Financial Freedom Sloth

achieving financial freedom one lazy step at a time

2017 full year recap

Looking back at 2017 I can only conclude it was a pretty good year. Financially we made great strides and got a lot closer to our Financial freedom (more about that below).

On the overal happiness front it is a bit of a mixed year.

I bought a Vespa and riding it does make me happy.

I didn’t lose any weight. My current condition is not good and being 25 kg overweight can not be healthy. Should make it a priority for 2018.

I did find a pretty cool new workplace but I actually enjoyed being at home a lot more. I came to the realization that for the last three years I actually only worked 8 months (or less) every year. The realization that having found a cool new work place also means working full time for the next three years (at the least) makes me a bit sad to be honest. What can I say? I really enjoy being lazy at home …

The girlfriends job started to suck this year. Which had it’s impact. She is at the moment finishing the last days of a six week medical leave, it wasn’t enough … . Work should improve again as of April. Should …  . We are not getting our hopes up as for the last few years when things for one of us started to look up, things for the other person turned to shit. A kind of perverted back and forth game of job related misery. Quiet frankly and honestely, we are both a bit sick of it. Come April – May I should be a lot more secure in the cool new workplace (only started mid November) so if things are still crap at the girlfriends workplace we will use the stash as fuck you money and either greatly reduce her working hours or just have her quit all together. A shame because we always thought she could keep her job even after fire. It is possible at her work place to only work a couple of hours a week or replace people during a few months in the year, thus making it a perfect post-fire workplace. So we always thought the girlfriend was set for post-fire and it was me that would be looking for the odd job each year. Enter idiotic managment …  Sigh.

But onto the financial recap of the year!

Personal spending

My personal income in 2017 was 30 862.70 euro.

Work: 17 084,62 euro. I was a bit surprised at the low number but I shouldn’t have been as I only worked 7,5 months this year.

Unemployment benefits: 6 452,83 euro. I collected 4,5 months of unemployment benefits in between jobs.

Gifts: 5 405 euro. Thanks mom and dad! On the other hand, their portfolio increased 14% in 2017. Their default option is to keep the money sitting in a savings account (way, way to much cash in savings accounts!) or some crap product of the bank. On their own, they maybe would earn 2% on it. Looking it from that way, I am making them money! And quit a bit more than 5 405 euro at that! Hmm, perhaps I should let them pay for our remaining home renovations …

Withdrawal from the stash: 1 750 euro. I took some daytrading profits from the table. I had planned to take all daytrading profits to hurry along our home renovations. But UVXY puts have such juicy returns I am plowing all off the available cash into that. I still need to break the news to the girlfriend. She will not be happy …

The remaining 170 euro was refunds of health care costs and such.

Of course, my stash increased in 2017 with 42.000 euro. Which is a cool 11.000 euro more than what I had as income and about 2,5 times what I earned by working.

If I take the stash into account (I usually ignore it) total income would come to 72 862,70 euro! And only 23,45% of it came from work!! If I consider the unemployment benefits as a kind of tax refund (and in a way it is) well, then my taxes for 2017 have to be in the low digits category. Ten, perhaps 15%? I ma too lazy to calculate it in detail but with all gains in the stash being untaxed, gifts untaxed and only work being taxed. Yep, didn’t pay  a lot of taxes this year … At least, when I hear a politician saying something stupid again I can find solace in the fact that I didn’t pay for it this year …

Personal expenses came to 20 718,93 euro. That gave me an average savings rate of 32,87%! (ignoring the stash earnings here, otherwise I would be at a crazy 71,56% savings rate). This is an average spending of 1 726,58 euro a month. Not that close to my 1 500 euro goal.

But I should deduct 1 500 euro for the Vespa (I used a tax refund to pay for the other half, yes I know, I made a bit of a mess of it …). So deducting that and I am at 1 600 euro average per month. That amount does include some fun:

I have Hobbies for 941 euro (mainly swimming , graphic novels and the raspberry pi) and a random fun category for 390 euro (carnival, cinema tickets, drinks with friends …).

My holiday in lazarote cost me 1 208,50 euro

If I deduct all these ‘fun’ lines my personal spend was 16 680 euro or 1 390 euro a month! But what is life without some fun in it?

On the basic expenses front, the main cost was towards our joint account: 6 800 euro. This is my half for our mortgage, utilities and food for the both of us. if it seems low, well we had a tax refund which we used to cover those expenses for some months. (Yes, I know, I made a bit of a mess of it, will do better this year, I promise).

