The Road to Wealth (part 1 — €60k)

Greetings.

Consider this a journal. A place where I log my thoughts and experiences as I try to achieve my financial goals. Mostly for my own benefit, of course, so that I don’t lose sight of what I am working for. But you are free to tag along. And if you do, I hope you‘ll enjoy the ride, and I hope that both of us will be a little wiser at the end.

In this first post I would like to give some personal background information and explain the goal that I am setting. I will probably end up sharing a lot about myself as we go along, but for now, let’s keep it simple.

I am a 26 year old single male. I live alone in a tiny studio somewhere in Europe. I have a Master’s degree in Finance. My work experience consists of 9 months as an intern and 6 months as a junior analyst for a small listed equity fund, although I have been unemployed for the past three months. I invest all my savings in stocks and have an investment portfolio that is currently worth €60,000.

I live a simple life and I do not need much to be happy. My first goal, therefore, is to reach a stage where my investments can provide me with the income I need for a minimal, low-cost lifestyle where my only job is to manage my portfolio.

This minimal, low-cost lifestyle is the one that I am living right now, and as such I have a very good sense of how much income I would need on a monthly basis. I am currently living as cheap as I comfortably can, resulting in total expenses of around €1,700/month (this includes everything — rent, food, taxes, leisure). This amounts to roughly €20,000 p/a.

Now comes the difficult part. To calculate how much money I need to guarantee me this income, I need to assume a certain return on my investments. If I choose a 20% annualised return, I would only need €100k to basically never work another day in my life (except for, of course, managing the portfolio). But a 20% annualised return is no easy task — not even Warren Buffett has managed anything of the sort in recent decades.

That is not to say that 20% is impossible, but let’s for now assume a more conservative (but still above-average) 10% return on my investments. As such, I would need precisely €200,000 in investments to provide me with enough income to maintain my current lifestyle.

That then, is the goal. €200,000.

But how do I get there? As I said, I am currently unemployed. I am living off of subsidies, and not saving anything. Waiting for my portfolio to grow organically to €200k will require a near four-fold increase and will obviously take forever (and who even knows if my stocks will continue to rise?). I need to start earning some money and increase the size of my portfolio with monthly savings.

In the next post, I will come up with a plan of action.