For some months now I have come to the conclusion that for me financial freedom in Belgium will always entail some work
The reason for this is very simple: taxes and our social system
Due to our social system we have high taxes in Belgium which means you will be building your initial stash by earning money that is taxed at 50%!
Taxbracket Income Tax level
Schijf 1 € 0 tot €10 860 25% (yes dear American readers, our taxes start at 25%!)
Schijf 2 € 10 860,01 t/m € 12 470 30%
Schijf 3 € 12 470,01 t/m € 20 780 40%
Schijf 4 € 20 780,01 t/m € 38 080 45%
Schijf 5 above 38 080,01 euro 50% (Yep, they go all the way to 50%! Did I mention the 21% sales tax?)
Dropping out completely will add costs to your retirement (since you no longer qualify for any of the social systems you paid into for many years) AND which will add to the amount you need to save, savings that you will need to get by working and being taxed at 50%!
The setup of our social system is such that you will have very little choice than to stay in it. But staying in the system means you either need to be an employee, independent or unemployed. You, per example need to be any of those three for 30 years to qualify for a pension.
Now I know this might be a bit of a bummer to some of you but it shouldn’t be!
The big benefits of working a little bit
A big plus is the tax free amount one can earn and currently sits at 7.130 euro (a mortgage will add to that, children as well, full table below). An extra is that for those earning less than 26.510 euro a year that tax free amount is pushed up to 7.420 euro!
How long would it take me to earn 7.420 with my current job if no taxes would be applied? Around 2 months and 2 weeks! Getting to the 24.000 euro mark will take a full year. So to get my earnings 3.2 times higher I need to work around 5.2 times longer. The difference between those two numbers is due to taxes.
One child will add 1.510 euro to this tax free amount, two children add 3.880 euro in total and three children 8.700 euro.
Our mortgage adds another 2.280 euro to this tax free amount so actually I could earn a total of 9.700 euro tax free! Because this will different for everybody (mortgage reduction in your taxes has become one of the most complex parts of our taxes in Belgium due to lots and lots of changes in the last few years) i will continue to work with the basic amount of 7.420 euro untaxed since this is the same for everybody.
Earning those 7.420 untaxed Euros has a few very powerful consequences.
First off, using the 4% rule it lowers the stash you need by 185 500 euro! With spending 18.000 euro a year, earning 7.400 euro a year by working, your stash only needs to be 265.000 euro. Add in some cash for the down years: 300.000 euro and you are done! You essentially exchange work taxed at 50% before financial freedom by work taxed at 0% after financial freedom. Due to the tax free nature of that last work, total time worked will be shorter than the scenario in which you keep working until the stash is big enough to quit completely. And you will have more free time when you are younger. A big plus in my book!
Second: you will remain in our social system which is always a good thing (extra security and income in the form of a pension later on, health care is also sorted!)
Third: by still working a bit you keep at the very least some employable skills up to date. A lot of people wonder about having enough stash to call it quits. Working three months a year (I’ll assume those short term jobs will pay less than my current one) eliminates this worry. If unexpected expenses do happen you can always work a bit longer until the expenses are covered.
The exit strategy
But all of this means you need a good exit strategy. Just pulling the plug is not going to do it since you will need to transit into some type of paid work. The problem is finding a job that enables this. I doubt my current employer would like the idea of me still working here but taking unpaid holidays for roughly 9 months, each and every year (i might get away with one year by using the ‘big trip in Asia’ as an excuse).
There do exist small jobs, only a few hours a week that might get you the 7.500 euro a year. But most of these are low paid and then you have to work most weeks of the year. I would like to have it done in the least possible time.
-security sector: easy to get a short time job. But since these are temporary contracts you would be unemployed for the remainder of the year. While this is free money some people might have ethical problems with this. At the very least there is a big change that after a while you will be hassled by the government agency to go to work again. Especially since the security sector is always looking for people. The extra work would mean extra money, but that isn’t the idea is it?
– find an employer who only needs people for a short duration but will need them every year. Big plus of this is that you do not need to look for a short time job every year. Personally I was thinking of the event industry as I liked working back stage at festivals when I was a student. The rest of the year you would be unemployed again, creating the same problem as with the security sector.
– find an employer who is ok with you taking 9 months unpaid leave every year. Chances for this happening are low.
-find an employer where you can work half time and add two months of unpaid leave to it. This is probably not going to fly either. Most employers apparently want their employees to work all year round. Even if you find an employer that is ok with it, you would most likely need to work half time during at least 8 months and only have 4 months you do not need to work at all. If I could find something near my house I would be ok with this.
– find a side gig now that you can transform into a ‘job’ after FIRE. The side gig would only need to bring in 7.090 euro. You would need to go the independent route for this, which will have an impact on your pension later. But it would avoid any hassle from the government. The issue remains that I would like to be done with the work in three months (untaxed you would only need to be making 2.400 a month gross) and then not have to work the remainder of the year. But to swing this you would need decent skills in a specific area. And since you would need to do this for the following 20 years, you are going to run into the issue of having to keep your skills up to date to stay relevant in your field.
These examples show that if you try to get the work done in three months or less you will always run into the same issues. Employers, or your own side gig, probably necessitate work the year round. If you do not do this as an employer you will be unemployed for 9 months, which will result in hassle from the government. If you do not do this at your side gig, you probably will not have a lot of side gig left after a few years …
The solution might be found by getting some location independent work (work you can do from a laptop from anywhere in the world). This might be the best route to go. Twelve hours a week of working but with zero commute and the possibility to travel anywhere anytime I want? Sign me up!
I welcome your input because as off now I have not yet an exit strategy in place. That is ok since I just started working at the new job and I will need to work for another 5 years. On the other hand, if I would identify a location independent side gig now, I could start implementing it as soon as next year. Thus reducing the time I need to work by a year AND have a secure exit strategy in place by the time I will be able to quit.