Clothing came at 333 euro. I bought some pants and shoes. This year: shirts!

Here is a fun fact for my American readers. Health costs in 2017 were 116 euro!

I did spend 1 355 euro for food on myself. This is mainly food bought at work (i.e. sandwiches). I feel bad about it because A)bringing my own food should have been cheaper, B)bringing my own food should have been healthier. See the above mentioning of not having lost any weight. So I was actually spending money to remain unhealthy. Yeah, not happy about it!

Joint spending

If I look at our joint acount. The big categories are the mortgage ( 11 213,76 euro) and utilities 3 678,63 euro (electricity, gas and water) and then the car (2 110 euro). Bicycles, or a Vespa, really are a lot cheaper! Groceries (both food and cleaning stuff) for the two of us was 5 151 euro. That is around 430 a month. Ok, but not that great. There is definitely some fat to trim here.

Insurances set us back 1 508 euro. But that covers the house, car, Vespa and personal liability. I need to have a look into our insurances and see if a cheaper alternative can be found but I also would like to include a general insurance for legal counsel (as attorneys can become expensive fast) so I do not think any savings will be found in this category this year.

Food for our animals: 851 euro. But we love our animals so this went under hobbies.

Restaurant was 818 euro and my personal account had another 100 euro or so in this category. Some restaurants were fancy (like 280 euro for four people) but we also put our local fries shop here. health, and money wise, we go a bit too much to the fries shop.

Even in our joint account we have a random fun line, which was mostly fun, for 486 euro.

Conclusion:

If you do not buy a Vespa I think you can have a nice and even fun life with about 1 600 euro a month. I ‘think’ because this was the first year of budgeting and I definitely made some mistakes.The division between personal and joint account does not always make it easy and then there is the question how to tackle tax refunds or the meal vouchers I get from work … For next year I am going to focus more on the spending part and skip the savings rate completely. Also trying to get it as close as I can to how it would be when we would be FIRE. Still learning. Hopefully still improving …

Monthly expense report: December

The last month I report my monthly expenses in this format. As of next month I will exclusively focus on my personal spending in that month and try to get a better view on what I spend exactely (meal vouchers and tax refunds are a bit tricky). For this last month the world seemed hell bend on giving me more money. I didn’t put up much of a fight …

Personal account:

Income: 3 660 euro

Expenses: 1 521,10 euro

Savings: 2 138,90 euro or 58,44%

The higher income is from my first full month of employement at the new job. They could not meet my gross wages demand but countered with a multitude of net expense compensations. The big question was then how much all of it together would amount to. Well, I was pleasantely surprised …

I also seem to have worked enough interim work last year to qualify for a end of year premium this year. Didn’t even know that existed but not going to say no at an extra 1 500 euro!

Expenses were 1 521,10 euro. Just above the goal of 1 500 euro. I did buy presents for the parents. The girlfriend and I also had a date night which costed 40 euro. And I also spend another 100 euro for another raspberry pi. So core expenses would have been around 1 300 euro once again. And no fear, I have all I need on the raspberry pi front, so no more expenses there.

The joint bank account

Income: 4 624,40 euro

Expenses: 2 151,80 euro

Savings: 2 472,60 euro

Adding my half of the joint savings to my personal savings and my total savings are 3 375,20 euro or 92,22% of my income!

The higher joint income is because the Belgian government was quick with the refund (normally we only get it in March). An extra 2 000 which I rather have in my account than in the governments account. We also got a refund of the water company of 262 euro. Like I said, the world was really hell bend on giving us money!

Expenses were fairly low.

All in all we ended the year with healthy buffers in the checking and savings account. The year has been good for us as the full year recap will show.

The stash: the 2017 overview

In December 2016 I mentionned in this post that on the 30th December 2016 the stash stood at 244.000 euro. This after an impressive gain of 68.000 euro or 39% in 2016. This gain was due to the fact that Berkshire Hathaway had a brilliant performance, my first ever leveraged construction worked out great and the USD got stronger compared to the EUR (as I am mainly invested in USD).

So how did I do in 2017?

On December 30th my stash stands at a somewhat dissapointing 286.000 euro. A gain of 42.000 euro or 17,21%. Add in the 1 750 EUR I withdrew this year and I stand at a gain of 17,93%. Not bad, and for the second year in a row the stash grew more than what I have spend in the year. Which technically makes me financial independent.

