I have been thinking about my financial future. Currently, i am Engineering student and therefore my income is quite limited to how much i can work. Through my ~2 years of investing i have found what works for me in terms of asset/investment types. Even though i have not had kind of money to invest in real estate or being an business investor i have tried stocks, index funds, mutual funds, cryptocurrencies and P2P lending. To make a long story short, I am focusing on positive cash flow.
After a period of stock picking i found that the costs (commissions and fee) are way to high to actually make any money on my modest income. However, a way to be present in the stock market is through index funds and mutual funds. I have been putting some money into a monthly index fund contribution to keep a diversified portfolio in the stock market.
My girlfriend and I want to own our own house. This is not to compete in the popularity contest of who can get the biggest and fanciest house. However, we would like to do what ever to the house, and we will have the peace of mind that there is no landlord who throws us to the street. We are planning to find a house which we will live in to the end of our days (or retirement home). With the current interest rates we could potentially get a fixed 0,5% interest rate on the mortgage. However, for now we are both students and cannot afford a house. Therefore, we will wait a couple of years before looking at purchasing a house.
It is impossible to predict how the real estate market, stock market, crypto market and P2P lending platforms are doing in the next five years. However, i have made the 5 year estimate based on the current market conditions.
My Estimated 5-Years Outlook
Whether we will have a market collapse or not I will work towards making this plan go as calculated. The outlook it focused on passive income and not net worth which other financial freedom bloggers commonly use. Many financial freedom (retire early) bloggers use net worth as a measure for when they can retire. In which they will use their net worth as a mean to pay the bills. However, I will use passive income as a mean to pay the bills when the time comes to quitting my job. However, as you will see in my 5 year outlook it is not any time soon i will get out of the corporate 9 to 5 jobs.
The plan will be based on my wanted portfolio allocation between P2P lending, Index funds and cryptocurrencies.
I am in the fortunate situation that i get paid to go to university. Here in Denmark you are paid 6.300 DKK (€845) for attending education. Furthermore, i have a part time job decides the university. This means that i will not have to take on debt for an education. This is also why i am going all out and getting a Master degree (already got the Bachelor).
With an Masters Engineering degree I should conservatively be able to bring in 35.000 DKK (€4.700). I expect to be good at my job as I have a tendency to dive deep into subjects i am working on. Therefore i am calculating a annual raise of approximately 2.500 DKK (€335). Looking at salary statistics it seems to be realistic.
While it is impossible to predict the car, insurance, living expenses, vacation and such my girlfriend and I will have, I have tried making a realistic overview of what it might cost.
On my about page you can read my income goals. However, to actually live comfortable of passive investment income i would need to earn at least €60.000 per year. This translates into about €5.000 per month. Auuuuch, that is a lot of money. To get €60.000 per year i need €600.000 invested at 10% return. Based on the historic returns from index funds, P2P lending and crypto returns i think it is possible that my overall year-to-year return can be 10 percent.
Financials of Today (2019)
While 2019 is not yet over I have a good idea of how much i will earn and what my different portfolios will be worth.
- Passive income: €448
- I expect my P2P lending portfolio to be worth €3.700
- My index funds should be worth about €700
- Cryptocurrencies are unpredictable but i expect a worth of about €1.750
- Total cash inflow: €22.452
- Total cash outflow: €17.262
Throughout 2019 i will be a full time student with a part time job. My student income around €10.000 before tax and my wages will be around €12.000 before tax. While this might seem like a lot for a student, remember Denmark has some of the highest taxes in the world. Every month i pay approximately 45% of my total income in taxes (and a lot of other complicated taxing). So while i get €22.000 in income i am only going to keep €10.000.
My financials for 2020 will look much a like the financials from 2019. My wages will be the same if i am in job the whole time. If my wages Based on my own learning capabilities in relation to university and my time used on the blog, i highly doubt I will get to work more during my studies. However, my index funds and P2P lending portfolios will compound and with the added deposits throughout 2020 i will earn a significant amount more in passive income than in 2019.
- Passive income: €1.000
- P2P lending portfolio worth: €6.700
- Index funds worth: €1.500
- Cryptocurrencies worth: €2.500
- Total cash inflow: €23.000
- Total cash outflow: €17.900
Like stated i think 2020 will be financial similar to 2019. There is not any magical appearing money, both my girlfriend and I are students and we have the same expenses and income.
In 2021 i will finish my studies in January (hopefully). This will most likely mean that i am going to need a car. Given the education i am attending there is no way of telling which position i will get. Whether i will be a production engineer or a supply chain engineer will have significant impact on the need of a car.
Furthermore, as i get a full time job i expect both my living expenses to increase and i will be starting to save for vacation.
- Passive income: €1.700
- P2P lending portfolio worth: €11.700
- Index funds worth: €2.300
- Cryptocurrencies worth: €3.500
- Total cash inflow: €58.070
- Total cash outflow: €42.450
The financial year of 2021 was a little different financially from the others. However, 2022 will be a lot different.
We plan to purchase a house when we are both finished with the university. I will now have had a year to save and my girlfriend would have had a half year to save. Given the investment portfolio i have i would be able to pay for a bigger amount of the payout to the house. With a house a mortgage also comes.
