Should I dump my emergency account?

ECB recently announced to decrease interest rates by 0,1 basis points to 0,05 % . What does this mean to me, a tiny little saver, who has sitting 4 to 6 times his monthly expenses in an online banking account, gaining something around 1,0 % in interest per year? Well, I’m going to receive a notification from my bank, that they are happy to announce that my interest rate will be something around 0,6 % p.a. but “they are still happy to offer such interest rates, which are above average”. Erm… great!

Due to that, I’m thinking about to dump these accounts (I have two accounts, my daily account which earns 0,8 % p.a. and one with a rolling 3-month fixed interest rate of 1,05 % p.a.) and invest it also into stock market. I try to make a short pro/cons list, which would make sense… probably.

What’s the idea behind my emergency account? The initial and main idea was to have a little safety net in case of losing my job. Currently, it doesn’t seem that I’ll get laid off in near future, but you never know what happens within a company… But how would such a layoff affect my financial situation? The biggest impact would be the missing income of (averaged) € 4.000 per month. I checked my latest unemployment benefits account and saw, that I would receive € 1.460 per month. That’s enough to live off for a couple of months, but I’m currently spending € 1.900 per month – which would decrease of course in case of an unemployment as I wouldn’t go to restaurants that often or do so many fancy holiday trips. I think I could live pretty comfortable with € 1.460 per month, but let’s assume I need a little bit more – maybe 300 Euros per month. My account balance is somewhere around € 11.000 at the moment; I could add 300 Euros per month for three years! That’s a quite long period of time – and I do not hope to be unemployed for such a long time. I could withdraw that money whenever I needed it without any costs or any other restrictions.

Another consideration when I opened the savings account was, to be liquid in case of bigger one-time investments like repairs, purchasing something essential like a new fridge or washing machine, health related expenditures like an urgent operation, etc.

Well, I sold my car in April so I do not need a lot of money for repairs. What could happen in my household? I have one bike, I have a fridge, a washing machine and gas heating. I don’t know exactly what a repair of one of these things would cost, but in general way less than € 600 – in case of the gas heating — which would probably the most expensive repair — my landlord is obliged to pay for the basic function of it. So if the boiler breaks, I wouldn’t have to pay for it. As long as I have a job I could pay for such repairs/purchases without touching the money of the emergency account. My saving-rate would suffer a little bit, but the money on the bank isn’t required at all.

What else? Health issues; in my country everyone has social security (even in case of unemployment, btw) which secures a basic medical care in case of illness or accidents. But of course our country develops to a ‘two-class society’ where the ones who could pay for something like a medical treatment on their own benefit more than the ones who couldn’t. For that reason I also own a private health insurance which costs 75 Euros per month. In case of a surgery or any other medical treatment I have the possibility to choose my own doctor and/or hospital (and in case of such an private-care, doctor’s fees are pretty high). In case of an accident or serious illness, my insurance would pay for my recovery as well as for the stay in hospital, etc. But in worst case I could be reliable to pay a contribution up to € 1.000 (e.g. if I want/need to stay in a private hospital twice per year or more often).

I think these three points — unemployment, repairs, health — were the main reasons why I created my emergency account. And now I see that I don’t need 6x my monthly expenses sitting around at maybe 0,6 %. What to do? My last idea was to put that money into an Index All World ETF. Also as a kind of emergency fund. I don’t know what could happen, but if I would need 3.000 or 8.000 Euro at once, I could sell this ETF immediately and I think, that an all world ETF is of stable value, even over a short-term period. And even if an all world ETF has one or two minor disadvantages (annually costs and high transaction costs in case of a withdrawal as well as probably some companies I don’t want to invest directly like tobacco and weapon manufacturing companies, companies that are excluded by the norwegian sovereign wealth fund) I think it’s better to invest it there than in single stocks, also from a psychological point of view. I think, it would be easier for me to sell an ETF in a case of emergency than to think about “which company should I sell now? — I need the money”.

I also picked on ETF as it’s not as easy like in US here in Europe. I don’t have access to these very cheap Vanguard ETF’s which can be held in an tax advantaged account. :( One of the cheapest I found is this one, at least it’s issued by Vanguard.

Vanguard FTSE All-World UCITS ETF (USD)

 

I don’t know if it’s a good idea or not to dump my emergency account and invest the money in an All World ETF instead, but it’s a consideration. Would be interesting what you readers think about that idea or emergency accounts in general. Do you have one? How much interest do you get? What do you think about the loss of money at current interest rates?