But still, looking at those numbers I am somewhat diappointed. Let me explain. I am almost 100% invested in Berkshire hathaway. On 30th December 2016 it stood at 162,98 USD and it closed the year at 198,22 USD or a gain of 21,6%

I had my leveraged construction working out fine and giving me around 20 000 USD in profits.

I wrote several puts that all were profitable.

And I made 7 500 USD in daytrading profits.

So how the hell did I underperform Berkshire Hathaway? The reason is simple, almost all of it was in USD and the USD got a lot weaker against the EUR in 2017. I had strong currency head winds. EUR USD was 1,0522 at the start of the year and ended the year at 1,2016. And I was fully invested and leveraged in USD: ouch. Had the currency rate remained the same my stash would have been worth 326 600 euro  or a 33,85% gain!!

So all my effort, and then some, was wiped out by the lower USD. It didn’t really off course. Everything is all there. I started out the year with almost no cash and am now able to plow 33 500 USD in UVXY puts. It’s just when you report it in EUR, the ‘loss’ appears.

While it is no fun, I rather have the USD drop while both Berkshire Hathaway and my leveraged construction work out fine than have everything at once work against me. At least I still made a decent profit.

It also proves that when you are an active investor you shouldn’t really be bother by currency fluctuations. Despite the falling USD and being fully invested in USD, I still made more money (in EURO’s) off my stash than my annual spending! It would only be when I need to exchange USD for EUR that the lower exchange rate would hurt me. But I didn’t need to this. My 1 750 EUR withdrawal from the stash did not come form converting dollars but came from puts I sold in euro’s!

Since my new leverage construction is in euro’s (more because of the lower intrest rates then low confidence in the strength of the USD). In 2018 I should at least have a 20 000 euro cashflow generated by a portfolio almost completely in USD. As an active investor, forget about the currency and just go where the investments are the most attractive (with the possible exception of places like Zimbabwe or Venezuela).

Special circumstance investing – December update

Another month with large moves. The year has been good but that is a subject for the annual post. First this month.

What did I do

I had to roll my AB Inbev puts. the low price of AB Inbev was on the one side good news as it created an oportunity for a new leverage construction that should bring nice big profits but not so good news for the put option at strike 100 I had sold. Luckily I could roll it to a later expiry date (March 2018) and even collect some premium for doing it: another 485 euro added to the investment account.

I unwound my old leveraged construction. Final profit there is around 20 000 USD. The federale reserve raised their intrest rates twice which in turn made my financing fee more expensive. So I lost some profit there. I also didn’t feel like keeping a detailled overview of the exact cost as that is just to much work 😉 At the beginning of the construction I had estimated potential profits being broadly between 21 000 and 24 000 USD. The higher borrowing costs knocked a little bit off but all in all it was a good run. And I rather put time and effort in finding new investment opportunities than keeping exact and detailled cost overviews.

About the new investment opportunties: I replicated the levereaged constructon I did in the girlfriends portfolio last month in my own. Kept the leverage at a reasonable X 1,6. Profits of this should be between 20 000 and 40 000 euro. We will see in December 2018 how it went.

I sold the UVXY puts I bought early November. 53 puts bought at 5,5 USD a piece and sold for 6,20 USD. So more than 10% profit in 2 months. After costs I added 3 455,80 USD to the investment account.

Daytrading brought in another 300 USD. I stopped day trading around 10 december because I wanted to close out the old leveraged construction and start a new one. And I didn’t want any other postion on my books while doing it. it will be some time before I start again with the daytrading as I first want a decent profit buffer in the leveraged construction. I am ok with it as I started to become a bit tired with the frequent daytrading in the evening. We’ll see in May, June if I get back into it but for the next few months my investing will be limited to watching the leveraged construction and UVXY puts. Lazy investing at it’s finest, bliz!!

The girlfriends portfolio

Off course I rolled her AB Inbev puts also. An extra 237 euro in her account. (I also did it in the parents portfolio, I told you I had a busy month!).

No more day trading in her portfolio as she allready had the leveraged construction since november.

I also sold her UVXY puts at 6,20 USD. Total profit for her: 2 608 USD. Happy Christmas honey 😉

I also sold my parents UVXY puts, also for a nice 10% profit. I did finally convince my parents to put some extra cash in the investment account. Next month I will unwind the old leveraged construction they still have and then duplicate the same leveraged construction both me and the girlfriend already have. All this means I will have some extra cash to plow into UVXY puts for them as of next year.

