conversation: User (passaddhi): "Hi all,\n\nI am a recent graduate of 26 and I got my first job since last Summer. I want to combine saving and investing so I have a safe retirement and can invest money into myself and perhaps start my own software company in the future. My ideal is to become financially indepent before I am 40. I have no significant other at the moment, but do hope that I will find someone to live with in the future.\n\nRegarding the financial goals I have made a plan to start with which I will present below. I hope people can give input on the plan, share general insights they have when they read this text (thank you!), and offer me advice. \n\n**Work:**\n\nMy work is in the field of IT which I love. I did not study computer science (I have a degree in physics) and I have a starter salary now, but I learn a lot in a challenging environment and if I keep on investing my time and become more skilful I am sure I will earn more every year.\n\n**Situation right now:**\n\n * **Monthly income** (avg) after taxes/mandatory retirement fund: EUR 1800\n * **Living expenses**: EUR 1250, consisting of:\n - rent: EUR 450 \n - shopping/food: EUR 300 \n - clothes: EUR 100 \n - personal care: EUR 50 \n - parties/relationships: EUR 150\n - personal growth: EUR 50\n - other taxes: EUR 50\n - phone: EUR 30\n - sports: EUR 20\n\n**Debts**:\n\n * Student loans: EUR 30000*\n * Loan from parents: EUR 3000 \n\n*I can take 15 years maximum to pay it back and the interest rate is 0,81%. I have not started yet with paying back.\n\nI read [*The Richest Man In Babylon*](http://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_%28book%29) and that book inspired me to save and invest 1/10th of what I earn (200 EUR now), put 1/10th towards debts (200 EUR), and live on 7/10th (1200 EUR). The remaining EUR 200 goes towards vacations, a possible car, a driving license, a house (?), that type of stuff. If I earn more I will keep this ratio and increase the amounts.\n\nI started doing this (more or less) since the beginning of this year and I have now saved 1000 EUR, I have 1000 EUR which I will put towards a driving license, paid back part from my debt towards my parents, and saved 500 for a vacation this Summer.\n\n**1) What I want to do with the 1/10th for investing:**\n\nPlace the 1000 EUR in the stock market, and keep on investing 200 EUR every month there. I want to keep doing this till I am 66 years old so that I have about 1.000.000 then in the optimistic case of having an average of 10% annual return rate. This is money I cannot touch till later. Once the 1/10th becomes more I can make more shorter term goals then retirement for investing, but the 200 EUR is "gone".\n\nSpecifically:\n\nMy plan right now is to invest in ETFs/index funds. The 1000 EUR will be spend on an Information Technolology Index Tracker (e.g., [iShares Global Tech ETF](http://etfdb.com/etf/RYT/#overview)) and a Global Sustainability Fund (e.g., [Global Sustainability Index](http://www.northernfunds.com/pws/jsp/display2.jsp?XML=primary/fundinfo/NSRIX.xml&amp;TYPE=detail&amp;fundtype=eq)). I chose these two because I want to spread the investment, index trackers are cheap and do not cost a lot of time, and I feel good about the fields (IT and Sustainability).\n\nSo I will start with 1000 EUR investment, and then every month or two I get 400 EUR worth of more trackers (other ones as well). I read that I should probably also get some bonds, but I do not know which.\n\n**2) What I want to do with the 1/10th for short-term savings:**\n\n - Get a driving license (around EUR 1500)\n - Buy a car (EUR 2000?)\n - Buy a house once I have better income and can get a mortgage\n\nBesides this I want to keep some money apart to start working as a freelance programmer or perhaps start my own software company or work at a startup in the future. This share can become more if I earn more.\n\n**3) Regarding the debt:**\n\nI want to pay back my parents in 100 EUR a month so that I paid them back fully in 3 years. The student loans will take up 150 EUR a month for 15 years which I will have to start paying from the next Summer onwards.\n\nThis is my main plan for the coming 40 years. In short: 200 EUR a month investment in trackers for retirement, if 1/10th of incomes becomes more then 200 EUR I can invest for other goals as well; 1/10th a month for expenses like a car, a house, a vacation; 7/10th for living expenses, I can live a bit richer lifestyle if I earn more; and 1/10th to put against debts.\n\nThank you for reading, I hope you are willing to offer advice on or share your ideas about my financial situation/plan I laid out above.\n\n"
