult to ascertain if I would make it in my new FI life as my annual expenses were close to $130,000 before I put my corporate career on hold. I had saved up over $700,000 in cash (average of 35% net saving rate over 12 years of my previous career) and calculated I would be fine on roughly $40,000 a year for expenses – I didn’t want to compromise my life to live too lean either and still enjoy the freedom to travel a fair bit, keep studying, and further grow my retirement nest egg until I actually reach government retirement age. The budgeted annual expenses were roughly two thirds less than what I was used to, so I had to make drastic changes in my lifestyle if I wanted to go the FI path. I estimated I could conservatively generate a net income of about $24,000 per annum from my real estate investments in Poland and would figure out a way to earn another $16,000 a year once I have all the time in the world to built something new up and slowly. Well, because of my conservative estimates, I initially assumed half the average return on my real estate investments (at around 3.5%) and overestimated my new life’s living expenses by roughly double (read more about my actual expenses and income here) – maybe I was too conservative but I budgeted it that way, too be comfortable, as I prefer positive over negative surprises. I managed to reach a level of net income of over $40,000 from my real estate investments in less than 1.5 years. I became my own boss, and gave myself a safety buffer of $20,000 as well as training for a new career as a dive instructor, generating an additional net income of approximately $1,500 per month. Being able to choose when and where to work – I mix travelling and ‘passion working’ these days, has been one of the benefits of my new FI lifestyle. My current actual savings (predominantly from my properties) are currently hovering around $3,800 per month, allowing me to re-invest these savings for the future. As I cover all my living costs from pursuing my diving and teaching passion, I save all my current rental income plus a little from my diving salary. I plan to add a one-bedroom apartment every 2 years to continue to build up my income to an average of $73,000 per annum over the next thirty years, before I hit my actual retirement age. I honestly couldn’t bear the thought of doing nothing all day, like in the traditional retirement sense, so working in the field of my passion feels like the best thing to do. Financial Independence gives you the freedom to work when and where you want and on what you want. Whilst I could sit on my bum and live out the rest of my life, without working ever again, I plan to have children next and that requires yet another modification of lifestyle and associated cost structure. So a little more work is required to do this in comfort and stress free. That thing called ‘Lifestyle Inflation’ So how do you get to half a million dollars in savings to enjoy a annual passive income of ca. $20,000? In my personal view the best way is to study hard from young, advance your career in a future-proof profession, continuously self-develop as a generalist, save and invest, and don’t succumb to “lifestyle inflation”. Lifestyle inflation is the outcome of increasing your expenses with your growing salary. The first ten years of your career drive typically the largest pay increases (in %) and it is also the time you get used to how much you can spend. Most people don’t control their expenses well, especially during these formative years, and increase their lifestyle costs in direct proportion to their salary increases, effectively living pay cheque to pay cheque – a terrible mistake. Further folks take a loan to live in a house they couldn’t afford to buy otherwise – in my view this locks down most people into the current ‘system’ completely. Instead, if somebody wants to reach FI, one should increase the savings rate instead of the expenses while advancing their career and avoid loans like a deadly disease. A young, well-educated professional starting out with a $50,000 salary today for instance can reach FI in about 10-15 years but it would mean sacrificing a part of their lifestyle (saving 20-30% of after tax income), steadily develop their career and associated income further, and invest financially wisely and disciplined. Recipe for Financial Independence: Save at least 30% of your take home pay. Invest savings into revenue generating assets which provide a return of +6% (index funds or real estate have shown +8% annual average gains over the last 100 years, but be aware of the cyclical nature of these assets). You would need approximately 15-20 years of work to reach FI at this rate, excluding any pay rises. Grow your salary through career advancement and self-development to generate additional savings. This will greatly bring forward your personal Independence Day – by years. Look for opportunities to accelerate your FI date, such as setting yourself up for a company redundancy package, additional part-time work in the evenings or over the weekend, sales and e-commerce on-line, art sales, or similar. Take an online finance course to understand how financing, budgeting, interest rates and compound interest work. These are the basics of personal money management. Do not succumb to lifestyle inflation. It’s okay to live with your parents or share a flat in your twenties. Keep your costs as low as possible to maximise your savings rate. Save first then budget your monthly expenses. Live a little every month but don’t sacrifice your targeted savings as each unnecessary expense is basically pushing your FI date out. Not surprisingly we see that most people never reach Financial Independence, or worse, they need to work in their 80s or until death, not being able to retire at all. More and more people simply do not save enough, live beyond their means, don’t invest, and do not understand the basics of financial management, i.e. how compound interest works or how ripped off one can get taking a payday loan. In fact personal saving rates i.e. in the USA have been significantly below average, compared to other industrialised countries, around the 2-5% mark. That doesn’t add up to a lot of savings over a 45 year average working life, meaning they solely rely on a pension system that is constantly being pumped up by today’s taxpayers and I don’t believe this will go on forever. Do you have a retirement plan yet? How much do you save and when do you plan to (semi-) retire? Let me know your thoughts and questions in the comment section below For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a  retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post Save Yourself to Financial Freedom appeared first on Financial Gladiator.

