Philipp: Welcome to another episode of, In Your Best Interest, your personal finance podcast. I’m your host Philipp Muedder, and today we will be chatting about FIRE, short for Financial Independence, Retire Early. Most people have the aim of retiring from their day jobs at some point in their lives.
For many, that means retiring at the age of 65 or 67, depending on the country they live in and the regulations that are in place on when they can draw retirement funds. However, there's a section of the population that aims to retire much earlier than that, by achieving FIRE, which came about in the early 90s.
For that, I have the honour to have a guest on the show today that has achieved financial independence early and uses his free time now to travel around the world; his name is Abel van Staveren. After a successful corporate career and achieving FIRE in his 40s, Abel now has a location independent portfolio career. Comprising of teaching, coaching, and holding a number of non-executive board positions, as well as running a private equity fund of funds.
Abel holds an executive MBA from INSEAD; he qualified as a chartered accountant in London after finishing his undergraduate business studies at Nyenrode University in the Netherlands. [02:00] In his corporate career, Abel held CFO and CEO positions in the shipping industry. With postings in London, Singapore, Norway, and Switzerland. The freedom that FIRE and a portfolio career affords allows Abel and his wife to travel full-time.
He divides the year into three or four blocks, spending each block in a different country. In 2020, he spent the first quarter in Stellenbosch, South Africa, the second quarter in Singapore, the third quarter sailing their boat back from Scotland to the Netherlands, and now he's spending time in the Algarve, Portugal. Abel, welcome to the podcast.
Abel: Thank you, Philipp; great to be on.
Philipp: So, you made it to Portugal already then?
Abel: Yes, definitely. We packed up the boat for winter in the Netherlands and then just started driving south. So, we arrived here last week, and we'll probably stay here the rest of the year.
Philipp: So many questions I have about your travels as well. But I think before we get into more on the personal side, I think it would be wonderful for the audience to get very much like maybe some history and some definition of what FIRE is.
It's an acronym that's been thrown around quite a bit, and it has been gaining a lot of steam over the last 10-15 years. What do you say to people when you explain to them what FIRE means?
Abel: Yes. As you correctly said, it's a term that's been around, not that long, but definitely in the last 10-15 years. It's an acronym; it stands for financial independence, retire early. And well, I kind of like the FI part, the financial independence part. Because the word retirement kind of has different meanings for different people, and always yes, I think has a lot of confusion to it.
So, for me, I define [04:00] retirement also as no longer having to work for money. And I make that distinction because when people think of retirement, they sometimes think, oh, okay, that's just gardening and playing golf.
Well, I think, especially if you achieve FIRE early, you will continue working. Not necessarily for money, I do a lot of volunteer work, for instance, but that's also work; you just don't get paid for it. So, I like the FI part, the financial independence.
Philipp: Yes. And that's a very good definition; I totally agree with you. Because I think especially when people suggest they want to achieve FIRE, that means usually they want to achieve that in their 40s or early 50s. So, there's a long period of time still left to live, right? And if you work hard in your 20s, 30s, 40s, do you completely want to stop working?
It's probably not on everyone's mind either, right? So, they do want to do certain things like volunteer work or other things. So how do you suggest people think about FIRE and like in terms of like there are different levels to FIRE, right? So, you start out, when you're in school, your parents still help pay for some stuff, right? What was your kind of progress that you've made towards FIRE?
Abel: Well, for us, for my wife and I, it's actually a very personal story. Because let's not forget, FIRE is a means to an end; it's not an end in itself. Financial independence allows you to live the life you want to live because you no longer have to spend time earning money. And for us, it was a very personal story.
[06:00] Because my wife lost her dad at quite an early age, he was a doctor, and he passed away aged 58, which is, of course, way too young. And he had a lot of plans for his retirement, also like us a keen sailor. And he had all these dreams about what he wanted to do when he finally stopped working, but of course, he never got the chance. And we said then and there; this is not going to happen to us.
And we were still in our early 30s then when that happened. But we had no idea how to start about doing that. And then we came across this book quite famous; I think probably you and your listeners might have heard of it; it's called the Four-Hour Workweek by Tim Ferriss.
Philipp: That's interesting. That's one of the first books I read about the topic as well.
Abel: Yes. And he introduced the term of mini-retirements; he didn't actually mention FIRE outright. But he said, why wait until the end of your life to retire? Because then you might not have the energy to do the things you want to do. You sometimes say when you're young, you have energy and time but no money, and then in middle age, you have energy and money but no time.
And then when you retire, you have time, money, but no energy. So that's kind of a sad state of affairs. So, we thought, oh, mini retirements, that's what we're going to do. So that's how we started. We thought, let's work for a while, and then take a sabbatical and kind of take a retirement in between.
