EU Start investing for longterm with partner who joins saving in a few years

Question

First off, this question is related to this one.

But in general, the answers are depending on the US-Situation. I would like to ask you the same question but specified on the Situation in the European Union.

Situation:

I just started a job after graduation 6months ago. My payment is appropriate to the local(Germany, Hessia) average for people of my skill and age. We don't like to talk about payment here in Germany, but it's a little under 20.000/yr (after taxes and insurances).

1/5 of my payment(net) goes in rent, I live in a shared flat and will move together with my girlfriend in a view months (searching for flat at the moment). I'm planning to pay 1/3 of my payment(net) for rent then, she is taking the costs for household (food, cleaningstuff etc). We are already living together for 2 yrs, but atm with roommates.

100-150€ goes to tobacco, ordered food and other stuff I buy just because I'm in the mood to. I don't want to cut this down because it's some kind of sense of live and not that much money I'm wasting here.

100€ goes to gas. My car just got damaged beyond repair and I had to pay my whole saving for a new one(done).

So now my saving is 0 and I want to restart, surely I can make it better this time.

After my girlfriends graduation, I'll ask her to marry me(She knows about this plan and is not happy that she must wait :D) and we both want to go this 08/15 way of "building a house" and stuff, but we both don't want children. She's going to work as a teacher, so we both can catch if one is getting unemployed.

I wonder if it might be more efficient to marry before her graduation due both, taxing and the fact that as public servant she will have benefits when she's married.

We'll need a second car then.

We strictly divide our money, she has hers I got mine. If we buy things, there's a definite owner who has bought it(e.g. the TV is hers, the bed is mine,...). Smaller things are payed by whoever just pays in this situation, we don't organize everything.

Long-term expectation:

• new car every ~10yrs (price range of VW Golf)
• earning ~30% more (net) in 10yrs due pay rise and other tax category.
• girlfriend (hopefully wife then) as sidekick for large factors like the house.
• Building or buying a house in about 8-15yrs (One of the most expensive locations in the Germany here, a little south of Frankfurt am Main, building a normal one family house can easily cost about 300-500k (incl building site).
• saving for rent, so that I can pay myself a annuity of ~600€ over 15yrs + public annuity (which is to little to live and to much to die). This will happen in ~40-45yrs.

So now you know a little about my situation and expectations, what would you recommend me?

Answer 1

First of all, the numbers you give are most probably nowhere near the total expenses you have/need to budget:

• There's no mention of the fix costs of the car (insurance, tax), nor are repairs budgeted.
• Which of heating, water, electricity, phone, TV, internet are accounted for? How much is the rest?
• What you call household costs is not in the 100 - 150 € you quote, is it?
• Clothes? Shoes? Sports/hobbies/cinema (maybe in those 150 €)? You're not planning to need a new (replacement) computer, laptop, TV, any other home entertainment stuff, laundry or dishwashing machine in the next decades?
• Are insurances like car, 3rd party liability, occupational disablement insurance already subtracted? Any other insurances?
• Are you good at repairing/DIY? great. But for long term plans you need to budget some tools and material. If you're not, you need to budget even more for repairs.
• Holidays?

Maybe you should have a look at the expenses you had over the last years (look at how much money came in and how much went to the savings and compare this expenses to the sum of all the expenses you have on your list of expenses as plausibility check.

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Just starting on some numbers you give and assuming the house is the main goal.

• House of 300 - 500 k€, assuming downpayment of 30 - 40 %, i.e. somewhere between 90 and 200 k€. I'll go on calculating with 150 k€ which would be 50 % of 300 k€ or 30 % of 500 k€.

• You want to be there in 8 - 15 a: this means saving 10 - 19 k€ per year.
  19 k€/a is clearly impossible with 20 k€ net wage. 10 k€ with 20 k€ net wage means a savings quote of 50 %, so for each € you spend, one goes towards the house. This is doable in the sense that if you continue with 4 k€/a for rent plus a Harz 4 (= 400 €/month) style of life, that would put you to 9 k€ expenses/a, thus 1 k€ saving for unexpected disaster (I'd actually first get a couple of k€ together for such things, and then go as much as possible towards the house).
  Still, this is not the life style the rest of your goals sounds like.