Special circumstance investing – November update

A busy month where some large moves were made. Busy is relative, some people think nothing of doing dozens of trades in a month. My ideal is two or three trades, a year! On the other hand, the flurry of activity has been profitable. And I like doing it so it remains to be seen if I will be able to restrain myself once I hit my Fire numbers …

What did I do

I rolled my Ahold delhaize puts again to January this time. But this time I did book a nice profit on it. An extra 265 euro on the account for my troubles. Ahold Delhaize has, in the mean time moved above 18 euro proofing that 17,5 euro was indeed not a bad strike price to write puts at and that the market would take a few months to realize this company will continue to make healthy profits even if Amazon did purchase Whole Foods …

AB inbev did move in the wrong direction so I might have to roll this one now. On the other hand, the price drop did create a nice new opportunity (more about that in the girlfriends portfolio).

As mentionend last month I was planning on deploying a lot more money in a new UVXY put position. I bought 53 puts on UVXY, expiration 01/2019 for 5,5 USD a piece. I had a nice 5% profit on them but am at a small loss now. It is a volatile product which I am watching closely. But all profits, and day trading profits, will be used to enlarge this position in the future.

Day trading profits are 1 500 USD for the month. And I didn’t trade for a week as Google reached all time highs. My rule of not day trading proofed it’s worth once more as it helped me avoid the drop from 1074 USD to the current 1025 USD level.

All in all I more than earned back the 1 500 euro withdrawal from last month.

The girlfriends portfolio

I off course had to roll the Ahold delhaize puts in the girlfirends portfolio as well (and in my parents portfolio too!). Same strike and same expiry as I want to keep things as simple as possible to keep track of. The girlfriend added 302 euro to the portfolio.

Also a new UVXY put postion for the girlfirend: 40 puts same expiry, strike and price as mine. Add to this the position in my parents portfolio (yes there too!!) and I now have a very large position in this. Watching it as a hawk!

Daytrade profits for the girlfriend were 700 USD this month.

I already mentioned the drop in AB Inbev created a new opportunity.  After having no leveraging since March I set up  a new leverage construction in her portfolio. No details as I do not want any responsability for anybody blowing up with this weird shit. For certain stock at certain price levels it offers very attractieve returns for very little risk. In all other circumstances it is very dangerous …

But if all goes well she should make 12 000 euro of it. It just proves you do not need dividend paying shares to generate a nice cash flow from your investments. As a bonus, dividends are taxed at 30% where option premiums and the above are tax free!

cash before the construction

cash after the construction

Best of all is she received the money up front meaning she will have that more cash to deploy in the UVXY puts. UVXY puts being another thing offering nice returns at certain price levels and under certain conditions but dangerous at all other times/price points. The combination of both, provided the execution is done well, should make for very, very healthy returns …

I guess 2018 is the year where I find out …

Monthly expense report: November

Another strange month for the expens report. I really need to rethink the way I report this.

The problem is I took the budget spreadsheet from Nomorewaffles . It is a very nice spreadsheet but made for people who are in the build up phase of their stash and want to track their savings rate. For me this is not so useful as all my savings will be used for home renovations and are not going to the stash. The reason I keep a budget is to see if I can have a fun life on 1,500 euro a month or if I need more, and thus need to adjust the exact size of the stash.

So I’ll keep this format for the rest of 2017 but as of January 2018 I’ll be only focussing on my expenses and no longer report my saving rate or the joint bank account.

Personal account:

Income: 5 125 euro

Expenses: 1 590 euro

Savings: 3 535 euro or 68,97%

The higher income is not another withdrawal from my investment account but actually a gift from my parents. To be more precise, the full 5 125 euro is a gift from my parents.

Splitting it up there is 125 euro for Sint Maarten (Sint Maarten is like Sint Niklaas but limited to region around the river the Dender where I was born. A different Christian saint on a different date, 11 november, but everyhing else more or less like Sint Niklaas) and 5 000 euro because my parents want to pay for some of our home renovations. I have resisted this so far because well, I am stubborn, and on track to have a bigger stash then my parents. So my parents first resorted to giving money guerrilla style. Whenever there is an excuse, any excuse: birthdays, Eastern, New year, us going on a holiday … they would give me and the girlfriend some money. Now they have decided this approach isn’t going to cut it so they just tranferred 5 000 euro to my account. I know, it is good problem to have.

I will book my wages of November in December which is also the month they actually are deposited in my account so that is a bit easier to keep track of.

Expenses were 1 590 euro. Only 90 euro higher than the 1 500 euro goal and that includes almost 200 euro for the purchase of a raspberry pi and stuff. A raspberry pi is one of those things I want to play around with once I reach FIRE. Because of the low cost I have decided not to wait until retirement to start. More about this in a future post. But core spending was actually below 1 300 euro for the month.