So then that's how we started saving, we started saving for these sabbaticals. [08:00] But then we came across the FIRE movement, and then we said, oh, hang on a minute, we can take this to the next level, increase our savings rate. And then maybe be in a position that we no longer have to work for money at all, ever again. So that's how we started, really.
Philipp: Yes, interesting story. And I think that's a very profound one; I think a lot of people can relate to this because especially the part about someone passing away early in life, right? Having all these dreams and goals for retirement.
And this is how everyone kind of grows up, right? You go to school; your parents tell you hey, you need to go study, then you work for the rest of your life. And like I said, at 60, 65, 67, when the retirement from the government kicks in, that's when you retire, and then you don't do anything anymore. But now you're 67, right? And you said quite frankly rightly, the energy is stepped out of you as well, right? So how much can you do then at that point in time?
Abel: Yes. I’m not sure I’d be fit enough to do offshore sailing like we're doing at the moment. And I think, sometimes we get calmed into this false sense of security by these adverts for retirement plans and stuff like that. Because they all show these extremely fit 70-year-olds doing all this active stuff.
But let's be honest with each other, there is a high chance that we won't achieve that level of health and fitness in our 70s and 80’s. That's just statistics. The best predictor of how your life will look in your 70 and 80’s is to look at your parents because you are genetically similar. So, if they're lucky enough to be in good health, well, that's a good indication. But yes, that's kind of how I look at things.
Philipp: No, absolutely. And I think that all of those [10:00] things are super interesting, and they're all the one's reasons why I’m doing, trying to achieve what you have already done as well. And I know a lot of listeners are interested as well.
So, you already said that you and your wife decided that there and then when her dad passed away, to get more aggressive about savings. You learned about the Four-Hour Workweek; you said you kind of started with these mini sabbaticals almost in terms of savings.
And then you came across FIRE movement, and you started saving more. What were like your savings rates? Or like how did you and your wife decide, we still want to live in the now, right? And spend some money. But also saving aggressively at the same time. What was kind of like that whole period between deciding I want to achieve FIRE and then actually getting to FIRE?
Abel: Yes, great question. Well, I think we've always been frugal. We've always saved quite a lot, and what helps is to know what you're saving for, to have a goal for your saving. And when we were very young, we both moved to London, where we trained and qualified as chartered accountants.
So, kind of we were in this financial sector, and this working and this studying that was quite hard. So, I needed a kind of carrot for myself. To make it through these studies. And so, and I saw this English car, it's a sports car called a Morgan. And I thought, wow if I could ever have one of those, that would be great.
And I set myself the goal that once I qualify as a chartered accountant; I will buy one of those cars. And so that was a great [12:00] savings target, and these studies take four years. And so, after four years, I think the week after I qualified as a chartered accountant, we went to the dealer and bought a second-hand, Morgan. And it wiped out our savings completely, everything we had. But it was a fantastic feeling, having saved and worked so hard and then being able to have this car.
And it was not about having the car; it was about then being able to have amazing touring experience throughout Europe with this car. So that really got us into saving, knowing that you should always have like a goal or a payoff for the saving. And then we took it to the Nth degree; we were both working, we both had our careers.
And then we said, well, let's not let lifestyle creep increase our spending. When you're a trainee-chartered accountant, your salary is very low. And then especially in London, which is an expensive place, it doesn't get you very far. But as soon as you qualify, your salary practically doubles overnight. So, they keep the trainee salaries low, and that's also a bit of a carrot to get you to qualify.
But we tried to keep our lifestyle the same, and then all of a sudden, you have a huge saving rate. So, then a number of years later, we would do our budgets, that's a very important thing. We can maybe talk about that later. And then effectively, we went so aggressive that we based our lifestyle on one of our salaries [14:00] and just completely saved the other one.
Philipp: Yes, that's impressive for sure and needed if you want to achieve FIRE in the future. The biggest lifestyle creep is something that I preach in all our financial planning seminars we give all the time. Because like I always show them a chart of what it takes to get to a million dollars in the future, right?
If you start early, it only takes you like, if at age 25 it's about four, five hundred dollars, right? If you wait ten years, it's a thousand dollars, and people always say, hey, but when I get to 35, I can save more, it's no problem then to start saving only. But building that habit early on is so important, right?
Abel: Yes. And there's a bit of psychology in it; you have to trick yourself. So, the way we tricked ourselves was that the salary came in on the same day every month, like on the 25th of the month. And then, we would have an automatic transfer from our account to our savings account for a certain amount every month. So, it went in and out, and you didn't see it. So that was a way to trick yourself into regular savings.
Philipp: Yes. And if it's out of sight, out of mind, right? So, it kind of just starts accumulating.
Abel: Yes. And that's a way to trick yourself into avoiding this lifestyle creep on the hedonistic treadmill, as they say.
Philipp: Yes, absolutely. You mentioned budget, and I do want to get to budgeting as well. Because when you look at the FIRE formula and people, there's earning, saving, investing. You want to try to maximize your savings rate, as you mentioned, living off one income when you had two.