How Banks Rule the World Today some 255,000 Americans age 85 and older are still working – many more above 65 are still working today. That is a record figure and almost 90% up from before the financial crisis, which was caused by insane amounts of debt created in the world. Trust me, when I say most of these 85+ year old people are not working because they love their jobs so much but rather they cannot afford their retirement –  they haven’t saved enough and/ or were fooled into poor performing investments, which effectively funded those self-proclaimed ‘financial planners’ and ‘retirement fund managers’. 65% of Americans have so much debt that they don’t save enough for retirement and end up struggling financially in their future. By 2018, or ten years after the financial crisis, personal, corporate, and government debt in the USA and many other countries have more than doubled. You can read in the news how banks have been declaring record profits, mainly from people and organisations having to service their loans. In early 2018 the privately owned Federal Reserve, or the Central Bank of the United States, has commenced increasing their interest rates, cashing in on the record levels of debt held by organisations and the general public – plans are to raise interest rates four times this year alone. Consumers were all enticed to take out loans by the record low interest rates set by the Federal Reserve over the past decade. Lowering interest rates to fool people into taking loans and then gradually increasing repayment amounts by lifting interest rates later is a well-calculated long-term strategy used by the global central banks. Effectively raising a 1% interest rate to 2% would be 100% increase in loan repayments. Before the Financial Crisis, 5% interest rates in the developed world were considered normal, 2-3% more than the average today. We can observe similar even more exaggerated schemes in other countries, i.e. Denmark even offered loans at negative interest rates just to keep loans attractive, causing Denmark’s households to be in the top three most indebted nations globally comparing the household debt to GDP ratio.  The Loan Experiment When I was 23, before the financial crisis of 2008, I was curious to see how I would cope with having a huge bank loan, so I decided to do an experiment – taking out a car loan. It was a great way to test being in debt whilst not locking myself in on a 30 year home loan. I financed a fast and flashy car, paying off my loan in three years with an initial 5% deposit. At that time it took almost 30% of my disposable income and for the very first time in my life, I felt like I was working as a modern slave for a bank. The financing was based on a 8% interest a year on top of the principal amount – four times more than it would cost today. Later, I learnt more about the financial and monetary system. The logic escapes me till today on how a bank is able to charge me 8% a year for money it created out of thin air through the so-called ‘fractional reserve mechanism’. Yes, this is how banks make record profits and rule the World. Do you know that the ‘fractional reserve mechanism’ allows banks to loan out money for which they don’t really have collateral held against or in simple speak – deposits. The ratios differ by country and the size of the bank, some have no restrictions at all but let’s give you an average example from the US: Person A deposits $100,000 in a savings account in Bank X. Now Bank X is entitled to loan out to Person B 10x the held deposit (10x $100,000 = $1,000,000) it received from Person A, plus whatever interest charges and profit margin on top of what the central bank dictates. When I took out my loan, I immediately despised the feeling of being in debt. It seriously limited my disposable income and feeling of freedom. Furthermore my savings rate hit rock bottom as there was not much left to save from. Instead of investing into my future, I was now paying for the future of a bank. Granted, I now had a fast and fancy car, which I had fun with but in reality,  it was really owned by the bank. It was a bad move, depreciating in value quicker than I could drive it. I was working 51% of the year for the tax man and the mandatory government retirement fund (which consistently underperformed the market) and almost 30% for the bank, leaving me with a mere 19% for living expenses. I felt completely trapped and enslaved, spending over 80% of my life energy on serving my modern masters: the government and the banking system. Almost immediately I started thinking how to get out this scheme and rid myself of my masters. I worked very hard on increasing my income through self-development, gaining experience, and climbing the career ladder. It didn’t stop here – I even moved countries based on favourable income levels as well as income tax rates and furthermore invested in countries where I felt it was safer and/ or a better bang for the buck. Most importantly though I avoided talking to personal bankers and financial planners like I was avoiding a deadly disease, always politely declining their invitations for coffees and meetings. Robbing your Future Self I fully understand that most people decide to take out loans to fulfil their life desires, owning a bigger house, a fancier car, long holidays etc; things they realistically cannot afford today. Doing so