The joint bank account

Income: 2 200 euro

Expenses: 2 441 euro

Savings: – 241 euro

An expensive month but mainly because we had to pay our property taxes this month. A full 380 euro just because we own a house. On the other hand, 380 euro for a large garden and big 4 bedroom house isn’t a lot. There are some advantages to buying an old farmhouse.

We also had veterinary bills for a total of 100 euro and took my parents out for dinner for 140 euro (this was actually to thank them for the house and pet sitting during our holiday, so before the 5 000 euro gift).

Anyway, with the overspend in the joint account my savings rate drops to 66,6%. But like I said at the start of this post, as of next year I am going to drop the savings rate and focus exclusively on my spending in every month.

My thoughts on an emergency fund

Everybody will agree that you having an emergency funds is something you definitely need to have. But how much you should put into it is a lot trickier.

The reason to have one is simple: having readily available cash can solve a lot of problems. Life in general is bumpy and even if you live a pretty frugal life you will, from time to time, be confronted by unexpected costs. It is never fun to have to shell out a couple of thousand euro’s to replace something that was working fine JUST 5 MINUTES AGO!! But even less fun is having something break down and not having the money to fix it. And some things need fixing immediately. Having only cold water to shower with is an ‘adventure’ when you are a 20 year old student (you are young, tough and do not mind having an excuse to go take a shower at that attractive friend of a friends place, since she happens to be staying in Ghent during the Christmas holidays as well …). But as a 43 year old I prefer to have enough funds to have this fixed immediately.

The size of your emergency fund, that is an entirely other matter. There are so many variables that determine the best size of an emergency fund that a one size fit all approach does not work.

Some reasons are very tangible: if you own a house you will need a lager emergency fund than when you rent because you have a bigger change of being confronted with unexpected costs. Some are psychological: you may find it a very reassuring thought to have a bucket full of cash at the ready.

So I will not be telling you how much money you should put into your emergency fund. I will tell you my thoughts and how they evolved.

You see, I was one of those people who liked a decent emergency fund mainly because of psychological reasons. I liked having buffers. Buffer one was my checking account. I liked to keep that at 2.000 euro. And that Is at the end of the month, NOT the beginning. So yes, it frequently shot up to 4.000 euro at the beginning of a month.

Buffer two consisted of my savings account where I liked to have 10.000 euro in it (this was as somebody who rented and did not have car).

And then there were my investments.

This three layered approach meant I was a financial rock! Life would have to be pretty creative to get me into financial trouble!

Looking back at it I blame my mother. Yes, I know, therapists always blame the mother but in this case he/she would be spot on! It’s my mother who manages the finances at my parents and she is a big believer of healthy cash buffers. Well, it’s more unhealthy cash buffers in her case as they frequently end up with 6.000 euro on the checking account! And the cash in their saving accounts … As an active investor making pretty decent returns for the last 17 years, it can be maddening thinking about their missed returns …

But in all honesty, I can’t really blame my mother. First off, she probably picked this behavior up from her mother and secondly, saving and putting money on the side is a good start!

But what is missing is a clear vision, goal on what to do with the excess cash. This is something most people do not have. How else do you explain that we Belgians have 365 billion (BILLION!!) euro on savings accounts (and with interest at 0,11% and inflation close to 2%, actually losing purchasing power each and every year!). With 8,6 million adults not living in poverty in Belgium this would mean an average cash amount of 42.000 euro per person. A bit much for it to be an emergency fund and some savings. Clearly, we Belgians keep to much cash. The newspaper De Tijd currently even has a special segment for it: van spaarder tot belegger.

Hell I myself only started investing because I like numbers and looking at companies. I had no clear plan! Sure, when the stash grew bigger you start thinking that maybe, someday you perhaps could live off dividends. But this was a vague idea. Not a concrete goal that seemed achievable.

It was the FIRE community that brought me that clarity and thus also had an impact on how I look at the emergency fund.

Now my emergency fund is truly an emergency fund, only to help with unexpected costs and not to provide some psychological safety feeling. I have to admit I am not yet fully cured as I still prefer to have 2.000 euro in my checking account (damit Mom!). But in general I want my money to work as hard as possible for me, not sit idly in a savings account losing purchasing power.