Income and Expenses August 2014

My income and expenses in August were as follows:

Rent (incl. groceries): -€ 700,00
Gym membership: -€ 109,00
Garage: € 0,00
Health-insurance: -€ 74,89
LC insurance: -€ 16,00
Food @ work: -€ 2,00
Restaurants: -€ 130,00
Sport: -€ 10,00
Entertainment: -€ 65,70
Pharmacy: -€ 4,85
Healthcosts: -€ 225,00
Food: -€ 31,00
Household: -€ 36,00
VISA: -€ 911,00
Public transport: -€ 365,00

Total expenses: -€ 2.680,44

Income: € 3.604,82
Cash deposit “Coins”: € 335,64
Total Income: € 3.940,46

Saved Money: € 1.980,00

Saving-rate: 50,25 %

In August, I had a couple of days off (three weeks to be honest…) from work and therefore I had a lot of time to think about my budget and improvement of it. After checking my “Rental bank account”, that’s the account where all flat-related stuff like the rent itself, insurances, internet, gas and power, heating, groceries etc. are withdrew, I noticed that these account has a pretty decent amount of money on it. Initially, I wanted that account +/-0 at the end of each month, as I don’t receive any interest on it and every extra Euro on that account is an Euro too much. So I decided to reduce my share to € 700 each month for the rest of the year and see if the amount on this account will melt a little bit.

And as I wasn’t working that much in August, I practically had no expenses for lunch at work, my expenses for restaurants were therefore higher as in July but not exorbitantly high.

The highest expense in August was the payment for a trip in September and additional health costs were also pretty high, as my dentist advised me to replace some fillings and I didn’t want the standard amalgam fillings (which would be for free), so I had to pay extra as these fillings are not covered by one of my health insurances. Also my annual public transportation ticket was re-issued and that cost me 365 Euros.

On the income side I could enter 300 additional Euros into my books, as I robbed my piggy bank full of coins – and surprisingly 335 Euros were in it! Not bad for, I think something little more than one year, of putting coins in it.

I saved 1.980 Euros, that means my saving-rate is quite exactly 50 % which is okay considering the one or other one-off payment in August.

One year of tracking my expenses

Last year, since August 2013, I started to track all my expenses cent by cent. I didn’t have a good knowledge of how much I spent and for what. Today, my feeling for my money is much better and I think that’s just of tracking my spending and think about how much I budget for the next month. The figures might be interesting, especially as I hope to decrease it for the upcoming 12 months.

Total expenses: € 23.028,10
-thereof fixed costs:  € 12.814,05
-thereof regular expenses: € 4.303,64
-thereof non-regular expenses: € 5.910,41

You can see, my fixed costs collect more than half of all my expenses (55 %) – I see a little improvement there, but I don’t think, that I can push these expenses below 50 %.

Regular expenses are mostly food at my office and restaurants (roughly 1.000 Euro for food at office and € 1.600 for restaurants). Normally, I should save A LOT of money in these two categories. But: going out for lunch in my office is a kind of “socializing and networking event”. I could easily bring my own food into office but I’m not sure if I want this actually. But I will try to reduce these expenses by -20 % so I could save 200 Euros per year. The other thing and “bigger problem” are the restaurant expenses. 95 % of these expenses are girlfriend-related as I don’t go to restaurants on my own. If I cut these activities with my girlfriend I have to look for another leisure-time activity (and probably that would also cost money like cinema or musicals – and I prefer a nice steak more than visiting a theatre.). I do not see very much room for improvement there… The third big category is the “Fun” section with expenses of € 960 over the last twelve months. That’s money I spent for activities like watching football, going to the cinema (I was twice ;-) ), partying, buying magazines, go swimming, etc. – I see a 10 % improvement here as I recognized, that I bought a lot of lottery tickets (that’s an office-thing… sometimes we buy lottery tickets for the change we get at lunch); last year I spent 86 Euros in damn lottery tickets! That’s crazy and I wasn’t aware of so much money we (or I) throw away literally.

My non-regular expenses are pretty high, due to my holidays and a decent amount I transferred to PokerStars (so that money isn’t a real expenditure). For the holiday and travelling part I’m in the same situation as I’m in the restaurant part; I’m not able to travel with my girlfriend in a very cheap way (like couch surfing or staying anywhere we could find via Airbnb) – she want some basics and it’s tough to neglect her wishes regarding neatness, food, pool and stuff like that – I must lie if I’d say I don’t like her 5* hotels… ;)
But I paid approx. € 200 for car related stuff and these expenses are gone now! I have to introduce a new category like “mobility” or something like that, but I’m sure that this would be an absolutely minor position in my spreadsheet. Another big part is charity and presents, but I don’t want to save money there.

