Financial Statement – May, June and July

I have been very busy (and a bit lazy) but here is an update on my financial performance over the last three months.

Euros April July Gain
Mine 50,080 41,400 -8,680
M 40,520 24,200 -16,320
M Pension 30,000 31,000 1,000
My Pension 30,490 34,840 4,350
House guarantee 4,000 4,000 0
House paid 55,000 100,000 45,000
Total 210,090 235,440 25,350
Cash 90,600 65,600
Money to be spent in the apartment 44,585
Cash – debt 46,015

I am very happy to say that I have finally paid off my first real estate investment. The apartment is finally built and it is currently being furnished by the company who will manage it afterwards. We will start with short-term rental because currently it is more profitable. Porto is on the top European cities for tourism so my estimation is to have an average of 7% net profit per year. I am so excited to have my first passive income generator 🙂 And praying for the company to hurry up and start in August advertising the house on the online platforms (there are still a few things they have to do before: furniture, pictures, etc.).

Meanwhile, we have to decide what do with the 65k cash that we have. Any suggestions?

A hungry man is not a free man

Most of the people spend all their life driven by others’ expectations or by extrinsic motivation, as Dan Pink very accurately described in his book Drive: The surprising truth about that motivated us. It basically means we spend our lives looking for approval in the society mostly through money and/or recognition at work. However, this only gives us a temporary boost of motivation/satisfaction/happiness. The permanent happiness is found in the intrinsic motivation which, according to Dan Pink, relies on three principles: Autonomy, Purpose and Mastery.

My personal journey to financial freedom is actually part of a bigger journey to autonomy, to finding purpose and to having time to master all the issues I have always been interested in. However, I have to admit that the short-term focus is extrinsic, that currently I am focused on making money, not for the purpose of consumption, which is used by mostly for people as a way to fell that they belong to a certain social status, but for the purpose of saving, of being free from every-day bills. As Adlai Stevenson very wisely said A hungry man is not a free man. Therefore, only when free from obligation we can be free to enjoy life at its fullest.

Financial Statement – April

To all those people who think having a kid is very expensive.. it is just not true (in Europe)! Yes, there are a few things which are expensive and you need to spend money on (stroller, crib, baby monitor, etc) but apart from that there are so many cheap and cute options for baby clothes! I also use cloth diapers so basically I have spend 250 Euros initially and that is it! Also, the truth is you end up going out much less, which means less money spent on dinners/cinema/etc + gifts from family and friends + not falling into the trap of thinking you need to buy everything baby related = savings

Euros March April Gain
Mine 47,080 50,080 3,000
M 36,770 40,520 3,750
M Pension 30,000 30,000 0
My Pension 29,050 30,490 1,440
House guarantee 4,000 4,000 0
House paid 55,000 55,000 0
Total 201,900 210,090 8,190
Cash 83,850 90,600 6,750
Money to be spent in the apartment 44,585 44,585 0
Cash – debt 39,265 46,015 6,750

We have saved almost 65% of our salaries which is actually the number I always had in mind when I started this journey. I am pretty happy about that 🙂

Financial Statement – February and March

Those last months have been crazy! My son was born on the 6 of March and I couldn’t be more happy (and tired!). There was really no time for anything, I could now even separate what I saved in February and March. So, here is the financial statement of both months together:

Our savings in March (including February):

Euros January March Gain
Mine 40,750 47,080 6,330
M 30,770 36,770 6,000
M Pension 30,000 30,000 0
My Pension 26,170 29,050 2,880
House guarantee 4,000 4,000 0
House paid 55,000 55,000 0
Total 186,690 201,900 15,210
Cash 71,520 83,850 12,330
Money to be spent in the apartment 44,585 44,585 0
Cash – debt 26,935 39,265 12,330

Financial Statement – January

Our savings in January:

Euros December January Gain
Mine 38,800 40,750 1,950
M 28,200 30,770 2,570
M Pension 30,000 30,000 0
My Pension 24,750 26,170 1,420
House guarantee 4,000 4,000 0
House paid 55,000 55,000 0
Total 180,750 186,690 5,940
Cash 67,000 71,520 4,520
Money to be spent in the apartment 44,585 44,585 0
Cash – debt 22,415 26,935 4,520

This month we have spent more than usual, in particular taking into account that both our salaries have increased. We have actually saved a bit less than 50% of our salaries, without considering our pensions, which should not have happened.