  (You can update this somewhat with the expected income of your girlfriend/wife. But remember that she needs food and clothes as well and you assume she'll need a car of her own)

• Let me rephrase the savings goal of 150 k€: you'd try to save 3 times the median German household equity within 8 to 15 years. This should tell you that it is a very steep proposition. On the other hand, e.g. Slowakians manage to have a median household equity of ca 60 k€ out of a median income that is roughly half the median income in Germany. So again it is somehow possible, but it will be really tough to live a life style like a Slowakian or Harz 4ler between peers that spend roughly everything (good approximation as we're talking about savings rates above 50 % of net income) they earn.

• I think the "easiest" way to get your savings going is to postpone lifestyle upgrades.

  • Stay in s shared flat a few more years,
  • go for 2nd hand laundry machine etc. (there are professional sellers of used machines where you do get warranty)
  • postpone the new car and then go not for a new new car but for a used new car. Do some research e.g. at mobile.de and compare the price for a new Golf vs. a 2011 Golf: is having the new Golf instead of the model before really worth 10 - 25 k€ to you? Consider also the marginal costs of not having these for the downpayment of the house. Or maybe having half of it for downpayment but also some holidays during the next decades?
    If you really go for a 2nd car, consider having a tiny/cheap one.

• On the other hand, around Waldeck, 150 k€ would buy you a complete new house of the same size that costs 300 - 500 k€ around Darmstadt. So if you really want to go for the house, I'd recommend not only to save as hard as you can*, but also to look out for possibilities to relocate to a cheaper area. 8 - 15 years should be enough time to decide what area you'd like and then to look for an opportunity without too much pressure. And actually this should be enough time so that also your girlfriend/wife could get herself transferred to another Bundesland.

  * In reality saving as hard as possible will probably get you nowhere near 150 k€ (there are very few people who manage to do this - though they exist), but if you get to 75 k€ that would mean a reasonably good position for both starting negotiations with the bank about buying a 150 k€ house plus the corresponding payment of the mortgage. If you get there within less than 15 years that would also leave some air in case you change opinion with regard to kids and then leaves a reasonable amount of time to put together your pension.

• Consider your psychology about saving towards the house. Even if both of you know that you want it really hard, it may be good to enter a building savings contract (15 years should be reasonable for that way) which will enforce you to keep up the savings rate and also does not allow you to divert money for other purposes. However, I'd say that 6 months into the first job it may be a bit early to fix such savings rates. Maybe for the beginning a savings account that includes some hassle to get the money out again (set low limit and allow any outgoing money to go only to another account of yours) with an automatic savings deposit every month is a way how to safely determine the savings rate you can manage. Maybe you can use this to first put together your new emergency savings which should be first priority anyways.

• If you want to cut expenses in order to save, look at the recommendations for people who try to get out of debt: budget your expenses, cook yourself and enjoy this (maybe taking a cooking class together with your girlfriend is a lot of fun, leads to food that may even be more to your taste than restaurant stuff - and is much cheaper), keep book, pay in cash (not by card) and so on. If you're not a DIY person, try whether you could enjoy becoming one - no magic involved there.

• I guess the most important point is to find out how much you want the house and then how hard you are willing to save. This is something only you and your girlfriend can decide (together!).

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IMHO you really don't need to invest (unless you drop the house plan), you need to save towards your goals. You may decide to invest a small part of the money while saving in order to learn slowly how that works, but if the house goal is already kind of fixed in time, you don't want to find yourself in the situation that you have to get out of investments at a bad time in order to be able to buy the house. Even if you consider 15 years long enough to do some investing now and then get out some time during the next 15 years, you don't have any money to invest now. Later, the risk posed by the fixed point in time when you need the money is too large: Considering the rather steep saving propositions, the marginal costs of having less money are really large. This means you don't want to go for risky investments => plain old saving is what you need.
Consider also that low house prices tend to come during economic crisis (people cannot pay mortgage and have to sell) so within the time window, you want to have your money for anticyclic buying if possible.