Are you more proponent to then decrease expenses, track everything in a lot of detail? Or are you more of a said hey, [16:00] like how can I increase income or maybe even increase passive income through different jobs or things like that?
Abel: Yes. Well, all of these things are important. But what I see around me is people seem to focus on the income side when the expense side is at least just as important. So, saving early, the great thing about that saving and investing is that you create a passive income early as well.
And then you get the benefits of all this compounding and all of a sudden you don't have two incomes, but you have three, and then it really starts accelerating. So that is yes, I would advise that. But looking at expenses is equally important, and it's terribly boring. But I think it's very important to know what you are spending. So, we do budgets, and we do quarterly closing, so it's not that we spend every day on this; we don't.
On our accounts and everything, we spend maybe two days a quarter. And we see that as work, and we do our quarterly closings. Nowadays, it's quite simple, because all your bank accounts are online. So, you can download the transactions, put it in the spreadsheet, and quite quickly allocate it to different categories.
So, you don't have to be an accountant or have accounting knowledge to do this. And there are a lot of apps available to help you with this if you want. But the nice thing is most of your bank statements are all digital already.
Philipp: Yes. Especially with COVID, you almost spend nothing anymore in cash, right? So, it's pretty much all on cards now.
Abel: Yes, well, that's a good point. So, avoid spending cash because then it's hard to track. Just use your card for everything, and especially now with [18:00] tapping on everything, you just pay that way, and then you have a record of what you're spending it on. And then you can allocate, and then you know what you're spending. And then you can say I went out to dinner a lot this month or not.
We tended to have the opposite problem; we were not spending enough. We would have a budget, for instance, for holiday. And then work got in the way, and we were not taking our holidays. And then you think, oh, that's great from a savings point of view. But as you said, you also have to live, right? You can't be a monk. So, what we did is normally in a company, in business, if you don't use your budget, you lose it.
But we can make our own rules. So, what we would do if we had holiday budget left over at the end of the year, we would roll that over in the next year, and then we can go somewhere really nice. So that also works. But yes, having a budget, tracking your expenses, it's boring but very important.
Philipp: Yes, very important. And I think you get all these insights from it as well, right? So, I used to do a budget like more diligently. Again, I’m from a financial planning background, so that was my first job out of college. So obviously, it's more my inclination. And I know it's hard for a lot of people who are not so interested in it, right? Because it is like you said, it's tedious to do, right?
But I think even doing it for 12 months, very detailed, gives you such an incredible amount of inside information to your personal finance DNA almost. That you can make changes because without tracking them, in your mind, you might know you're spending too much on a certain category, right? But unless you write it down, actually track it, it becomes then more real. And then you can then make those changes, right?
Abel: Exactly. You can only manage what you measure, as they say. And so, this is so right, [20:00] and what we saw, for instance, is that if you're very busy, you tend to take out a lot and things like that, and it kind of creeps in. You're getting no happiness or pleasure from this; it's just laziness that you then eat out. And then we saw that in our statements, and we thought hang on a minute, let's pull the brake on this and go back to just buying food and cooking it at home.
Philipp: Yes. Well, so you both started working as accountants in London. You started saving; you started tracking. Your budget, you lived on one income. Where I want to get to next is actually what came after that, right?
Like when did you say, hey, I can quit my day job, and I want to just do teaching, or I want to do board positions? Because there were probably quite a few years in between when you said, hey, now we can really get off the gas pedal, right? And slow it down a little bit.
Abel: Yes, well, exactly. You have some reserves; you have some savings, and that means that you can take some risks. And in that sense, my wife and I are very stereotypical accountants, in that we are extremely risk-averse. That's in our investments as well. So, for us to make those kinds of changes, we needed to feel kind of financially secure to take that plunge. But yes, all in all, we've been in corporate life for 20 years by then from like yes, well, probably about 15 when we started experimenting with this portfolio career. And well, the way we did it, [22:00] we did it in a very risk-reverse way; you try and take on what we call side hustles next to your full-time job. And try them out as like mini experiments.
And nowadays, I think you might have heard of the concept of design thinking as a new strategic approach. Well, effectively, before we actually heard of the term design thinking, that's what we were doing. We were crafting experiments to see what we enjoyed, what worked and went from there.
And then we took on some side hustles next to our day job; we were still doing our day job, to the point where it became a challenge to do the day job, because of all of these. You reach this jump-off point, but then you already have some new income streams. And then you think, what do I do? Do I quit the day job, continue with the side hustles, hope I get some more to make it work?
Or do I stick with the day job? And we agonised about that for a long time because we were risk-averse, giving up this fixed salary. Because it was helping us achieve our savings targets and all that. And at the end of the day, we just said, well, what's the worst that can happen?
