16

I've seen a few questions like this here, but they all seem to be adressed to Americans and their way of life. Let me explain:

I am 27, single, live in Germany and recently got my first job, which pays about 2000€ per month after taxes. I am spending 650€ on rent. My other expenditures rarely exceed 250€, but to be sure let's assume they are 350€, which leaves me with an extra 1000€ each month.

Now here's the difference to my US-based friends. I don't have any student loans, I don't want to buy a car, I don't owe any medical cost (nor will I ever, cause free health care), I don't plan to buy a house any time soon and I don't have any credit card debts.

Would you invest that money? Make a retirement plan?

15

I'm almost in the same situation as you. Here is what I'm doing.

  1. Get enough cash on hand to handle every likely emergency. I hold 10.000€, which can keep me afloat for several months, with unemployment insurance well over a year.
  2. Buy ETFs each time you have above 3000€ saved up. I buy these:

    HSBC S+P 500

    C.S.-MSCI PACIFIC

    UBS-ETF-MSCI EMERGING MARKETS

    ISH.STOX.EUROPE 600

They are taxable under Abgeltungssteuer, so no hassle with that, are cheap and cover almost the entire world economy.

Don't worry what everyone else is doing. My friends all started buying stuff when they started earning real money. Now everyone has shitloads of stuff piled up somewhere, which never gets used.

  • At what ratio do you buy these ETFs? – barq Jan 26 '16 at 15:47
  • 2
    One of these every 2-3 months. I hold an equal weight portfolio, mainly because its easy to manage. I think a GDP weighted is optimal – Christian Jan 27 '16 at 10:10
13
  • First, save up at least 3000 EUR and put it into a Tagesgeld account. That's your emergency fund for when you need money quickly.
  • Second, allow yourself some luxury. Have fun, do some travelling. You've earned it.
  • Third, investing. There are many options and opinions, but I favor putting the same amount each month directly into stock index funds or ETFs with low fees(1). Do not let a bank sell you any special product, just open a brokerage account (Wertpapierdepot) at a bank that allows you to have periodic stock purchases (Sparplan), or do the stock exchange orders yourself. The advantage of this is that it gives very good returns in the long run, is simple easy to understand, doesen't require much work or filling out many forms, and is very flexible. You can sell those shares at any time and do something else with the money, like buy a house.
  • If you're unsure, do not go to a bank and ask for advice. It will be free, but they'll sell you whatever makes most money for them, not you. Instead, hire a financial advisor who charges by the hour (Honorarberater).

1: Low fees means: a Total Expense Ratio of less than 0,5%. One detail you may also want to pay attention to whether the fund reinvests returns (Thesaurierender Fonds) which is basically good for investing, but if it's also a foreign-based fund then taxes get complicated, see http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/

  • Hi Michael, thanks for your time. Could you go more into detail on how you would select an appropriate fond? – anon Oct 1 '15 at 6:20
  • @Benedikt: there's a question for that here: money.stackexchange.com/questions/29153/… really the most important thing is the expense ratio, and choosing a broad index to get good diversification. If you're going to get only one fund, I'd use one based on the MSCI World index. For a second one, maybe DAX because you can probably get the lowest expense ratios there. And consider the reinvestment thing. I learned about it only this year and now the Finanzamt wants me to do a tax declaration yearly... – Michael Borgwardt Oct 1 '15 at 7:22
5

Lots of good advice on investing already. You may also want to think about two things:

  • A Bausparvertrag. You can set this up for different monthly saving rates. You'll get a modest interest payment, and once you have saved up enough (the contract is zuteilungsreif), you will be eligible for a loan at a low rate. However, you can only use the loan for building, buying or renovating real estate.

    With interest rates as low as they are right now, this is not overly attractive. However, depending on your salary, you may qualify for subsidies, and these could indeed be rather attractive. This may be helpful (in German).

  • A Riester-Rente. This is a subsidized saving scheme - you save something every year and again get subsidies at the end of the year. I think the salary thresholds where you qualify for a subsidy are a bit higher for the Riester-Rente than for a Bausparvertrag, and even if you don't qualify for a subsidy, your contributions will be deducted from your taxable income.

I wouldn't invest all my leftover money in these, considering that you commit yourself for the medium to long term, but they might well be attractive options for at least part of your money, say 20-25% of what you aim at saving every month.

Finally, as others have written: banks and insurance companies exist to make money, and they live off their provisions. Get an independent financial advisor you pay by the hour, who doesn't get provisions, and have him help you.

2

First check: Do you have all the insurances you need? The two insurances everyone should have are:

  • Liability Insurance ("Haftpflichtversicherung") - It doesn't just protect you from minor mishaps, but also very major ones. Anyone can accidently cause an accident which creates millions in damages.
  • Disability Insurance ("Berufsunfähigkeitsversicherung") - the earlier in life you get one the cheaper it will be. Wait too long and it will become unaffordable. Becoming disabled in a way which impairs your ability to work means your income goes way down while your cost of living will only go up (handicap-appropriate stuff is expensive, and healthcare won't pay for luxuries). Even when you have a profession you could theoretically do just as well when you are in a wheelchair (which makes this insurance a lot cheaper, by the way), remember that it will also cover psychological disabilities.

Another insurance you might want to get is a contents insurance ("Hausratsversicherung"). But if you don't own any super-expensive furniture or artworks, you might also opt to self-insure and cover it with:

Priority 2: Emergency fund. Due to the excellent healthcare and welfare system in Germany, this is not as important as in many other countries. But knowing that you have a few thousand € laying around in liquid assets in case something expensive breaks down can really help you sleep at night. If you decide not to pay for contents insurance, calculate what it would cost you if there is a fire in your apartment and you would have to replace everything. That's how large your emergency fund needs to be. You also need a larger emergency fund if you are a homeowner, because as a homeowner there might always be an emergency repair you have to pay for.