I’m excited how much I could really save the next 12 months and I budget 22.500 Euro for these time period.

Dividend Income August 2014

August isn’t yet over, but I still received all my dividend payments for this month. My income from dividend was fairly good as I received € 69,10 after taxes and expenses – not less than four companies paid me for just owning their stocks this month! From AT&T I received € 20,41, from AbbVie € 11,65, Kinder Morgan Inc. paid € 23,84 and P&G transfered € 13,20in August. Last year I received zero from dividends, and compared to July the amount almost doubled.

“Liebster Blog Award”

A young fellow from Finland — The Dividend Way — nominated this blog for the so called “Liebster Blog Award” (sounds pretty german, right?). Of course, that award has nothing to do with quality – it’s merely kind of funny and reminds me of 90s email chain letters. :) That game is pretty easy: everyone who gets nominated has to answer five questions and nominates some other bloggers and ask them another five questions. In this way you get to know all the bloggers a little bit better and find a gigantic selection of new financial blogs.

edit: I created this post yesterday evening and scheduled it for today. In the meantime CaptainDividend announced, that he also nominated me for a “Liebster Blog Award”. OK, so there are another five questions for me (and as my first intention was to nominate CaptainDividend as well, I think I was just too slow… ;) ).

Here are the five questions TDW asked me:

1. What do you try to achieve with investing?
2. How would you spend your time if you didn’t have to think about money?
3. Have you invested in gold or silver?
4. How has your investment strategy developed during your investing history?
5. What has been your best investment(doesn’t have to be a stock)?

and these questions I got asked from CaptainDividend:

1. Why did you start your blog ?
2. What is your favorite tv series ?
3. What was your favorite car you’ve ever owned ?
4. What is your worst stock market or financial mishap ?
5. What if anything do you do for exercise ?

 

So here are my answers:

1. What do you try to achieve with investing?

Well, my first intention was just to save money and don’t spend my hard earned money for crappy shit I don’t really need. But within the last months I read so many success-stories from people who retired so much earlier, that I also want to try to save enough money to retire way earlier than at 65 (or probably later).

2. How would you spend your time if you didn’t have to think about money?

Probably travelling around the world and taking pictures.

3. Have you invested in gold or silver?

Nope, neither gold nor silver nor any other physical raw materials. That tiny gold bars or coins are a few grams of metal that don’t earn money, don’t pay dividends or do anything else useful – gold is just lying in a safe at your bank (which costs money, by the way). Of course, Warren Buffett has explained it way better than I could, so read this article about not investing in gold.

4. How has your investment strategy developed during your investing history?

I’m thinking more about companies in general – which companies are old, which firm produces things and can sell these things for ages, which brand is recognized around the world, etc. And I don’t read any of these market-insider-apocalyptical-prophet’s articles anymore.

5. What has been your best investment(doesn’t have to be a stock)?

This one, for sure (but as mentioned in the blog post it’s a divestment and not an investment)! Each day I owned that car, I burnt money – so if you’re able to use public transport, a bike or your feet and walk all your everyday commutes, sell your car – it just costs money.

 

1. Why did you start your blog ?

Initially, I wanted to introduce a kind of “financial diary” for myself. I was afraid that I couldn’t save the money and that diary should have been a little help for myself. When I remember right, the first version of the blog wasn’t publicly available actually. After finding and enjoying so many blogs, I decided to make it also “public” because I think it’s such a great way to get connected with other people from all over the world and you can learn a lot through the blogs.

2. What is your favorite tv series ?

Tough to say as I don’t watch TV a lot. I saw the first season of “The Blacklist” and that’s the only one tv series I got hooked on the last years. And I have to admit, that I know each and every single “King of Queens” episode – and I just noticed, that the last episode was aired seven years ago. Man… I’m getting really old.

3. What was your favorite car you’ve ever owned ?

In fact, I just owned one car and that was the one I sold a few months ago. ;) It was an Audi A3 and I liked it anyway – but in general it was just a ton of metal that cost me more than thousand Euros a year.

4. What is your worst stock market or financial mishap ?

Oh boy… I made so many terrible decisions. When I was a teenager and the whole eBay thing came up I wanted to buy a cool laptop and in the late 90s that wasn’t cheap. And of course I got tricked – I don’t remember how much money it was exactly, but for me it was definitively a huge amount of money and I never did something with eBay again. I also made some strange stock buying and selling decisions like buying Johnson & Johnson and Google stocks, just to sell them 5 weeks later. Unfortunately, I discovered all these useful blogs three years later…

5. What if anything do you do for exercise ?

I was playing football (=soccer) when I was younger regularly. But as I get older, I have to admit I cannot take the same pace as the young guns anymore… Nowadays I play it just for fun and not competitive anymore. I also try to go to gym at least twice a week.