effectively means robbing their future selves and chaining themselves to the financial industry by servicing their debts. I experienced this myself but I learnt my lesson and didn’t fall into their trap. Instead, I took saving more seriously and saved roughly 35% of my income on an annual basis, which later allowed me to stop working entirely – you can read about it here. Avoid Loans Warrant Buffet once said that his #1 advice for young people was ‘not to get into debt’. However, the banks behave the opposite way – offering these young consumers lots of opportunities to fall into the debt trap. I clearly remember when I was a high school student in the US, I was unsolicitedly being sent seven active credit cards, with a total credit limit of $45,000, even though my income was zero. Personally I found this criminal at the time but it wasn’t illegal at that time. If you look at the average household debt (mortgages, credit cards, auto loans, higher education loans, etc) compared to a country’s Gross Domestic Product (GDP) you see some truly frightening figures (source: trading economics). Switzerland, Denmark, Australia and the Netherlands are ranked worst in the world with each country’s household debt passing well beyond 100% of their respective GDP.  Well, that alone doesn’t sound so bad, right, but let’s take a deeper look at Switzerland for example. There are an estimated 3.36m households and the GDP is roughly $660bn. So with a nationwide household debt of 127.7% of the GDP or a calculated $842bn the average household debt computes to a staggering $251,000. That is an insane value! We are Modern Slaves, serving Modern Masters Without a doubt in my mind, banks are today’s rulers of the world, modern masters of modern slaves. How many people live pay cheque to pay cheque, serving banks everyday,  choosing to live today rather than saving for tomorrow? Thankfully we do have a choice: To live within our means, consume less, save earlier, effectively not robbing our future selves by going into debt and supporting the banks. Do you feel like a modern slave? Are you in debt? I would love to hear from you about your experience with loans and how they make you feel. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a  retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post Avoid the Debt Trap appeared first on Financial Gladiator.

It has been 500 days since I left my corporate career and a very generous pay check behind – you can read about my story here. Today I would like to share with you what I have been up to during these 500 days, and what my daily spend actually looks like, ever since I’ve left the corporate workforce. I couldn’t believe how much off the mark I was with my initial budget estimates for monthly spend and what I learnt. I discovered that I can have a great life on half of what I estimated and I travelled way more than I expected – crossing the borders to foreign countries 42 times!! I also learnt that not working a corporate job comes with a lot of savings: Things became a lot cheaper once you have time to shop for a deal, prioritise what you truly need and not having to pay to be work necessities such as work clothes, transportation to and from work, etc. Before I plunged into my new life, I was quite concerned about how much money I would need moving from Singapore to Poland to set up my real estate passive income stream and do the travel I wanted. At that time I had only one apartment rented out, providing me with USD 560 per month which equated to a whopping 97% pay cut – ouch! I clearly needed to start budgeting for the first time as I wasn’t used to this level of income. I left myself a USD 100k personal spending buffer and spent most of my savings on Polish real estate, consciously going against lots of advice to not put all my savings into one basket. The opportunity, in my own assessment, was simply too good not to be taken advantage of. Over 50% of apartments in Poland were bought outright for cash and the growth potential of Poland is impressive comparing to developed countries (2017 the GDP grew by 4.7% and 2018Q1 showed a >5% growth putting it amongst the five fastest growing economies globally). I also believed that Katowice, a second tier city was heavily undervalued compared to the more known Cracows and Warsaws and at the same time it attracted it unfair share of international investments transforming into a blooming services economy. It did pay off big time, and I actually bought another apartment last December when I realised I wouldn’t need such a huge safety buffer nor were my living costs anywhere near my initial conservative estimations of 4,000USD per month. I managed to work hard for about two weeks a month on my renovations, at peak times I managed 4 apartment renovations at the same time, and travel the remaining two weeks in the month. I did so for 10 months spending great quality time with my family in Poland and my girlfriend in London. I visited Greece, Scotland (2x), Ireland, Wales, England 16x (my girlfriend lives there), Malta, Portugal, Ukraine, Spain (2x), France, Germany (6x), Czech Republic (3x). If this European travel wasn’t enough yet I spent two weeks learning how to kite-surf in Thailand, another 3 weeks visiting my friends and former colleagues in Singapore, and three months in Indonesia training and studying to become a Dive Instructor. I