Now it depends on where our house will be located. But we will potentially need another car for my girlfriend as well, also depending on the needed size of car the costs and vary a great deal.
- Passive income: €2.170
- P2P lending worth: €14.700
- Index funds worth: €3.115
- Cryptocurrencie worth: €3.500
- Total cash inflow: €62.500
- Total cash outflow: €58.000
From here on it is all guess work. Me and my girlfriend are at a point in time where nothing is clear in relation to the future. We have the dreams and plans of a house, however, we do not know when the right house comes on the market. It could also be that we where to purchase some land and build our own. This could take a year to build. Forcing us to live in an apartment while building the house (double payments). However, this is not included in my calculations. We have been looking at houses for fun in areas we can afford in the future, and we have found houses that we would be willing to move into.
While we hopefully have owned a house since somewhere in 2022, i still have my portfolio.
- Passive income: €2.730
- P2P lending worth: €18.200
- Index fund worth: €3.921
- Cryptocurrencies worth: €7.000
- Total cash inflow: €67.160
- Total cash outflow: €60.650
The last year of my 5 year outlook is must like year 2022 and 2023. The main difference between 2022, 2023 and 2024 is my expectation to my salary increase, increases in living expenses and increase of investment income.
- Passive income: €3.385
- P2P lending worth: €22.700
- Index fund worth: €4.730
- Cryptocurrencies worth: €8.500
- Total cash inflow: €71.850
- Total cash outflow: €63.160
Estimate of Personal Financial Statement
The overall plan is quite optimistic. However, with the right budget and attitude i think it is possible to be in the ballpark of the calculates. However, i would like to hope that i can contribute a lot more to my investments than i have calculated.
As you can see from my estimate of my cash flow i will not enter a negative cash flow any years.
Included In The Cash Flow Calculation
From the cash inflow i will have my wages, P2P lending income, index funds dividend and cryptocurreny income. On the cash outflow i have my income taxes, mortgage, car expenses, living expenses and so on.
- Income taxes: My income taxes are based on my income and i have no way to reduce them.
- Mortgage: The plan is to get a house. This will also require some insurance of the property, utilities, maintenance and maybe some fixing when moving in. This is all included in the yearly calculation.
- Car: In Denmark it is required by law to have an insurance on a car, to protect others and yourself financially in case a accident where to happen. A car requires fuel, maintenance and yearly taxes as well.
- Household expenses: This is expenses related to any day-to-day expenses from the average household. This includes bicycle repairs, bulbs, tools, etc. This posts has been made very high in relation to what i currently use. However, i has been told by family that household expenses will skyrocket whenever we move into a house.
- Living expenses: The living expenses is everything from eating out to different types of entertainment. As i am frugal living i doubt it will increase as much as i have calculated. However, the saying goes – “When you earn more, you spend more”. I will try to be on top of myself to fall in this trap. But if it was to happen, i have made a calculation which at least does not make me over spend.
- Vacation: My girlfriend and I want to travel when we have holidays. Therefore, when we get more money on our hands we will start to go on vacations outside of Denmark.
- Gifts and family time, subscriptions and clothing is self explanatory.
I have decided to focus on cash flow over capital gains. For those of you that are unfamiliar with the difference: cash flow is the movement of cash through your account, whereas capital gains is the increase of asset value.
While both can be good to reach financial freedom i am aiming to compound my investments at the highest possible rates. Typically when going for capital assets like stocks you are only getting a yearly dividend of 1-3%. When focusing on dividend stocks you can achieve upwards of 7%. However, stocks can both increase and decrease in value. So rather than taking the shuffle for an up or down, i will focus on P2P lending which is a cash flowing investment.
That is not to say that i do not have capital gaining assets. Both cryptocurrencies and index funds are capital gaining assets. However, i have found a way to lend my crypto to receive a monthly cash flow. Furthermore, my index funds are also returning a yearly dividend of about 3%.
If you want to get 10%+ in return per year you can sign up to platforms like Mintos. You can also go to my page with all the platforms i have reviewed here. You are not convinced that P2P lending is for you, you can go to my monthly income page and see how i manage to get above +12% in return on P2P lending.
Debt And Expenses
My girlfriend and I are both in agreement of house, kids and wedding. We are not sure how the order of the three will be. However, we know that we want all three. It is known that kids is hard to plan, therefore my financial outlook does not include a post called “kids”. Furthermore, getting engaged does not mean we have to throw a wedding right away. So we might get engaged years before we actually get married.
Conclusion of the 5 Year Outlook
The future cannot be planned with 100% accuracy. However, will the proper investigation and budgeting it is more likely that the “goals” can be achieved. While the 5 year outlook is not a goal setting it is something i will use myself to keep track of my priorities.
Given that kids is not a thing which is planned into the financials we might need a car even sooner. It could also turnout that we both get local jobs with only local presence meaning we might not need a car at all (according to the financial outlook).
Given we are in a economic upswing and we are at a peak of the economic upswing an economic collapse is inevitable. However, i cannot predict when it will happen, so i have just pretended it will not happen in the next 5 years.