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 Post subject: Mr. Orange's Quest for Financial Stability
PostPosted: Tue Jul 27, 2010 2:48 am 

Joined: Mon Jul 26, 2010 9:50 pm
Posts: 4
Location: Finland
Introduction

I discovered GRS and this forum already some time ago and have been an avid reader since. These have both been great sources of inspiration in my quest for financial stability. I’m 29 years old and live in Finland. I have a university degree and a job in the field of IT. Me and my wife are going to have our first baby in the end of this year and this has motivated me even more to get my finances on steady track.

Current Situation

The present situation with assets and liabilities is not awfully bad but it could be much better. Check out the balance sheet for details.

We have quite a new house (and a house loan to match). Our car is also quite new (we bought it used of course ;)) and should suit our needs for several years to come. There is a loan on the car which has the highest interest rate of all my loans. I also have a couple of student loans which annoy me a bit because I might have been able to scrape by without some of that money.

On the most part, me and my wife keep our finances separate. This seems to work well for us. Therefore this thread is mainly only about my personal finances. The house loan is of course joint debt and we have a joint bank account for normal household expenditure like groceries, cable, insurances etc. I’m also lucky in the sense that Mrs. Orange makes more money than I do J. Her income will decrease a bit at least for a year when the baby is born, but that shouldn’t have a massive impact on our economy.

I assume that majority of board readers are from the US, so I’ll try to explain some of the differences for example in the taxation and loan practices here and there.

Balance Sheet (Jul 2010)

Assets (€ 86 600 in total):
    € 1 600 Emergency fund
    € 85 000 House (my half of it)

Liabilities (€ 90 370,05 in total):
    € 791,68 Student loan #1 (2,75 % variable *)
    € 1 541,34 Student loan #2 (3,25 % variable *)
    € 2 942,76 Student loan #3 (2,75 % variable *)
    € 4 346,47 Car loan (5,79 % variable)
    € 80 770,27 House loan (my half of it) (1,82 % variable *)
    € 0 Credit card

Total Balance: - 3792,52

* Actual interest percentages are lower, because 28 % of student loans and 30 % of the house loan can be deducted from my income tax.

Monthly Income Breakdown (roughly)

Salary before tax: € 3000 /month

The salary isn’t great, but at least there should be a € 300 raise on the way. If this happens it will have a very nice effect on reaching my goals.

I get paid once a month. There’s usually a small bonus once a year and due to some old Finnish conventions July’s paycheck is about 1,5 times the normal one. This converts to about € 39 000 a year (about 50 500 USD). In addition I also do some freelancing on the side, but I don’t want to count it as a regular income since it’s on a very irregular basis.

Taxes and deductions:
  • € 660: Taxes (national and municipal)
    Automatic deduction according to my personal tax%.
  • € 140: Pension Insurance
    The Finnish pension system is state controlled and administrated by a couple of big pension insurance companies. In addition to the 140 € (about 4,5 % of my monthly salary) my employer throws in another 650 € a month (about 22 %). This should guarantee me a pension of about 60 % of my income at the age of 63. This is an automatic tax-like deduction that can’t be changed.
  • € 13: Unemployment Insurance
    Automatic deduction (0,4 %), can’t be changed.
  • € 37: Union fee
    Optional fee that guarantees me for example legal aid and a better unemployment compensation in case my employer decides to sack me.

Salary after tax: € 2150 /month

Expenses
    € 425 House loan
    € 125 Utilities
    € 500 Household misc. (groceries, insurances, petrol etc.)
    € 100 Student loans
    € 150 Car loan
    € 550 Personal (clothes, eating out, hobbies etc.)

To Savings: € 300 /month

Goals

I’ve managed to come up with quite a detailed spreadsheet that calculates my balances and estimates my personal financial development. Currently I have it filled out as far as Dec 2013.

  • 1. Save € 6000 to the Emergency fund (EF)
    This should be enough to make a decent EF. Since both of us are working it would be quite unlikely for us to be unemployed at the same time. Also our unemployment benefits would make up to 60 % of our current income almost for 2 years. This would be plenty of time to look for a new job. I’m also pretty well covered for health related issues by employers insurance and the free national healthcare system. By my calculations I should have € 6000 in the EF by Oct 2011.
  • 2. Get rid of car and student loans
    Total amount of € 9599,78 should be burned by Oct 2012. I’ll probably use the debt snowball method.
  • 3. Save € 5000 to a money market fund and € 3000 to long-term investments
    After I’m done with the loans I want to put part of the money towards a money market fund and also some towards my long-term investments. The money market fund is for bigger purchases, traveling, investments, house loan pre-payments and so on. The long-term investments are basically stock index funds and fixed income funds that I don’t plan to sell any time soon. By my calculations I should have € 5000 in the money market fund and € 3000 in the long-term investments by Dec 2013.


Thanks to all of you who have read this far! I welcome all your comments and input. I plan to update my journal at least at the end of every month. English really isn’t my strongest language, so please comment if I've mixed up some things or otherwise expressed myself unclearly.

- Mr. Orange

EDIT: Fixed the amount of the car loan, it was a couple euros off.


Last edited by Mr. Orange on Tue Aug 31, 2010 3:51 am, edited 3 times in total.

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 Post subject: Re: Mr. Orange's Quest for Financial Stability
PostPosted: Sat Aug 21, 2010 7:00 pm 

Joined: Tue Mar 24, 2009 6:12 pm
Posts: 27
Location: Seattle, WA
Mr. Orange,

You seem to have come to this board pretty well prepared!