However, I can partially explain the reasons: we bought some furniture we were still missing for our recent apartment and also some things we needed for the baby (will be born in 4 weeks!), including cloth diapers which will hopefully allow us to save money in the future. So, hopefully, next month we will be able to compensate and have a higher savings rate!

Our portfolio:

  • 1 apartment, which is still not 100% ready, so only from July onwards we will be able to rent it and start cashing-in
  • 31k in cash (excluding the money we will still spend in the apartment: paying the construction company + legal costs + furniture and including the house guarantee in our current apartment)
  • 56k in pension funds

Your house is not an asset

It is crucial to end up with this non-sense idea that your house (primary residence) is an asset, probably the only one you will ever own and therefore all your savings shall go into that one asset. Work, ask for a mortgage, pay your house and then retire.

 

 

If a house is taking money out of your pocket (insurance, taxes, miscellaneous, etc.) then it is not an asset. Not only you are actually spending money but also you have to consider the opportunity costs of having our money invested into that house, which you wrongly perceive as an investment, whereas you could have invested the same amount of money in another house or investment that could actually yield at least 5%. In a hypothetical example of a 100k house with an average of 2000 per year on expenses, you are actually spending, per year, 7000 = 2000 + 5 000 (5% of 100k). You have to consider the money you actually spend plus the opportunity cost of not using the 100k in another more profitable investment. Here I have assumed that the other profitable investment would yield an average annual return of 5%, which is very conservative if we consider real estate investment.

In addition, there are also two (hidden) costs which I consider very relevant when you buy the house you live in:

1 – You loose flexibility. Either you assume it or not, it is more difficult to move into another city or country if you know you bought the house you are “supposed” to be living in, not only because you are emotionally attached to it and you probably end up more expensive things for your house, in particular furniture, but also because it is really not that simple to rent a house, get a property manager, etc. from one day to another.

2 – You end up of not making the most rational decisions when you invest in a house with the purpose of living in it. You take into account variables that are important to you and not to the market, like being near your family. Or you are willing to accept living in a area which is not as recognized by the market, like the fact that it is near a highway or a factory, because you prefer to pay a bit less. However, those decisions can make this house a very difficult one to sell or rent to a third party and therefore would not yield any cash flow, in case you decide to rent/sell. In sum, it is a very bad investment.

According to Frank Gallinelli there are 2 rules of real estate investing that we should follow: do not hold any sentimental attachment to any of the properties you invest in and if you think it will be difficult to sell/rent, then it is not worth buying.

 

Another sentence I loved in his book What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures which highly reflects my approach on real estate investing is the following:

You are not buying a properly, you are exchanging a fixed price for an income stream.

I create my own luck

Most of the people like to believe that external factors such as luck or being in the right place at the right time play a major role in other’s people successes. I believe those people, in general, are just lazy and it is just easier for them to continue being lazy and believing there is nothing you can do to improve your life than actually making efforts and having a plan.

You live next to your family and enjoy a perfect work-life balance. If I had that, I would also have kids right away. Have you ever thought that maybe the person though a lot before having kids and actually shaped his/her career based on where the grandparents live? That this decision actually required effort and it was not just a matter of luck but most likely the result of a well-thought plan?

You are so lucky, you have a high salary. If I had that salary I would also save more than 50% of my salary. This one actually applies to me. I have worked hard to be successful in the tests and interviews that have put me in this high paying salary. Not only I was rejected many times before and after going to interviews, but also I have spent weeks preparing for every interview, studying more than for an exam. Also, I have carefully planned, together with my husband, the places to live that could be more beneficial both in terms of salary, costs of living, safety, etc. and we have both focused our search in those countries. Plan + hard work + focus = success. Also, not many people would be willing to sell their car, like I did, to think thoroughly before spending your money, and rather focus on generating passive income consistently.

I believe some people just choose to be negative and unlucky. I strongly suggest reading this article from Richard Wiseman where he performed an experiment in two groups of people – lucky and unlucky – and where he shows that “lucky” people are not only more efficient in embracing new opportunities but also they pay more attention to the details that may help them thrive. Therefore, what is generally so-called luck is the result of personality factors, such as optimism, openness to new situations and less anxiety combined with the ability to notice and trust the unexpected. It is not an external factor that cannot be controlled by us.

All of us are lucky to some extent, we just need to work hard, take some risks and embrace the opportunities that come across our paths. Try to learn from the experiences of the lucky people that you meet instead of just assuming that they did nothing to achieve success. I am pretty sure that if you start changing your mindset and your behaviour you will also get lucky in the near future!