In the interest of full transparency, I’m going to show you how my budget looks. Not in terms of “look at how to live on a budget”-like, but more so you get to put my ramblings in a context – like what comes in and what goes out.
So without further ado, here’s our current living expenses:
| Expense | Cost |
| Property, car and TV Taxes | kr. 2.369,67 |
| Insurance | kr. 1.730,00 |
| Electricty, heat and water etc. | kr. 4.032,00 |
| Transport | kr. 4.700,00 |
| Daycare | kr. 725,00 |
| Mortgage | kr. 11.000,00 |
| Food | kr. 7.000,00 |
| Savings account (vacation, house etc.) | kr. 5.000,00 |
| Grand Total | kr. 36.556,67 |
| kr. 438.680,00 | |
| EARLY RETIREMENT BUDGET | |
| Expense | Cost |
| Property, car and TV Taxes | kr. 2.330,00 |
| Insurance | kr. 1.330,00 |
| Electricty, heat and water etc. | kr. 4.032,00 |
| Transport | kr. 2.000,00 |
| Daycare | kr. 0,00 |
| Mortgage | kr. 2.000,00 |
| Food | kr. 7.000,00 |
| Savings account (vacation, house etc.) | kr. 5.000,00 |
| Grand Total | kr. 23.692,00 |
| kr. 284.304,00 |
Ok, so at the moment we spend about 440.000 DKK ($68.000/€59.000) per year. So if I retired NOW, I would run out of money in less than a year! 😛
However, if we take away a car and the majority of the mortgage payments, then BAM! We’ve cut our costs by 35%. This was actually pretty mind-blowing to me, when I first learned this. OK, our kid will also be out of daycare and in high school by then (which is free in Denmark), so that cost would also be gone.
I have chosen to roundup the retirement budget to 300.000 DKK ($46.000/€40.000) per year, because – you know, inflation and all. It’s just a nice round number.
But what’s with that mortgage? How do you cut that down by more than 80%?
That’s quite simple really – we stop paying off our loan, and pay only the interests.
Wait, that doesn’t seem like a good plan?…
Oh, on the contrary my friend(s). – That’s in fact an excellent plan! In 15 years, we will owe less than 30% of what our house will be worth. At that point, we can simply re-mortgage, and get a new 30-year loan. I would not be able to do this, if I was 60 – but since I’m only 50 at that point, there’s no reason for the bank (realkredit) not to offer me a 30-year re-mortgage.
It’s highly unlikely that we would still be living in the same house when we turn 70 anyway. We would have most likely found ourselves an apartment, or a little townhouse instead. – So this whole exercise is mostly theoretical anyway. But for the sake of argument, lets just say that we’re still living in the same house.
To be fair, we also have some expenses outside of our common household expenses, and right now we burn through a lot of cash on all sorts of craziness, simply because we can. If push came to shove – the above budget is what we could (would have to) live on.
The Income
In order to put the budget in perspective, we should also have a look at our net income, which currently constitutes 636.000 DKK ($98.000/€85.000) 672.000 DKK ($103.000/€90.000) per year (after tax).
This means that after we’ve paid our combined shared household expenses, we still have 30% of our money left. Some of that money is spent on everyday luxury, some of it goes to pay off my wife’s student loan, and some of it (the majority) is being set aside for a rainy day. – It’s that chunk (the rainy day money) that is going to be the key to my (our) early retirement!