  Self: "Hello fellow Dutch person... \n\nAs you may know, there are three "pillars" of retirement investing in the Netherlands. \n\n1. The AOW, the general "benefits" that every person in the Netherlands get when they're old. Currently this is roughly 700 euros per month for a single person. By the time you and I retire, I would count on a bit less, perhaps 400 euros per month or so? So not enough to live on, but of course it's also not something to ignore completely in your plans.\n\n2. Pension plans / retirement plans at work. A lot of workplaces offer a retirement plan. It is often obligatory (meaning that the money just gets taken from your pretax income and there's nothing you can do about it).\n\n3. Money you save by yourself. \n\n\nAs for point 2, your retirement investments: what does your current work do for you? Does some of your pretax income get invested in a pension fund for you? Or do you participate in a retirement plan through work? If you are signed up for some plan, you should have gotten some paperwork about that when you started working. And they are also obliged to send you an update, "universeel pensioen overzicht" or UPO, every year, most often in May or June. \n\nIf no or little money is invested through work, you should know that you probably have "jaarruimte": an amount of money that you can set aside for retirement and for which you can claim a tax return. You would invest pretax money instead of posttax money. The belastingdienst (our IRS) has a [calculator](http://www.belastingdienst.nl/rekenhulpen/lijfrentepremie/) to calculate how much jaarruimte you have. It depends on last year's income and last year's pension investments. Unfortunately, it hasn't been updated yet for this year, you can't calculate yet how much you can invest in 2014 based on income and retirement investments in 2013. You could run it as if it's 2013 currently, but it is likely that the amounts will go down a bit in 2014, so don't actually invest the whole amount just yet. \n\nOnce you've found out whether you have "jaarruimte", you can choose to put money aside in specific retirement accounts (that is an obligation when you want to use jaarruimte). You can buy an insurance (lijfrente), you can open a specific savings account (pensioensparen) and/or you can invest (pensioenbeleggen). You can do this with your own bank, with an insurer, or with investment companies. \n\nAdvantages of using the jaarruimte: \n\n1. Pay less income tax now. If you currently pay 52% taxes but will only pay 30% taxes when retired, you are really saving some serious money. \n\n2. Pay no "vermogensbelasting" on the money now. If you own more than roughly 20k euros, you pay 1.2% of taxes on the amount that you have over 20k. But if the money is in specific retirement savings, it is protected from this tax. \n\n3. The money is locked up. This can be a good thing. You can't touch it... \n\nDisadvantages of using the jaarruimte: \n\n1. The money is locked up. You can't touch it. I'm not even sure if there is *any* way to touch it at all. Maybe with some heavy fees and taxes... But you should consider it locked up until you are of retirement age. \n\n2. When the money can be touched, you can't take all of the money out. Currently, you need to create a plan of at least 5 annual payments. That is the minimum. Who knows what this will be like when you retire.\n\n3. The rules are made by our government. You probably won't be able to take the money out before age 67. But maybe by the time you are 67 this age has been changed to 70. Maybe they will tax you more by then. So basically, you will be more or less at their mercy... \n\nYou can choose to not use the jaarruimte and just invest/save money privately. Then the advantages and disadvantages mentioned above are reversed. You are free to touch the money then (which can be a good thing but also a bad thing), but you will pay more taxes now and every year that you have more than 20k euros in savings... \n\n... I would say I gave you enough to chew on for now. Last tip I would have is that you can find lots of information in public libraries. Lots of books about saving, investing, retirement investing, etc. \n\nPS [This book](http://spaarolifantje.wordpress.com/2014/03/12/goed-boek-om-je-pensioenen-op-een-rijtje-te-zetten/) could be a start. "
  ThoughtPrisoner (ThoughtPrisoner): "Thank you, great info and well explained. I do have some small comments:\n\n&gt; Advantages of using the jaarruimte:\n&gt; Pay less income tax now. If you currently pay 52% taxes but will only pay 30% taxes when retired, you are really saving some serious money.\n\nIn general this is an advantage, but note that he is probably currently still in the lowest tax bracket because of having a low income.\n\n&gt; Pay no "vermogensbelasting" on the money now. If you own more than roughly 20k euros, you pay 1.2% of taxes on the amount that you have over 20k. But if the money is in specific retirement savings, it is protected from this tax.\n\nOne other very important point is that if you are renting socially and you or any person you live with has more than 20k you will not get government rent subsidy anymore, so you're paying 100~200EU a month more on rent. Assuming you had a return of 4% on investment (after 1,2% taxes and 2,5% inflation) you would need 30k to generate 100EU a month. So if you rent socially you could try to delay reaching 20k by putting more into retirement savings (which has no effects on subsidies), and you should not cross the boundary unless you are saving at least more than 200EU a month."
  Self: "Given the 1800 euro posttax income per month, he's not in the 52% bracket indeed, but he is solidly in the 42% bracket. This may well be lower after retirement. I guess my example wasn't well-chosen."
  