 

Hmm… which bloggers should I nominate? Many have already been nominated, but as far as I could see, this one are still unmentioned:

CaptainDividend (edit: ok, too late :) )
Dividenden Sammler
Mrs.
EconoWiser

And here are my questions:

1. How many stocks do you want to have in your portfolio finally?
2. Do you have any vices?
3. What do you think about ethical values in investing? Do you invest – just for example – in tobacco/oil/weapons manufacturers?
4. How much time per day or week do you spend reading financial blogs or thinking about which stock to buy next?
5. What’s your favourite sports team?

Recent Buy: Eaton Corp. PLC

Last days were a little bit busy so I couldn’t post anything even if I had something to tell. I added a new company into my portfolio: Eaton Corp. PLC, originally an Irish company, that produces and offers power control products & services and components for mobile and industrial applications. They offer dozens of products and many sectors such like aerospace, transportation, or hydraulics and I think such a diversified product portfolio is very promising. And I also like the financial figures which I summarized in some charts below:

eaton

You can see the book value per share and dividends increased constantly, EPS dropped in 2009 drastically but recovered in recent years. I think someone who’s invested into Eaton Corp. could be glad about receiving dividends which increase annually and after the recent drop of Eaton’s stock price, also in value. I bought 40 shares at exactly € 50,00 – unfortunately I missed the ex-date for the next dividend paymant (again!) so I’ll receive just one dividend payment from Eaton this year in November.

Income and Expenses July 2014

My income and expenses in July were as follows:

Rent (incl. groceries): -€ 800,00
Gym membership: -€ 109,00
Garage: € 0,00
Health-insurance: -€ 74,89
LC insurance: -€ 16,00
Food @ work: -€ 42,00
Restaurants: -€ 74,00
Sport: -€ 22,00
Entertainment: -€ 117,50
Food: -€ 16,00
Household: -€ 18,00
Bicycle: € -5,00
Clothes: -€ 45,00
VISA: -€ 101,50
Bank charges: -€ 15,00

Total expenses: -€ 1.455,89

Total Income: € 3.173,00

Saved Money: € 546,45

Saving-rate: 17 %

July’s saving-rate is ridiculously low because my budget for August is higher than normally. I added € 900 for August because I have to pay the rest for my “big” holiday in September. Therefore my budget for August is € 2.600 (the usual € 1.700 plus € 900 for the trip). The saving-rate doesn’t look very impressive, but the overall expenses for July do! I’m very happy, that my total expenses were way below my budgeted € 1.700 for the whole month. I think I should make a closer look on my figures, because I’m more than € 200 below my planned expenses – or is it just a result of the missing car?

Dividend Income July

July is over and it’s time to summarize my dividend income in that month. I received € 35,72 in dividends, coming from Pepsico (€11,36), Coca Cola (€11,59) and General Electric (€12,77). As an absolute figure, that 35 Euro are not overwhelming, but compared to my dividend income from last year’s July, it increased by more than 300 %, because in 2013 I just received Coke’s €11,31. The first months of each quarter are also always the low-paying-months in my portfolio, so I’m looking forward to August and especially September as these months should flow more passive income into my account than July.

In 2014 I received a total in passive income of almost € 400 (€325 from dividends, €67 from interest).

Portfolio Update July

Holy moly… last days of July were crucial, right? Markets lost some percentage points; S%P 500 and Dow Jones both lost -3 % in one week, within one month german index DAX lost more than -7 %. What did I do in July? Invest heavily. :)

In total, I invested almost € 9.000 in that single month – which is an absolute personal record and I think I’ll not beat that for a long time. I bought shares of four companies (Kinder Morgan Inc., Abbvie, McDonald’s and Wells Fargo & Co.).

In June, I bought adidas and Coach Inc. – damn, what a timing! Coach trades -15 % at the moment and adidas performance is even worse, trading -20 % below my entry price. Unfortunately my portfolio is not complete yet – if my portfolio were already big enough, I would purchase additional shares of adidas and Coach. But I still want to increase my holdings and I also want to avoid one of my first investment fails which was 1.) rebuying too early a falling stock for cost averaging and 2.) selling too fast when prices drop. I set up a kind of “cooling off” phase of at least 6 month (maybe 12 months are better?) before I add some shares to an existing position. And selling one of those or both companies isn’t an option for me, as I think that these two companies are still good firms which are going to turn upward again.

I’ll monitor a handful of companies within the next days and can’t await invest again. ;-)