Because I keep a budget now I also have a better view on my expenses. Being frugal means that most of my stuff costs less, hence takes less money to replace (a washing machine is 200 euro used, not 600 euro new, a car max 8.000 euro, and so on …). Since I also save a nice portion of my income each month I also need less funds to cover a period of reduced income as there is a nice savings buffer that will take the first hit.

I also believe that the bigger your stash is, the smaller your emergency fund can be. Perhaps it is because I am an active investor but I know I will always be able to have my stash produce some cash flow. The bigger the stash is the easier this becomes. Sure, this will take a bit of time (perhaps even a week or two) but it also means your stash does not need to cover six months of living expenses. If you have regular option premium income or dividend income you definitely can reduce the size of your emergency fund.

All the above has helped me a lot in determining the right size of my own emergency fund. It used to be 10.000 euro even if I was renting and had no car. But even with a house, a car (and a Vespa) now I have put the size of my emergency fund to 6.000 euro.

The same amount for my girlfriend means we have 12.000 euro which would be more than enough to replace a broken car AND something in the house at the same time. Or cover a nice period of reduced income (the Belgian social security system does also help in case of unemployment or sickness).

As I said in the beginning. The size of your emergency fund is something personal and there are a lot of variables at work. But I have come to the realization that for us FIRE people conventional wisdom does not apply. Then again, isn’t conventional wisdom wrong for a lot of things?

The ethical side of FIRE

Apparently some people wonder if this financial freedom/early retirement stuff is morally right or wrong.  Cheesy finance posted the question here and I was only going to type a short comment. And then I started typing and the short comment turned into a long one, which turned into this post …

The tax side

The ethical debate seems to be revolving around the question if we are committing a mortal sin because we will pay less taxes. Personally I have zero issues with it. I find our government incredible wasteful with the money people had to work so hard for. Frugality isn’t a trait often found in government bureaucracy. If they are just going to waste it, I do not feel very inclined to keep on providing my money to them. I also would like a much smaller government as in my mind they are now active in area’s better left to the private sector. Cutting the government budget in half would be a good start. And then cut it in half again …. This because I firmly believe a smaller and more efficient government would benefit our society a lot more than the over bloated wasteful one we have now.

So for me the tax side of FIRE is not a problem, on the contrary 😉 I sometimes refer to my frugal living as financial guerrilla warfare against the ever hungry government caterpillar.

The bigger picture

What I do wonder is if by checking out early from the workforce if we are slowing down the progress of society in general. With progress being defined as a better standard of living for the most people possible. Sure, most of us have jobs that do not really contribute to this and the job itself will be done by somebody else, so no actual loss there. But I have found I get more stuff done when I am working. I get pretty lazy without external pressure. That might just be me off course. And a whole lot of people who have reached FIRE seem to keep pretty busy or devote more time to self-development. But since, once FIRE reached we do not pay a lot off taxes, are we contributing in another, perhaps a more meaningful, way to society?

I have been wondering, where are the FIRE people who did truly exceptional stuff in their retirement? Stuff they would have never done if they still needed to work and is not only personal development but does benefit society as a whole? An innovation, a charity accomplishment, or even making big amazing structures for burning man …

Perhaps I look at it the wrong way. Perhaps the impact of the FIRE community will not be a few big exceptional accomplishments (because realizing the big exceptional accomplishment would probably turn into work at a certain point). Perhaps the impact will be more in a sort of grass root movement. Lots of people whom make small improvements in their own personal life and community because they have the time to do it. Buying less useless crap and focusing on meaningful experiences and relations with other people cannot be bad for our society.

Perhaps it will only be when a certain threshold of FIRE people in the society is reached that network effects and scalable stuff will start to happen and the impact on the whole society become visible….

Monthly expense report: October

October was challenging. Some high expenses but also the first serious withdrawal from my investment account. Full details below

Personal account:

Income: 3 551,63 euro

Expenses: 3 447,70 euro

Savings: 103,93 euro or 2,93%

First off the higher income: 3 550 euro as this was the month I did my first serious withdrawal from my investment account. I transferred 1 500 euro from my investment account. Total day trading profits are at 5 865 USD and I was planning on transferring these in full this year. The idea being to accelerate my savings, thus finish renovating the house quicker and being able to stop working one year earlier. I do not know if I will go through with this plan. Returns on UVXY puts are healthy so at the moment I want to plow as much money as possible into that. I will withdraw another 250 euro next month, bringing my withdrawal to an even 2 000 euro for the year. But above that, not sure what I am going to do yet.