The worst that can happen is we try this for a year or two, it doesn't work, and we go back to corporate. And then we're kind of back where we started. Or maybe we were not back where we started, but we'll be back where we were kind of within a couple of years. So, if that's the worst that can happen, well, it's not so bad, and that's when we took the plunge.
Philipp: So then in that time period when you started saving aggressively, right? Putting money away. What were the investments that you've done then with that money? Did you just put them into savings accounts? Were you investing in the stock market? [24:00] Were you buying property? Yeah, what was that portfolio like?
Abel: Oh, that is something that, yes, I would say I’m very embarrassed about. I knew nothing about investing, and I think I made all the mistakes in the book. So, we went into these property schemes that went bust, lost a lot of money there. Land banking, which didn't materialise. So, we still hold these positions like 15 years later, terrible. So, we were complete novices; we had no clue what we were doing.
And lost a lot of money as a result. And then we finally started reading some books, and then we came across Jack Bogle, the founder of Vanguard. And his three, what is it? Three-fund portfolio, and that kind of thing. And that's when we started realising hang on a minute; we're taking way too much risk; we don't know what we're doing.
Philipp: Even though you said you were risk-averse, right? But some of those investments were probably completely; it seemed maybe less risky than the stock market. But in the end, they turned out to be actually much more risky, right?
Abel: Completely more risky. And we just didn't know what we were doing. And then, we also went through the whole using advisors and banks. But yes, as you read in all the books, the incentives are not aligned. And they get paid for assets [26:00] under management, and then we also clearly saw that the fee drag on all these products were killing the return and whether the investments were up or down, the advisor still got paid. So, we went through that a number of years because we didn't know what the alternatives were. Before we took matters into our own hands and said right, we now know enough to do it ourselves.
And it's actually not that difficult. And I came across, I don't know who said it, a great saying that life is an art, but wealth is a science. And if you just approach it in a more scientific way. So we read a lot of blogs like Mr. Money Mustache, like the Mad Fientist, like J.L. Collins read his book, The Simple Path to Wealth. And they're all advocating index trackers, ETFs that are kind of simple, cheap investment products. So that's kind of where we are right now.
Philipp: No, I think great points. I think also from an advisor standpoint; I was always a financial planner and financial advisor before. And always using only ETFs for all the clients that I used to have back in the US, because like you said, it's so difficult to beat the market, and then otherwise you charge high fees. And fees are the number one opponent of your investment returns.
And it's the one that I always tell people; this is the one thing in investing that you can control is fees. You cannot control the market, the market will do what it does, and over the long term, it will be fine, right? But fees are one thing you can control.
Abel: Yes, exactly. And if you do the [28:00] math and there are plenty of examples online, whether you've got like one and a half percent fees or point three percent fees. What the diff that makes over the long term, it's staggering.
Philipp: Yes. We always show one slide when we do the financial planning seminar, and we compared StashAway; we are passive; we're very low cost, compared to what's out in Southeast Asia where there's a lot of upfront sales commissions still, right? Then ongoing fees that are very high. And you lose like half of the money right because compound interest will work against you in that case where you want it to just work for you.
Philipp: Yes. It's quite interesting. And I always tell people the one thing, and I think it starts with the budget that you mentioned earlier; it starts with also tracking your net worth over time, is you're your own CFO, so to speak, and no one cares more about your finances than yourself. And that's what people need to realize. You give a lot of time and effort at work; if you give half of that even to your own personal finances, I think a lot of people would be in a better position.
Abel: Absolutely. What amazes me sometimes is I know a lot of people working in the finance industry, friends of mine, and they're excellent at it, they’re CFOs and they do an excellent job during the day for their companies, for their bosses. But their personal finances are a complete mess.
Philipp: Yes. And they work with balance sheets and cash flow statements all the time, right? So, I always tell them, hey, you have to just create your own. And it doesn't take much effort. The first time takes some effort, and after that, even if you do it on a quarterly basis to check in on yourself, it's already better because you're checking in, right?
Abel: Well, that's it, and the mind boggles. Why are they not giving themselves the same effort as they do to their employers? And the only thing I can think of [30:00] is that if you work hard all day, you come home at night, you're tired. The last thing you want to do is do budgets. And in the weekend, kids or life takes over. But it's really kind of, think of a trick, trick yourself into doing that.
And for me, for instance, I would just stay at the office a couple of hours longer. Because then I’m in an office environment. I’m sitting behind my desk, behind my screen. And in the early days, still wearing a suit, and somehow that was the environment where I could happily do spreadsheets. That's how I trick myself into doing that personal stuff while still at the office. Because once you get home, you want to decompress and do other stuff.
Philipp: No, absolutely. I think if you put it in the calendar, it's just another meeting, so to speak, with yourself. I think that's a great way actually to trick yourself; that's a good tip for everyone listening. And I think the other one that you mentioned, right? That I’m a big advocate as well.
