Episode 10, Financial Planning Part I
Episodes 8 (“Building your Career”) and 9 (“Work-Life Balance”) tackled job-related topics. What makes more sense in this context than talking about finances? The first part will be about developing a financial plan. It will address questions such as why is it important? what are my alternatives? and when is a good point to start? I will try to make this rather dry topic as interesting as possible by sharing my personal story.
All of us are in our prime years- otherwise you probably would not read this. Consequently, we left our twenties behind and we all know that a solid financial basis is important. This is especially the case when a family or other obligations come into play. A “solid financial basis” is different for everyone because it depends on your personal goals. Someone who wants to retire with 50 needs a different financial basis than someone who saves for an emergency fund. We are going to investigate this in more detail in the next episode. The agreement that a solid financial basis is a good idea raises the question how to achieve the same. Let me tell you my story. I am from a very small village. Most of the people living there are quite conservative. They take the same path their parents or even grandparents had chosen. In terms of building wealth, it means owning a house. This is a smart idea, because the prices for property in a small village are low. In addition to that, many people from my village work as electricians, masons, or carpenters. This offers the opportunity to build your own house and not simply buy one which again saves a lot of money. I always thought that this is my path as well- until I met my wife and moved to a big city. I had to realize that the prices for a house are three times as high as in my village and except for renewing wallpaper and connecting some lamps there is not a lot that I can do on my own. It is impossible for me to own a house in the city I live unless it is located far outside or I am in debt for the next 50 years. Unfortunately, this insight hit me in my mid-thirties. I had simply saved all my money until this point in my life. When I say “saved” I mean left on a bank account meant as a down payment for a house.
I really wish my father would have had a conversation with me about financial planning after I finished my studies (Fun fact: He was working at a bank throughout his whole career). Of course, I knew that there are alternatives such as stocks. But no one introduced me to this topic- neither in school, during my economic studies, parents, or friends. This is why I missed about ten years of compounding which certainly is the biggest waste of money in my life. But again- more of that in the next episode!
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