did all that having a base apartment in Poland which I later realised I don’t really need that much so I rented it out in March this year, too, increasing my net income even further. I became a huge fan of the Wally App (after trying so many others) to keep track of my spending in various categories and currencies. I set myself a daily budget which is basically calculated as expected monthly income divided by 30 days and tried as well as possible to stick to it. Since I had international expenses and accounts in various currencies I could manage that easily with Wally which supported multi-currencies as compared to many other spend trackers. Furthermore, the app is so simple to use and provides a massive amount of detail into your spending habits. I quickly identified big ticket items, optimised them, and minimised any leakages to my bottom line such as unnecessary subscriptions (i.e. Netflix and choosing phone operators with the most data for the dollar). Wally is an a-grade lifesaver for citizens of the world like me (btw: I do not get paid to promote Wally!). During the 500 days I grew my income from my real estate investments from 560USD to 3,500USD per month. In the first 500 days I generated 36,342 USD of income from some remaining ex-employer share dividends and a steadily growing rental income versus a 37,428USD spend (roughly USD 2,000 per month, just slightly less than the planned 4,000USD per month). In real terms the last year and half barely scratched my savings compared to what I expected from the set-up year I allowed and budgeted for. I will end up on the far plus by the end of this year and use the surplus to invest into a small start up business which I am building on the side – more on that later. I had some hefty investment costs this year to support my traveling desires and my personal development regarding photography and diving. Without these one off investment costs I expect my expenses in the coming months to drop significantly to something like 1.3k USD per month – it is such a ‘low’ sum compared to what I had imagined 500 days ago working in my well paid IT job. When I arrived in Bali in March I had only my Advanced Open Water Diving certificate and to become a qualified Diving Instructor I needed to jump through several hoops – in fact I needed to complete the Rescue Diver, First Aid, Dive Master, and Open Water Scuba Instructor Development Course which alone set me back well over 10,000USD. As a keen photographer I also couldn’t resist buying a underwater housing for my Canon 5D, an iPhone 7 Plus, a Macbook Pro Touch, and a DJI Drone set which set me back another 11,000USD. These are thankfully not everyday expenses and for me personally necessary to continue my personal development and set myself up for life on an island and close to the water and fun people. Effectively now that I am all set up I increased my income with my diving salary living in a place provided by the dive school while my apartments are providing a monthly saving similar to the level I had in my corporate life. If I look at my overall expenses in more detail I roughly spend 25% on self development, 10% on new businesses which I am in the process of building, 25% on travel, insurance, and entertainment, 25% on restaurants (I don’t cook yet, and my girlfriend really loves those michelin star restaurants), and 15% on housing, clothing, grocery shopping, and other miscellaneous items. I believe this to be a sustainable model. Whenever I hear that people sometimes pay 40-60% of their take home pay on rent or a mortgage it gets me the creeps. Where is the money for self development, where is the travel and entertainment if you box yourself into a crazy situation to pay somebody else half your pay cheque. In the next 500 days, I expect to significantly grow my monthly passive income and optimise my spending even further, i.e. learning how to cook rather than eating out in restaurants everyday. If all goes well I should be purchasing my next property within a year or so and further increase my passive income. I am also contemplating to go back to work to accelerate my savings for a few years with the goal to purchase a new place in Asia as a second base and to diversify my asset allocation. Let’s see how things pan out, I will keep you posted on my blog. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen to the Podcast here: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 75% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. It helps him to keep fit while doing what he loves – teaching, traveling, and scuba diving. He called quits following a successful 13 year career in Information Technology throughout which he saved between 30-40% of his net income annually. Before he quit he positioned himself in a role he suspected was going to be made redundant eventually. The day arrived quickly and he ensured not to leave without a  retrenchment package reducing the need to work and save 3 more years. His real estate portfolio draws a return high enough to pay him twice his annual expenses, allowing him to continue to build up his retirement portfolio while enjoying 100% freedom today. Disclaimer: All information provided on this site is for informational purposes only and does not constitute professional financial advice. The post 500 Days after Leaving the Office appeared first on Financial Gladiator.