Try to automate all of this as much as possible. So that even if you forget about it one month, it still does it in the background, right? Like automated savings. I’m a big proponent of it. I do the same. Money comes in on the 29th or someday of the month, whenever it comes in. Couple of days later, bills get paid, savings accounts get funded, investment accounts get funded, investments are done automatically.
So, you don't have to worry about market timing; it just kind of does it. And I think that's hugely important for people. If you already have that setup, that's the very good step that you, at least, you don't have to worry about. Oh, I forgot to save last month, right? Or I forgot to put this into this account; it just does it for you.
Abel: Yes, exactly. And now, where we are now with our net wealth, [32:00] our affairs could be seen as quite complicated. We have a couple of companies. We have investment property as well, and all that. But it still only takes us two days a quarter to go through the whole thing, making the accounts, reviewing them, looking at asset allocation, and making decisions and that kind of thing. Two days a quarter, so yes.
Philipp: No, so it doesn't take too much. I say again, my wife and I, we both have two incomes as well; she works, a lot of travel for her work. So, what we do is we sit down once a quarter, actually for like an hour; we'll just go through everything because I want her to be on the same page because I actually enjoy this process where she is not as much, right?
So, I just hey, let's sit down because if something happens to me, you still need to know how to do it. You still need to know where everything is. And that way, everyone is on the same page.
So, what I want to get to is also, you were quite lucky that your wife is an accountant as well.
She also had the experience with her dad, and you guys were always on the same page. What do you tell couples or people in a relationship on how to approach, if they're interested in this, how do they approach this with their significant other?
Abel: Yes. Well, that's a very good question. I think back to what we discussed earlier, is that the other half that might not be so interested in financial matters will be interested in what the result is of doing this properly. So again, it's not an end; it's a means to an end; it's not an end in itself. FIRE allows you to live the life you want to live, and that should be of interest to everybody. And then, it's important, and that's actually far more important. As a couple, you need to agree [34:00] on how that life will look. And you both might have different ideas about that.
And this is something my wife and I also do religiously every year, because we both kind of are business people and we run companies, have run companies. We kind of, that's the only thing we know how to do. So, we kind of take that skill set into our lives, in the sense that a company defines goals and strategies, so do we. What kind of life do we want to live?
So, we actually, the two of us, we do a strategy off-site once a year. We go often to a nice hotel for a long weekend or resort, and we have a good time. But we also do our strategic planning.
We have our life goals written down, and we review them. Are they still fit for purpose? Do I want to do new stuff, other stuff? Does she want to do new stuff, other stuff? How can we then make sure that we achieve that? So that we both get out of life what we want to get out of. And then once you have your goals, you make your strategy, how to achieve the goals.
And then it's about resource allocation, and that's where also the finance comes in. So, it's just a strategic process, and I would encourage every couple to try and do their version of; it doesn't have to be so nerdy as we do it, but to do their strategy offsite. So, to make sure that they are aligned as to what they want to do with the rest of the life, and how then FIRE can support that.
Philipp: No. Absolutely, I think this is a great analogy, strategy offsite for your personal finance. Because I think that will resonate with a lot of people, because most companies now everyone does kind of off-sites throughout the year, right? Where they determine the strategy [36:00] for the next year or a couple of years, I think that will resonate a lot.
It's so funny that we have so many parallels because this is exactly what me and my wife do every January. Because for the listeners, I used to live in cold countries. My wife is British, I’m German, it's always miserable weather by January, and it's grey. So, what we used to do is we used to fly somewhere warm, sit on the beach or at the pool, and do exactly what you just said. We have our next year's goals, we have our three, five, ten, twenty-year goals, and they might change, right?
Things change all the time. But we review them; we see hey, are we tracking towards them? Are we not? Why are we not tracking towards them? How have we done last year, right? What has gone wrong, what worked, what didn't work? And it doesn't take much time, but actually, that's the fun part, I think.
Because you look hey, I have this goal in like two or three years; you have some smaller goals that encourage you to keep going for the longer-term goals, because they take a lot of perseverance, right?
Abel: But by breaking it down, it's easier to achieve, absolutely. And don't you find if you get out of your normal surroundings, it's much easier? You get much more creative and much more clear thinking, especially if you're in a nice warm place, right?
Philipp: Absolutely. You know from the Netherlands, right? So, I think we're pretty similar in those topics. So, one other thing I want to get to is, when you decided that you attained FIRE, I think in the beginning you said we'll just try it out, we'll quit our day jobs. We have some passive income coming in from side hustles that are now getting bigger, and we can live off those.
There's a lot of different, like, what you say, ideas of when you achieve FIRE. So, for some, it's a multiple [38:00] from the annual living expenses. For some, it's a number, right? Let's say five million dollars or something. For you, how did you go about determining that number for you? Was it a percentage?