Priority 3: Retirement. Unless there will be some serious retirement reforms in the next 40 years (and I would not bet on that!), the government-provided pension will not be enough to cover your lifestyle cost. If you don't want to suffer from poverty as a senior citizen you will have to build up a retirement plan now. Check which options your company provides ("Betriebliche Altersvorsorge") and what retirement options you have which give you free money from the government ("Riester-Rente"). Getting professional advise to compare all the options with each other can be really beneficial.

Priority 4: Save for a home. In the long-run, owning a home is much cheaper than renting one. Paying of a mortgage is just like paying rent - but with the difference that the money you pay every month isn't spent. Most of it (minus interest and building maintenance costs) stays your capital! At one point you will have paid it off and then you never have to pay rent in your life. It even secures the financial future of your children and grandchildren, who will inherit your home. But few banks will give you a good interest rate if you have no own capital at all. So you should start saving money now. Invest a few hundred € every month in a long-term portfolio. You might also get some additional free money for this purpose from your employer ("Vermögenswirksame Leistungen").

1

Congratulations on getting started in life!

John Malloy's (American) research suggests that you should take some time to get used to living on your own, make some friends, and settle into your community. During this time, you can build up an emergency fund. If/when the stock markets do not seem to be in a bear market, you can follow user3771352's advice to buy stock ETFs.

Do you hope to get married and have children in the next few years? If so, you should budget time and money for activities where you make new friends (both men and women). Malloy points out that many Americans meet their spouses through women's networks of friends.

-1

What about getting the saving account - "Bausparen" (~100EUR/month) which you can later use for credit to get better mortgage deal and to buy a flat for renting to others (Anlegerwohnung)?

-1

As many before me said but will say again for the sake of completeness of an answer:

First off provision to have an emergency fund of 6 months living expenses to cover loss of employment, unforeseen medical issues etc.

When that is done you re free to start investing. Do remember that putting all your eggs in one basket enable risks, so diversify your portfolio and diversify even within each investment vehicle.

Stocks: I would personally stay away from stocks as it's for the most part a bear market right now (and I assume you re not interested day-trading to make any short term return) and most importantly you dont mention any trading experience which means you can get shafted.

Mutual Funds: Long story short most of these work; mainly for the benefit for their management and people selling them.

Bonds Instead, I would go for corporate bonds where you essentially buy the seller(aka the issuing company) and unlike gambling on stocks of the same company, you dont rely on speculation and stock gains to make a profit. As long as the company is standing when the bond matures you get your payment. This allows you to invest with less effort spent on a daily basis to monitor your investments and much better returns(especially if you find opportunities where you can buy bonds from structurally sound companies that have for reasons you deem irrelevant, purchase prices in the secondary market for cents in the dollar) than your other long term "stable options" like German issued bonds or saving accounts that are low in general and more so like in the current situation for German banks.

Cryptocurrency I would also look into cryptocurrency for the long term as that seems to be past its childhood diseases and its also a good period of time to invest in as even the blue chips of that market are down party due to correction from all time highs and partly due to speculation. As Im more knowledgeable on this than German-locale bonds, a few coins I suggest you look into and decide for yourself would be the obvious ETH & BTC, then a slew of newer ones including but not limited to OmiseGO, Tenx(Pay), Augur and IOTA. Beware though, make sure to understand the basics of security and good practices on this field, as there's no central bank in this sector and if you leave funds in an exchange or your wallet's private key is compromised the money are as good as gone.

  • 3
    "unforeseen medical issues" are no financial issue in Germany. Thanks to universal health insurance you will usually not pay a cent when you have a serious medical emergency. And unemployment benefits is 60% your previous income for a full year. So these are not as dangerous as they are in other countries. The only people who might have to worry about that are self-employed people. For a German employee, a six month emergency fund is overkill. – Philipp Sep 12 '17 at 15:17
  • @Philipp I definitely see your point as to why a German employee would need less of an emergency fund than say a US one but:"you will usually not pay a cent when you have a serious medical emergency" with usually being the key word. Doesn't hurt to plan ahead either way, and since there is a good chunk of excess money every month planning even for the extremes definitely wouldn't hurt. – Leon Sep 14 '17 at 10:02
-3

If I were you, I would save 200 euros for retirement each month and another 800 I would stash away with the hope to start investing soon. I think you have to invest a bigger lump sum, then 1000 euros. It makes sense to invest at least 30K to see any tangible results. My acquaintances started from 50K and now see pretty handsome returns. Investing is profitable, as long as you approach it smartly. Also, do not ever hire an overly expensive financial consultant - this expenses will never pay off. Of course, check their credentials and reputation... But never pay much to these guys. Not worth it.

  • 4
    No, you most definitely do not have to accumulate large sums to start investing; in fact, doing so is pretty stupid. – Michael Borgwardt Sep 29 '15 at 13:57
  • 1
    Also, hiring a financial consultant is one of the best things you can do! Of course you shouldn't pay ridiculous amounts, but 100 EUR/hour is not unreasonable when their advice can prevent you from wasting many thousands of Euros on bad investments, which is what will happen when you listen to "free" financial advisors who get commission for selling you expensive stuff. – Michael Borgwardt Sep 29 '15 at 14:06

protected by Chris W. Rea Sep 11 '17 at 14:42

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