Expenses are high because the extra 1 500 euro was immediately transferred to the girlfriends account. You see, back in March when I bought the Vespa we paid it 50/50 the idea being the girlfriend would also use it to go to work and such. Turns out it is too heavy for her to use (heavy as in weight, not horsepower) and she doesn’t use it at all. But I love the Vespa! I actually prefer to use the Vespa than our car. With this payment it is now completely mine. Trying to convince her to buy a lighter, 50 cc scooter with the money but no success so far …

Another big expense was the year subscription I bought for our local swimming pool. This will reduce my cost per swim from 3 euro to 2 euro and some change so it should save me money over the next year but I had to book the full expense now.

Without these two large expenses I would have been at 1 677 euro. But two visits to Ghent to catch up with some friends explain that overspend. Trying to be a bit less of a hermit and it is an expense that will probably be higher once I no longer work full time.

The joint bank account

Income: 2 312 euro

Expenses: 1 589,38

Savings: 722,62 euro

Lowest we ever spend in our joint account. Again due to our holiday . We didn’t spend a euro in our joint account the first 9 days of October! (we should go on holiday more often 😉
Adding half of these savings to my own meager savings and I come to savings of 465,24 euro or 13%. Not too bad for a month where I essentially bought half a Vespa.

We also received some good news from the government. Our tax refund will hit our account at the end of this year.  This would mean we will start next year with a healthy balance in the joint account!

Using options when you are a dividend growth investor

It’s my not so humble opinion that options are perfect for those whom pursue a dividend growth strategy. You see, as a dividend grower who likes to buy and keep stock for a long period you get something for free with options.

The price of an option is determined by the current stock price, the intrinsic value, time to expiration or the time value, volatility, interest rates and cash dividends paid.

It’s the volatility part that is interesting part. You see, as a trader who goes in and out potions a lot volatility is indeed a risk factor for which you want to be rewarded. But as a dividend growth investor you don’t really need to care about volatility at all. All that matters is your purchasing price as that determines your dividend yield.

Volatility is the movement of the stock price: stock A which goes from 100 euro to 94 euro, then to 107 euro and then back down to 105 euro has a higher volatility than stock B that goes from a 100 euro to 102 euro and then settles on the 105 euro. For a trader the more volatility is indeed a risk as he might get forced out of a position. Both stock may start and end at the same price but the higher volatility of stock A makes it more riskier for our professional trader than stock B. As a dividend grower who is going to keep the stock for the long run, not so much. You want your dividend yield (the same for both stocks) and some long term capital appreciation (also the same for both stocks). But if you use options to buy stock A, thanks to the higher volatility, you can actually buy stock A at a cheaper price than stock B because the option premium you collect will be higher!

Buying a stock with a put

And that is not the only advantage options can give you. Playing with the strike price can lower your purchase price and playing with the expiry time can let you travel in time a bit.

A few practical examples of the fun (and bigger yield) you can have with options.

AB Inbev’s current price is 105,4 euro. Let’s say you like AB Inbev but prefer to buy it at 100 euro.
You could enter a limit order and wait, and wait, and wait. Me, I prefer to be paid to wait. So you could sell a put at strike 100. The December series still pays around 1 euro which means that until the third friday of September you have the obligation to buy AB Inbev at 100 euro a share. Deduct your premium from this and you will actually only pay 99 euro out of your own pocket. If the option is not exercised you just made a 1% return on your money just for waiting. It probably will not be exercised because as long as AB Inbev has a higher price than 100 euro in the market nobody is going to exercise this option as they can get more money for their shares by selling to somebody else at market price. Also, 1% in less than two months isn’t bad. I really have no idea why us Belgians have so much money on savings accounts bringing in next to nothing while such attractive yields still exist in the market. the only possible downside is you have to buy AB Inbev at 100 euro which will then get you a dividend yield of above 2% net (which still is a lot higher than your savings account).

But what if you want to be sure you get the shares AND pay less than 100 euro a share? That is easy, play with the strike price and expiry time. Going down the ladder here you will find the September 2018 puts. The 110 euro strike price gives you a current bid of 12,6 euro premium which means you actually buy at 97,4 euro and the 120 euro gives you a bid of 20 euro premium which means you buy at 100 euro exactly. Personally I would go for the 110 strike price.