Abel: Yes. So, I read about the 4% rule, right? And that really, I think something, that is something that resonated with us. So maybe if the listeners have not heard about it, the four percent rule is that your net invested capital, your say another way, your annual expenses should be 4% of your net invested capital. And again, wealth is a science; they've done this back testing for, I don't know, hundreds of years or 100 years or so. And with that kind of level, the chances that you run out of money is not zero. But it's like 1%.
And there are those are odds that I can take. So, the idea is put another way, your net invested capital should be 25 times your annual spending. And then you can kind of forecast what your annual spending will be going forward will change, will it go up? Will it go down? Can you adjust for inflation or not? Sure, we can do all those things. But that's our basics, and then again, we are risk averse.
So, then we pad that with lots of margin for error still. The 4% is very conservative already. When you look at the research, [40:00] but we kind of work with 3.5%, and then we then, on top of that, take a lot of margins as well just to be extra safe and sleep well at night. So that's where we come from, yes.
Philipp: Okay. So, you take the 4% rule, but then as I mentioned in the intro, you're still working, right? So how did you decide on what you still want to do? Or like how much time you spent between work and just living off passive incomes?
Abel: Yes. So, where we are now, we reached FIRE in our mid-40s, and we are late 40s now, we don't have to work. So, the investments we have generate enough, we think, for the rest of our lives if we don't want to work.
But yes, it just happens, and I think this applies to you and your listeners as well. We're active people, and we like doing stuff. And nowadays, we only choose what we like, but some people want to pay us for that, which is fine.
Philipp: Well, it's super fine, right? If you get paid for stuff that you like to do, and that's really the essence of the first part of FI, right? The financial independence. I think having the choice of what you want to do is probably the most liberating one, right? I think it even starts when I don't know, for me, it was always like, oh, you don't have to look anymore at a restaurant at the price, right? You feel comfortable, it's okay, I can afford this today, right? I think even those little things that financial independence gives you is so liberating.
Abel: That's true. And then when we started our portfolio careers, then you're hustling, [42:00] you just say yes to everything even if you don't necessarily like it and things like that. But as you get further and your passive income starts becoming stronger, you can start saying yes to things you like.
And then really start designing your life how you want it. So now I’m saying no a lot more than I’m saying yes, and that is very liberating. And that allows us to design our life to be what it is now, location independent.
So, if somebody says, hey, I’ve got this project for you, but you need to be there. I will just have to say sorry; I can do a project for you as long as I can work remotely. But of course, when we just started, you just say yes to everything, and that's to establish yourself.
Philipp: Yes. But I think through COVID, the location independence will gain even more momentum, right? Nowadays, everyone saw now in a lockdown, that people can get their work done and maybe even more efficiently than heading to an office every day, right?
Abel: Oh, I mean, that is so true. People ask me, oh, you're travelling and everything, you must be really affected by COVID, and I actually say the opposite.
Philipp: No, because you've already been doing this, right?
Abel: Yes. For me, it was sometimes hard because then I would get somebody saying, say, a non-executive directorship. And they said, ah, we really want you to attend at least some of the board meetings.
And I said, oh, that's really difficult. I’m happy to attend on-screen, on-call, but to travel, I’d rather not, these kinds of discussions. So, these kinds of discussions have all disappeared, so life is a lot easier.
Philipp: A lot easier, I do agree. And I think this is something, especially the younger population was already longing for. [44:00] And I think now it's the prime to negotiate this with your company if you want to do it because I think even companies saving on real estate commercial real estate and stuff like this will weigh on this.
I’ve been talking to a lot of the bigger US tech companies lately for my job, and most of them have already set their offers definitely close to the next summer minimum, right? Completely. And even then, going forward, some of them like you've heard in the news like Twitter or Google where they say hey, you can just move wherever you want kind of thing, right?
Abel: Yes. And of course, another like term like FIRE is a term you might have heard of, digital nomad, and that was kind of like the FIRE tribe; the digital nomad tribe was kind of a fringe tribe, but it's now gone completely mainstream due to two companies allowing people to work remotely.
And then people saying, well, I can actually just go to Bali and work in a co-working space there. And so those types of solutions are booming. But actually, I was talking to someone yesterday that companies are now faced with new challenges, because they see their staff disappearing all over the place. And that might have consequences for tax and insurance.
Philipp: Yes, especially if you're not living, yes there are those topics, right? Like the tax residence and stuff like that, yes, that is a whole other topic that is difficult for companies to make work. But for you, Abel, so I want to get back really quickly too. So, you're location independent, you do a lot of travel, as I mentioned in the intro, you try to spend all four quarters in different parts of the world doing different things. When it comes to home, [46:00] I want to get to real estate, actually.
A lot of people say, oh, you have to buy your home, something where you live in, right? Your place of residence that you can always come back to. Is this something you subscribe to as well? Or are you more like, hey, we don't have a base. We kind of just, we'll go to Portugal, rent AirBnB there for three months, then we go somewhere else and rent another place again. Or do you still suggest people buy some real estate or like a primary residence?
