Financial freedom in Belgium

The financial freedom and early retirement journey is a personal journey. Each person will have his own definition of what financial freedom means to him, the amount he needs and how he wants to achieve it. So the below will be my view on it, but I believe that most people in Belgium will be able to agree with most of it.

First thing we need to determine is how much money does a person in Belgium need to life a comfortable, albeit somewhat frugal life. This means you have enough to pay for your basic needs for food, housing, clothing, transportation and social contact. Driving a Porsche or frequent dining at a Michelin star restaurant will not be part of the package (if you do want those things I am afraid you have come to the wrong site, this site is about freedom to do whatever you want with your time, not the freedom to buy whatever you want).

Again, this number will be different for every person but I believe most people will agree that life can be pretty sweet in Belgium on budget of 1.500 euro per month, especially if you do not have to go work for it 40 hours a week.

The average after tax wage is 2.100 euro and our national lottery has a popular scratch ticket (aptly named ‘win for life’) promising a monthly sum of 2.000 euro a month. Their Deluxe version of it is 3.000 euro. So basic living for 1.500 euro a month? Seems like a safe assumption to me.

In my last post I mentioned this rule of thumb that 25x your annual expenses means you are financially independent.

So 1.500 x 12 = 18.000 a year.

18.000 x 25 = 450.000 euro

So 450.000 euro of investments (let’s call it The stash, because it does have a nice ring to it and thanks to this guy most people in the personal finance community know what is meant by The Stash) will buy you your freedom of work in Belgium. Personally I exclude the house as in most cases this does not provide you with any income to live off. A house is definitely worth something. And once it is paid off that will definitely have an impact on your annual budget (see that this stuff is personal and different for everybody?) and thus on the amount you need to accumulate. But to keep things simple we will ignore it for the time being.

What we will not ignore is the Belgian social system.

Just as taxes will play a big (negative) role in the accumulation of the Stash, the Belgian social system also plays a big (positive) role in the size of The Stash you need.

Our health system is pretty cheap and a reason why I think you can live a comfortable life with 1.500 euro a month.

But we also have unemployment benefits. If you have worked, you qualify and since everybody will have needed to have worked to get a sizeable stash (lottery winnings and inheritance aside) everybody reading this will qualify. And the thing with the Belgian unemployment benefits is that it is not means tested. So you can be a billionaire and still qualify for it. Dividend income, capital gains or option premium income are all compatible with receiving unemployment income. Extra special: there is no time limit on it. You can have it for decades upon decades. It does decrease over time but the bare minimum for a person living together with another person (single people get more) is around 500 euro/month. And although the government is now more persistent in activating the unemployed (a.k.a. getting your lazy ass back to work), 500 euro/month is something you can count on (worst case scenario is you have to go back to work for a few months to avoid losing this benefit: this basically means more money for you). Receiving unemployment benefits does prevent you from going to live abroad but the unemployed also qualify for vacation days. Stretch the rules a little bit, and there is nothing standing in your way to take a month or even two-month travel holiday (basically you have 20 official holidays and officially you need to declare to the government when you ‘take a holiday’, but everything is done on line now and you only need to declare these holidays at the end of a calendar month). It may not be complete freedom, but it is pretty close!

Since the government will give you 500 euro/month for not working, 1.000 euro income from the stash is enough to get to 1.500 euro/month income in total.

1.000 x 12 = 12.000

12.000 x 25 = 300.000 euro

Lets play it on the safe side and add in 25.000 in cash (to cover 2 years of living expenses) and the basic amount needed in Belgium to declare yourself financially independent is: 325.000 euro.

425.000 euro will make life a bit more comfortable (or assure you live on 3% return of your stash, plenty of companies paying out a 3% net dividend).

At 525.000 euro you no longer need to care about unemployment benefits or whatever. Total and complete freedom.

 

So there we have it. Financial freedom in Belgium is having a passive income between 1.000 euro or 1.500 euro a month from investments (depending on how you feel about pocketing unemployment benefits). This means a Stash between 300.000 euro to 500.000 euro.  Add 2 years of expenses in cash as a buffer and you need 325.000 to 536.000 euro.