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I recently had a change in financial situation as well as lifestyle and I redid my budget, I now stand to have €1000 - €1200 left over at the end of every month and I'd like some advice.

I'm a twenty year old in the Netherlands renting with about 3-4 months worth of living costs saved. My budget accounts for both set and variable expenses, for both luxury and necessities and I'm quite content with my current lifestyle. I'm not interested in a house for at least the next 2-5 years, and after that if I can afford it, though I don't mind renting longer if need be.

My current plan:

  • Invest €300-500 in a high risk fund with the expectation of not touching it for at least 5-15 years, preferably longer. (10-15% of gross income)
  • Put €300-500 in a savings account.
  • Keep the rest as extra spending money, putting it into savings if I don't spend it.

I feel like it is a bit of waste to keep so much in savings given my already decent emergency fund and stability. Would it be better to change most/all of my savings into a CD ladder?

Is my idea of investing high risk for the long term sound? Is 10-15% of gross income a good amount or should I take advantage of my age and put in more given that I can afford it?

EDIT: As requested here are some of my goals and non-goals:

  • I most likely want a house somewhere in the next 5-15 years.
  • I have no plans for children, or even a partner for that matter.
  • I guess the possibility of an early retirement?
  • All of my hobbies are already accounted for when budgetting and I don't see myself travelling or taking up another expensive hobby within the next 2-4 years, and at that point I hope to be earning more regardless.
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    Horrible plan, spend it immediately, have some fun, the Netherlands has plenty of expensive “hobbies” on offer. Joke aside, what are you trying to achieve? Without details on that, my suggestion is as good as any. – Relaxed Nov 29 '17 at 0:03
  • A big part of planning your investments mix is nailing down your financial goals. ie you say first: "i'm not interested in a house for at least the next 2-5 years", but then later you say: "I most likely want a house somewhere in the next 5-15 years." These are very different timelines, and that impacts your investment 'horizon'. For example, if you definitely want to buy a house in 2 years, then you don't really have time to suffer a drop in the market (in my opinion), and should strongly consider simple low-risk interest earning investments until you have your down payment saved. – Grade 'Eh' Bacon Nov 29 '17 at 14:24
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Put €300-500 in a savings account.

Or -- since you already have an emergency fund -- a medium risk fund.

@Relaxed is right, though: what are your future goals? (There's more to life than buying a house... Travel, future children, etc, etc.)

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Diversify between high risk, medium risks investments as well as "safe" ones like bonds authored directly from the EU.

All in all you re much better off than lending money to the bank through a savings account for no more than 1% in interest rate(given the current NL situation).

Congratulations on becoming financially independent(your investments covering your living expenses) in as low as 9-15years from now.

  • Greek bonds were not that "safe" despite being EU-authored. :-) – Peter K. Nov 29 '17 at 14:13
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    @PeterK. Not talking about EU country authored bonds but bonds directly released through the European Union. ie: Bonds Euro Government and to a lesser extent something like Bonds Euro Govt Inflation Linked – Leon Nov 29 '17 at 14:29
  • Understood, but there is no such thing. Germany torpedoed the idea in 2012 and it will never happen in the current climate. – Peter K. Nov 29 '17 at 14:42
  • @PeterK. Agreed, there may be not any of those officially but there are ETFs that index the Euro Bond market like the ones I wrote. More info here blackrock.com/uk/individual/literature/fact-sheet/… – Leon Nov 29 '17 at 14:48
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  • Take advantage of any tax advantaged retirement plans offered in your country.
  • Create a diversified portfolio. (Or two, if you will have a tax advantaged retirement account and one after tax investment account.)
  • Look up "3 fund lazy portfolio" on bogleheads website. Of course you'll need to convert the ideas to work in your country/market.
  • Each portfolio should have assets allocated according to your risk tolerance and timelines.

For allocation, there's rules of thumb. 120-age is the percentage some folks recommend for stock market (high risk) allocation. With the balance in bonds, and a bit of international fund to add some more diversity. However, everyone needs to determine how much risk they're willing to take, and what their horizon is.

Once you figure out your allocation, determine how much of your surplus goes into investing, and how much goes into short term savings for your short term financial goals such as purchasing a home.

I would highly recommend reading about "Financial Independence, Retire Early" (FIRE). Most of the articles I've seen on it were folks in the US, with the odd Canadian and Brit, but the principles should be able to work in the Netherlands with adjustment.

The idea behind FIRE is that you adjust your lifestyle to minimize expenses and save as much of your income as possible. When the growth of your savings is > the amount you spend on a yearly basis, you've reached financial independence and can retire any time you wish.

CD ladder is a good idea for your emergency fund, but CDs (at least in the US) usually pay around the same rate as inflation, give or take. A ladder would help you preserve your emergency fund.

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