Abel: Yes. I actually don't have the answer to this; this is actually a standing agenda point every year on our strategy offsite. It comes up again and again, do we need a base? And we debate it. Some part of us thinks it would be nice to have a base somewhere that you could always go back to.
On the other hand, up to now, we haven't missed it. So, I think it's very much a personal choice. But from an investment point of view, of course, if you don't rent it out, when you're not there, it's dead capital, so from that point of view, it's not great.
We've kind of got like a halfway house, excuse the pun, but in our boat, we have a sailing boat. And we actually live on our sailing boat for like at least four months a year. And that's the closest thing we have to a permanent home as such.
Philipp: Yes. Because it's a very interesting topic because I think for my parents’ generation, you always were like hey, you buy a house, you pay out the house by the time you retire, right? Whereas nowadays with this location independence, people want to travel the world, want to work from different places, it becomes very hard to justify like you just said having a house sitting there, eating up capital, you have to still pay any utilities, you have to pay your mortgage. When you can actually [48:00] now live for three months here, three months there, you use this digital solution like Airbnb or some other vacation home portals to pay that, and not have that big burden always on your back, right?
Abel: Yes, and worry. So that is one thing. And I think we've all been indoctrinated by our parents, by society that yes, buy bricks, right? That's safe. Well, it's not that safe. If you compare real estate prices with just stock market returns, the stock market outperforms.
Philipp: Yes. Stock market outperforms, and it's more liquid, right? So, I’m always more trying to say I would like to stay more liquid. And people should also think about if you buy a house, then let's say you buy somewhere in I don't know in Europe or whatever you just spend three or four hundred thousand Euros or Dollars on a house, that's a lot of Airbnb's for a lot of time and renting places, right? So that's the trade-off, right? Yes, you have one place, and it's yours, but you could also add ten years or 12 years of travel and spending it on rent, right?
Abel: Yes. The other example is that do you rent or buy a house with a guest room? And if you look at what the extra rent or extra price is for that guest room, and then you look at how many visitors you actually have a year that stay in the guest room, you can put them in a five-star hotel snd still have money.
Philipp: Yes, very true.
Abel: But I must say, we do have properties. Part of our portfolio is real estate, so it's not that we are completely in the stock market. I would say we have quite a large, probably a 30% allocation to real estate, [50:00] some of it in REITs, Singapore REITs, which is very liquid.
Philipp: Yes. A very good way to get it liquid, right? Yes, and still get the exposure.
Abel: Yes. And say if you're starting with saving, and you don't have capital to actually buy physical real estate, it's a great way to get real estate exposure, right? But we have a couple of rental apartments in Amsterdam, but we've outsourced the complete management of that so that it isn't a headache for us.
But the story there is we knew nothing about real estate, and we were living in Singapore. So, we didn't have time to look for real estate. So, we just found a rental agent that was recommended to us, and we just said to him, okay, what is the best kind of price yield type of asset that we should be looking for? And then he described it to us. And it's the kind of real estate that we would never buy for ourselves, but that's not the point.
Philipp: No, it was an investment, right? You wanted investment to create passive income.
Abel: That's it. And that's how we went about it, and we took the emotion out of it completely. We said there's only one skill we have, my wife and I, and that's doing spreadsheets.
So, we went to look at the apartments, and he could give an estimate of what the rent would be, and we then could calculate what we could afford to pay for it to get the yield we wanted. And that's how we acquired our rental real estate in Amsterdam.
Philipp: And so, you're also doing the outsourcing of the management for it?
Abel: Yes. We even told him after a while, we said, look, if it takes less than €200 to fix, just fix it, don't call us. [52:00]
Philipp: Yes. And this is coming back to financial independence, and like not wanting to worry about it, you're automating things, right? As much as possible.
Abel: Yes. I mean, you still get, but then it's down to maybe only one or two emails a month, so that's fine.
Philipp: Yes. So, you can still get real estate exposure without having to necessarily live in it, which is a great thing. Because I think across the world, you said it quite rightly so. People are still indoctrinated and subscribed to this traditional thinking. And for some people, that's still the right thing to do; for some, it might not be right; just having an open mindset to what's out there and what you want is super important.
And I think the strategy offsite with your spouse and partners is absolutely critical for this because it's really when you can write down your goals, make them real. Understand how much they cost, how you achieve them, what you need to do to achieve those is fantastic. Before we wrap up, just because we are in 2020, we're approaching November almost. It's been an interesting year, right?
We had obviously the coronavirus this year; things were shut down. A lot of people have probably re-examined what's important for them in life. And when it comes to FIRE, you have other income streams, though, because you still have side hustles. You still have board positions. Have you talked to other people within the FIRE community, and have they re-examined their portfolios?