If it gets exercised you bought at a price lower than today. If it doesn’t get exercised you just made 12,9% in less than a year (you only need to set aside 97,4 euro of your own money as the rest you get from the option premium). Actually, you do not even need all that money now! If you have a broker like Lynx which lets you use your other stocks at collateral you can even do it with money you still need to save. You need to have the money by expiry date which means you still have 9 months to save up the 9 740 euro you will need to buy the 100 AB Inbev shares. If you are able to save 900 euro a month you could already sell that put and pocket the option premium with 0 euro in the account to actually buy the shares. (American style options can actually be exercised any time before the expiry date but that does not happen a lot. And even if it would happen my broker is more than happy enough to lend me the money at a 3% interest rate. Selling the put either gets me 6% reduction on the current stock price or a 12.9% return if not exercised. I’ll risk the small chance of needing to borrow the money at 3%). You are in fact making money on money you not yet have. Perfect for a person who saves a lot of his wage and wants to invest it to achieve early retirement (hmm, I wonder where I could find somebody like that …)

So selling a put is used to lower your purchase price or play a bit with time and get you a stock in the future even if you do not yet have the money.

Selling a stock via calls

Once you own a stock it is time to take a look at calls. Selling calls is what you will do when you want to get rid of a stock because the dividend yield is too low. Or to create an additional cash flow from a stock.

Personally I would only buy dividend stocks if the dividend yield after taxes is above 2.5%. If it dropped below 1.6% I would want to sell the stock and then go on the hunt for a new one paying above 2.5%

Let’s say you already own AB Inbev. And you are not too happy with them not raising their interim dividend. But at the present 105 euro price you do not wish to sell. But 120 euro, that is a different matter. 120 euro, that might tempt you. Well, the September 2018 calls at strike 120 euro will pay you 2.2 euro. If you do not need to sell you just made an extra yield of 1.8% on your AB Inbev (and option premiums are tax free in Belgium folks!) If you do need to sell, well you got the price you wanted and now have the cash to write a put on a stock with a better dividend yield … I had a friend who usually doubled his dividend yield by writing some well chosen calls.

The fun part is you get your call premium now, when you sell the option, for a future obligation. But the premium money is yours to keep (with puts you need to leave the money in cash as it might be needed to buy the shares if the put is exercised). Since you already have the shares which you may or may not need to sell you the premium income of a call can be put to work immediately! You could perhaps use it to sell a put to buy some other shares …

A little word to the wise. While selling a put when you do not have all the money necessary to pay for the underlying stock is ok (as long as you know you can save that money by the time the expiry date comes around) do not ever do it with calls! Only sell calls on stock you own as your potential loss is unlimited.

Personally I would make an excel sheet for all my positions that calculates at which stock price my dividend yield drops below 1.6% and then go look if I can sell calls at that strike price and book some extra, tax free returns on those positions.

Why do it?

By buying dividend stock via puts and selling via calls I think you could add at least 1% to your return. That might not seem a lot for the effort you need to put in. But 100.000 euro which returns 7% during 10 years (and the return each year reinvested at the same 7%) gives you 196 715 euro.

Push your return rate to 8% and it is 215 892 euro. That is a 20.000 euro difference in 10 years. And who doesn’t like a big return?

It is also the reason why I would limit my number of stocks I buy to only 5 or 6 well chosen stocks. It is less work, and I am lazy. But putting more money in fewer stocks lets you use options. An option contract always work with multiple of 100 underlying shares so selling 1 put option on AB Inbev at strike 100 means you will need 10.000 euro to buy the shares. Having a lot of money in a few positions also means your option premiums start to become significant which means you can invest the money a lot faster where otherwise you would need to wait longer and sell additional options to get enough money to play with.

And your turn over rate does matter! The faster you can get money re-invested the higher your return will be. It is another advantage of a broker like Lynx. When an option is close to expiration and will definitely not be exercised you can always leave the position expiry but already sell a new option having your money or the underlying stock pull double duty for a week or two and save a bit on trading fees (every little thing helps).

I am not a dividend investor because of the high tax the Belgian government has on dividends (30%, auch) but if I was one I would have a highly concentrated portfolio with only 4 or 5 stocks (you can always choose a holding like GBL if you really want diversification). I would only buy new stock via puts and sell stock via calls. An excel sheet would track the dividend yield and determine at which strike price I would want to sell those calls. With only a handful of stocks the work would be minimal and your return should be 1 or 2% above those not using options …

Even if you want to skip buying the shares and you chose your strike price so that your options are not exercised (in essence being a premium hunter, which is something I do at times. Tax free money bitches!) I recommend to do it with stable dividend paying stocks. The reason being that once in a while you will get assigned and might even have to wait a few years before you can start selling calls on the stock at a profitable level. The dividend will make those years a lot more comfortable, especially if you are FIRE …

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