This is the only thing that kinda bothers me...

Quote:
€ 550 Personal (clothes, eating out, hobbies etc.)

That seems like a lot. Is that a lot? For me it would be around $24 a day, every day, spent on non-essentials.

Yeah, that's a lot.

Not saying you don't deserve nice clothes, nice shoes, dinner out when you want, a few beers with your friends and whatever it is that you do to relax (hobbies) but if I was spending $160 a week on 'stuff' and 'fun' I would...notice it.

Otherwise, you and your wife have clearly decided to go the "seperate but equal" financial route. That's great, but of course it makes paying down your "half" of the mortgage impossible, so my usual advice of hammering away at your mortgage is a non-starter.

Curious, have you talked to your wife about her establishing her own "emergency fund?" Otherwise, your savings may become her savings if things turn for the worse.

I imagine your Student loans are probably pretty irritating, but you certainly already know that they're relatively trivial, and considering that the interest is tax deductable, you know the order that you should attack your debt, yes? It goes: Zero out Car Loan, Zero out Student loan #2, Zero Out Student loan #1 and then kill off Student Loan #3. Only pay the minimums on whatever you're not targetting. Simplicity itself. If you save € 300 /month (I think you can do better), it'll take a few years, so be patient and remember where you started.

Finland sounds like a wonderful place. Quite the safety net.

Good luck!

H~


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 Post subject: Re: Mr. Orange's Quest for Financial Stability
PostPosted: Tue Aug 31, 2010 3:45 am 

Joined: Mon Jul 26, 2010 9:50 pm
Posts: 4
Location: Finland
Thank you for your very sharp-eyed comments hendrake!

When you put it that way, my monthly personal costs seem quite high. I should certainly be able to save some of that money. Partly this is due to poor budgeting of the household costs, and I (or we) end up paying some “unexpected” household stuff in addition to the 500 €/person/month that was budgeted. I need make a thorough analysis of our household spending history and tweak the budget to be more realistic. The household costs also start to sound pretty high, so we’ll need to see what can be done.

It’s true that paying down my half of the mortgage is quite impossible with our arrangements. This is why I’ve been planning not to hurry getting rid of it and invest the money instead. For example investing in some small real estate would be quite attractive because it would allow us to deduct more taxes from our mortgage rate. But we’ll see. Oh and I forgot to mention it, but Mrs. Orange has her own EF.

The order of attacking my debt is exactly the one you described. It’s also possible to zero out the small student loan #1 right after the car loan to get some instant gratification from it...

Here’s also the balance sheet from August:

Balance Sheet (Aug 2010)

Assets (€ 86 600 in total):
    € 1 600 Emergency fund
    € 85 000 House (my half of it)

Liabilities (€ 89 862,99 in total):
    € 757,25 Student loan #1
    € 1 525,11 Student loan #2
    € 2 901,31 Student loan #3
    € 4 203,89 Car loan
    € 80 475,43 House loan (my half of it)
    € 0 Credit card

Total Balance: - 3262,99 (+ 529,53)

The progress was slow but steady in August. The biggest negative was the fact that EF didn’t grow. This was mainly due to a mini-holiday and buying some baby stuff. The very good news is that I got the raise I was anticipating (only € 250 though) and this should accumulate to my savings in the long run.

- Mr. Orange


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 Post subject: Re: Mr. Orange's Quest for Financial Stability
PostPosted: Wed Sep 29, 2010 11:57 pm 

Joined: Mon Jul 26, 2010 9:50 pm
Posts: 4
Location: Finland
A quick update from September:

Balance Sheet (Sep 2010)

Assets (€ 87 000 in total):
    € 2 000 Emergency fund (33 %)
    € 85 000 House (my half of it)

Liabilities (€ 89 334,41 in total):
    € 722,82 Student loan #1
    € 1 508,88 Student loan #2
    € 2 859,86 Student loan #3
    € 4 062,71 Car loan
    € 80 180,14 House loan (my half of it)
    € 0 Credit card

Total Balance: - 2 334,41 (+ 928,58)

Again slow but steady progress. Managed to squeeze some money to the EF despite of expenses I didn't anticipate. Expense forecast for October doesn't look promising either (have to pay some extra income taxes), but I hope to come out strong.

- Mr. Orange

Edit: Total balance was miscalculated.


Last edited by Mr. Orange on Tue Nov 02, 2010 7:55 am, edited 1 time in total.

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 Post subject: Re: Mr. Orange's Quest for Financial Stability
PostPosted: Tue Nov 02, 2010 7:53 am 

Joined: Mon Jul 26, 2010 9:50 pm
Posts: 4
Location: Finland
Just a quick update from October:

Balance Sheet (Oct 2010)

Assets (€ 87 000 in total):
    € 2 000 Emergency fund (33 %)
    € 85 000 House (my half of it)

Liabilities (€ 88 813,44 in total):
    € 688,39 Student loan #1
    € 1 492,65 Student loan #2
    € 2 818,41 Student loan #3
    € 3 921,62 Car loan
    € 79 892,37 House loan (my half of it)
    € 0 Credit card

Total Balance: - 1 813,44 (+ 520,97)

Nothing much to comment. Lots of money spent in October. Luckily I managed not to touch the EF. Was strangely excited to witness house loan go below 80k, car loan below 4k and student loans combined below 5k ;)
- Mr. Orange


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