Because where I’m trying to get to is, this is really the first big crisis since 2008 in terms of stock market turmoil; yes, we are back to new highs, right? But who knows what is in store for the next year if a vaccine is delayed or things might not happen as fast as we might like?
And if you're living off that 4% rule, for example, [54:00] that's what you take out. But a year like this year might make people realize, hey, maybe I should have some side hustle on top of just my passive investments.
Abel: Yes. Well, the funny thing is that some people said, oh yes, see, your FIRE strategy doesn't work now, right? No, the opposite. We are still sleeping well. People that are relying on their jobs for their main income, they might be in a less secure situation with entire industries falling over.
And it's important to have a plan, and I think people in the FIRE community are planners like we've been discussing. And they've learned the hard way that, for instance, one of these famous quotes is time in the market is much more important than timing the market.
So, timing the market is a fool's game, so trying to sell when it's high and trying to call the bottom, it never works. So, people in the FIRE community know this, and they just stay the course. And for listeners, we have done this, and yes, we saw it go down.
But then we are diversified, we do have real estate, we do have other stuff, and we think yes, okay, it goes down. And over the long term, and this is the important thing, over the long term, it will go up again. So, FIRE people have a long-term focus, and so yes, overall, I’ve actually slept really well this year.
Philipp: That's good to hear. [56:00] And I think you mentioned diversification is super important, right? Having things in different places, different investments, different income streams, because the pandemic has taught us, right?
If you rely on your job. And yes, you have some savings, but you need your job to survive because you don't have enough income on the side or passively from your investments yet.
You are kind of a slave to your job, right? And in times like this, yes, you might be in a tech company, and they're doing really well. But you might not be, right? We gave financial wellness talks at airlines this year already, and 95% of their staff is on furlough, right? And it's not looking good right now.
Abel: Yes. But as you say, if push comes to shove, if you've got financial independence, you can choose to take on more side hustles. You have the time and the freedom to do so. Whereas if you are still an employee somewhere, you don't more or less.
Philipp: And you can always choose to also, you may be in this year I withdraw instead of 4%, I withdraw only 2%, I can live on that, right? So, it's all about making substitutions and adjusting on a yearly basis, which will happen if people follow your advice of checking in on your net worth and budget and also doing those off-sites once a year. So that you can assess, hey, what has worked, what has not worked, where can we do better.
Abel: Exactly, well, you touch on something very important. And we probably don't have time to cover it, so maybe we have to do another podcast.
Philipp: Yes, we have to.
Abel: But on something we call operational leverage, i.e., the level of fixed costs to variable costs in your spending. Can you adjust up and down if you need to? And what I see a lot of people, they have a fixed cost lifestyle, and they can't adjust down if they need to.
[58:00] So, looking at not only the level of costs but what type of costs you have. Are they fixed or variable? And can you make fixed costs more variable? Makes you more financially robust.
Philipp: Yes. And this comes again with also the real estate part, right? If you have a big mortgage that you have to pay every month on your house. Or you have kids as private schools, right? We can go into so many details of high fixed costs, right? Or car payment and things like that. What is necessary, and what is not, right?
Philipp: Well, absolutely. Well, thank you so much, Abel, I think yes, we do probably have to have another session because I think there's still so much to discuss, but we're getting to an hour now.
What I would like you to do is maybe you have some parting tips for people that are looking into FIRE; maybe they listen today, and they're interested in learning more about it. Maybe you have some resources that people can go to or tips that would be super appreciative, I think of the listeners.
Abel: Yes, sure. So the two blogs I can recommend are Mr. Money Mustache, he was kind of the founder of the FIRE movement and The Mad Fientist. So, you can find these online. The books, they're kind of to jog your mind on lifestyle design are The 4-Hour Workweek that I mentioned.
Also, quite a recent book, Designing Your Life and that is applying design thinking to lifestyle design, that's very interesting. And then on the investment side, the book I can recommend is The Simple Path to Wealth by J.L. Collins.
And there you can also find some Ted Talks and Google’s talks. If you're sending out some notes with the podcast, I’m happy to write them down and send them out.
Philipp: Oh, that's awesome; thank you so much, Abel. Yes, we will definitely put them also into the show notes so that people can follow [1:00:00] those and do some more additional research. And then we'll maybe get a lot more questions from the audience after listening to this, and then it would be great maybe next year, depending on where you are in the world. Maybe we're in the same place even, and we can do another session together.
Abel: Perfect. And also, I don't mind people hitting me up on LinkedIn if they have a burning question. They can just find me on LinkedIn.
Philipp: Awesome, yes. We will put the link in the show notes as well for all the listeners; thank you again for listening today, and thank you, Abel, for being with us. We really appreciate it.
Abel: It was a pleasure chatting with you.
Philipp: Thank you.
Financial independence is possible. But it takes dedication and hard work. In this episode, Philipp and Abel discuss the FIRE movement, and how Abel was able to achieve FIRE in his 40’s.
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