The Story of becoming a Financial Gladiator Here is my story on how I became financially independent and semi-retired during my mid-thirties. Today I choose to work rather than having to do so to pay for my lifestyle. I pay all my living expenses from my passive income streams. Further I am able to continue saving while enjoying what I love – travel, diving, and spending time with my loved ones. These days I am my own boss and focusing on projects that improve people’s lives significantly while growing and generating new passive income streams. I enjoyed working in the corporate world, though I minded how restricting it could be depending on the boss you had. I was lucky as in I never really had a toxic work environment. It was quite the opposite. If the right opportunity comes along, I will consider returning to the corporate world. The Financial Gladiator recommends the following Books: Become A Millionaire Live Financial Independence Declutter Your Life Over my lifetime I was lucky enough to have met quite a few exceptional people that truly inspired me including artists, corporate top executives, business owners, philanthropists, sports people, and of course my family who love doing what they do and each in their own style found a way to escape the established ‘system’. They all in one way or another inspired me, willingly or unwillingly, to eventually put my career on hold and follow my heart to try succeeding a different way. It took me a well over a decade though to save up enough of a nest egg to feel comfortable enough and to pull the trigger on getting out. Our Modern System of Life sucks and We All Feel It At age 34, I had a spent 13 years in a very demanding information technology job working my way up to the senior management level in one of the largest software houses on the planet. I regularly worked 12hrs a day, often 16hrs and even 20hrs. I slept on planes and hotels more often than I can count rather than my comfortable bed at home, regularly spending well over half a year on the road, mostly internationally. During my corporate career, working at a great company with amazing colleagues and customers, with a jet-setter lifestyle (and spend), and working with some of the most influential businesses and their leaders around the world, there wasn’t much time to reflect on the meaning of life. It was convenient to follow the masses, keep consuming and keep spinning wheels – but something was off. I started to feel a growing void and uncertainty within me. My belief system started to slowly crumble and I told myself “This can’t be it”. I started feeling a desire to get out, to get out of the only system that I have known and that kept me so busy for almost 30 years: Work hard for somebody and a lot, play a little occasionally, sleep trying to recover – do it again – forever. All around me I saw most of my friends and colleagues living at the edge of their means thanks to lifestyle inflation, taking huge bank loans, tying themselves to a need to work to service their loans for decades. If that wasn’t enough our political leaders are putting our countries in huge debt, year over year, and ever increasing taxes to service central banking loans all around the world. I started questioning everything. Was I supposed to buy a home and take a loan, too? Everybody else did. Should I keep working this hard till I die? I have seen colleagues die at work because of heart attacks and cancer. Would I even make it to retirement age to see my forced retirement contributions paid out? What will the retirement age be in 30 years? Life expectancy is on the rise. Why am I forced to participate in a retirement scheme set up by my government which usually generates below market returns? How much money do I need to have to be happy and what is it actually that makes me happy? Why do people make suboptimal financial decisions (including myself), and why do bankers, insurers and their agents ‘fool’ people over and over again with hoax financial products while regularly getting away with it? Wait a second, why the hell wasn’t I taught how to manage my finances and investments at high school? Shouldn’t this be part of the standard curriculum? Are we all made to be modern slaves under the direction of central bankers that control banks, corporations, and governments today? There a times I regret I didn’t live more frugally earlier on as I only learnt to appreciate each dollar earned once I quit my high paying job. I was so used to the conveniently arriving pay check every month, I even forgot what day pay day was. I could have semi-retired five years earlier if I had known what I do today then. For 13 years I was mostly spending, never budgeting, never tracking my expenses, actively saving or investing. I didn’t see the right opportunities also, but I could have done a lot better, had I taken the time to try. I was too busy. Instead of being frugal I did quite the opposite – I threw my money at quick weekend getaways to tropical places, luxurious travel, fast cars, distracting and fun activities, bars, and recovery activities such as massages, various sports, and scuba diving. I justified the high spend to myself as a necessary counterbalance to the fast paced highly stressful corporate life I was leading. We are all comparing our lives with our colleagues, friends, family, and neighbours based on what we see. We often are forgetting however that most of what we see is really owned by banks and the people that claim they purchased it forgot to mention that they now work to service their debt with their master – the bank. No wonder it is taboo to talk about money in the west or at work. Who wants to admit they are a highly flying executive but owe hundreds or even millions of dollar in outstanding loans, right? I, for one, did not want to participate in enriching banks even further especially after what they caused during the global financial crisis in 2008. I felt so disappointed by the banking industry, that I would even refuse the work for them out of principle – no way I was going to optimise their costs and profits during my IT and Management Consulting days. For me integrity, freedom, health, and happiness took priority over material consumerism and serving banks. Fight for your Freedom The last few years of my career I truly focused on finding a way to get out of the rat race and started crunching the numbers for the first time. Before I even heard of the “4% rule”, or the FIRE community (financially independent and retired early), I calculated that if I would invest my savings at an effective 3.5% return I would be fine living a very good life in a developing country or a simple but good one in a developed country – it didn’t matter to me to reduce my living standards as long as I gained freedom – to be honest it did do me well to get down from my high horse when it came to my previous spend. Additionally there would be all the time in the world to focus on building additional revenue streams slowly to bolster the nest egg and give me purpose. I didn’t have the one million dollars saved up most other financial independence bloggers aim for with a 4% return but I also didn’t believe that 4% would be enough to cover my needs wanting to start a family in the near future with my partner. I was aiming for higher returns with less capital and I definitely didn’t want to invest in the stock market at an all time high. It was time to devise another way. I looked for opportunities across several countries on where to invest my cash holdings – Poland would be my best bet, I assessed in 2015. Then, a newly elected nationalistic government prompted a plummeting in Foreign Direct Investments and business confidence for a short period of time and consequently the exchange rate for the Polish Zloty dropped significantly. Since I studied my bachelor’s degree in Poland I knew the market well and when the exchange rate hit a 10 year low I decided to exchange my dollars and invest into the local real estate market in a second-tier city with huge growth potential. Because I factored the exchange rate in I had an almost instant gain of 20% on my exchange savings plus I bought at the end of a seven year stagnating real estate market post the GFC (Global Financial Crisis) which I was counting on commencing to grow again. Now I was ready and risked leaving behind everything I knew, a stellar career, and a big pay cheque to become a real estate investor purchasing a number of high-end apartments with aim to rent them out long-term to an affluent clientele. I admit that I was on the edge not knowing anything about real estate and quitting my corporate safety net. In retro perspective, however, it was one of the best decisions in my life. It was not the first time I threw myself into the deep end having to learn to swim on the fly so I was confident I could pull this one off to. On the other side I threw my life savings into the mix and that was truly new to me. Today my assets appreciated well over 20% in two years (all funny money until it’s sold though) and I’m living off a generous 6.5% return that will very unlikely drop in the future generating some 3,500USD a month after applicable taxes and all maintenance fees for my properties. In comparison the same amount of cash lying around in a well managed savings account generated a mediocre 300USD a month – now you know why I consider the debt oriented banking industry as one of the biggest obstacles to financial freedom. Just like you should steer away from hospitals and doctors if you want to enjoy a healthy life, you should steer away from banks to enjoy a healthy financial life. Once I had set-up my passive income stream from the real estate operation I decided it was time to really focus on my health – I was overweight at the time and battled with psoriasis for over 10 years especially in times of stress. It was high time to change this. I have been loving scuba diving so much that I dreamt for years to become a diving instructor and teach my passion to others living at the sea and being in the water every day. Within a few months of training and working across dive shops in Indonesia I did manage to become an instructor, lose all excess kilograms and my skin recovered fully for the first time since the problems occurred during my past career. Today I’m living a simpler and slower life on a beautiful island in Spain in an employer paid for accommodation and my effective absolute monthly savings equate pretty much the savings generated in my high paying but stressful IT job with the difference that I feel healthy, fit, relaxed, time-rich and do what I love the most: helping, teaching people, and scuba diving. For Freedom and to Live Your Dreams, Your Financial Gladiator Listen To this Blog via our iTunes Podcast: About: This Financial Gladiator retired early at age 34 by investing most of his savings in a small real estate portfolio in Eastern Europe. Today he saves approximately 30% of his income while roaming the world and occasionally teaching as a Scuba Instructor on tropical islands. He recommends Personal Capital – Net Worth Calculator. It helped him gain control over his spending habits. Over time he reduced his spending by over 50%. Disclaimer: All information provided on this site is for informational and entertainment purposes only and does not constitute professional financial advice. The Financial Gladiator is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for this blog to earn fees by linking to Amazon.com and affiliated sites. The recommended books include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing content to you at no charge. The post My Story and How I semi-Retired Early at Age 34 appeared first on Financial Gladiator.