December 2022: Update and Full Year Summary

December was a great month. We had family visit us from the US over Christmas for the very first time. We traveled some. We ate some great meals and had a lot of laughs.

However, December was also the first time that our net worth was down in every metric that I track. There are four comparisons at the top of my spreadsheet: USD month over month, EUR month over month, USD year over year, and EUR year over year. For the first time, all of these metrics were negative.

Just like the stock market isn't the economy, your net worth isn't your life. But since this is a money blog, let's focus on the money part of things.

Net Worth Changes

Image: chart of our net worth in USD over time

In December, our net worth fell to $125,071/€116,780, which represents the following changes:

Metric	Percentage
Y/Y USD	-14.23%
Y/Y EUR	-8.79
M/M USD	-2.53%
M/M EUR	-5.71%

Maybe I can assuage my disappointment by creating a new metric: quarter over quarter. How's that look?

Metric	Percentage
Q/Q USD	6.83%
Q/Q EUR	-2.25%

So now one metric shows improvement. I'll take the win where I can I guess.

Our liquid net worth stood at $95,876/€89,521.

So what's up?

Inflation Devours All

The obvious big story is this:

• Due to the war, supply chain, stimulus programs, and energy shocks, inflation rose drastically.
• The Federal Reserve and other major central banks raised their benchmark interest rates to counteract this.
• Since the present value of equities is all future cash flows discounted to the present, both the discount rate and the - assumed - poorer quality of those cash flows put downward pressure on the value of stocks.
• Rising interest rates caused bond prices to fall.

We were not spared from this, and I took some serious hits on the large number of growth companies I had in my portfolio. They weren't the worst growth companies to have owned, but they were hit very hard anyway.

I took some steps to protect myself. In my IRAs, I sold in February due to trend following rules being triggered, which protected us there. I decided to reduce my exposure to individual companies and create the Wiseguy Portfolio, which is a kind of "all seasons" portfolio.

Image: Chart of portfolios in 2022: Green is my IRA, teal is my ETF account containing the Wiseguy Portfolio (started in May), red is S&P 500 benchmark, black is all portfolios together, yellow is individual stocks.

Finally, the effect of rising interest rates has caused a reduction in the estimated value of my pension. Since the pension is discounted at the rate of the 10 year treasury, rising rates reduce the future value. In a sense, this value is both real and imaginary; I'll never be able to pull out all this cash one way or the other, but I do have a guaranteed income stream in addition to government social security. It has value.

Spending

I've created a Sankey diagram that documents the flow of our money. For practical reasons, the numbers are slightly different in some cases compared to our actual budget, but overall this represents money received and spent/allocated well.

Image: A Sankey diagram showing the flow of money from income sources to spending categories.

Excluding tax, social security, and health insurance costs, our largest expenses fall into these categories:

• Rent (warm) (€10956.81)
• Groceries (€5984.66)
• My BLOW money (€4605.97)
• Travel costs (€3532.05)
• Her BLOW money (€3532.05)

A reminder: BLOW is anything we buy that is personal and doesn't require discussing with the other partner.

You can see the mark of inflation on our two largest household expenses. Our rent was raised in August, which was a bummer that upset my equilibrium for a while. Our grocery bill for the year rose from €5,158.22 in 2021 to €5984.66, which is a ~16% jump. Some of that could be carelessness on our part, but some is definitely climbing prices.

Our travel costs included a trip to the US for her, a trip to the US for me, a few weeks of fun in Europe in the summer, and a late year trip with the family who visited us over the holidays. As much as I'd like this number to be lower, there's a reality that an expat who has good relationships with his family will also likely have recurring large travel expenses to contend with.

Image: Chart of the EURUSD price in 2022

Unfortunately, my US trip coincided with a weak period for the euro against the dollar. This made the trip much more painful than it otherwise might have been.

Mindset Changes

There were three major changes in how I view our financial goals in 2022.

Cash

At several points, I felt hemmed in and without options. The most acute phase of this happened when we had our rent raised, but it was a recurring theme in the second half of the year. Yes, we had stock assets, but should we ever actually experience and emergency, our stock wealth would have to be sold off to actually give us flexibility. This increasingly felt intolerable to me, since I was sort of mentally double spending that money: it was both meant as a long term savings but also potentially a bail out, emergency, house, career change fund. It was untenable.

So we are now allocating much more towards cash. Savings accounts both in the US and Germany actually pay something now (though it's still crazy low in Germany). This allows us to pursue opportunities the way a big stock allocation can't.

The Implausibility of FIRE

It is unlikely that we will be able to retire early in any significant way. Perhaps that will change, but it won't change in the next few years, and in acknowledging that reality, I have to ask some questions.

For example, are there other career paths that might be more rewarding? If we have to work anyway, then why not do something that is genuinely enjoyable during that time? Perhaps staying put is the best option, but I should create the space where that's a choice rather than mandatory.

So much of the online financial world is fixated on this idea, that to acknowledge it may never be reality for us feels like a failure. However, my desire is to keep working. It always was, and the FIRE idea was mostly a way to give myself permission to pursue avenues that I find more fulfilling.

Stock Picking

Until this year, I'd exclusively been a stock picker. The US extraterritorial taxation regime has made the purchase of mutual funds tricky, and I'd believed I'd be able to handle individual stocks as the container for all our long term wealth.

It's safe to say that I was wrong.

I've grown as an investor, but I still make silly mistakes that should probably make it clear that stock picking ought not be my primary savings strategy. Yes, I've become less trigger happy, but I'm still too damned trigger happy. Just in the past few months, I sold several securities too early and missed out on rebounds. And my analysis is often rudimentary at best.

I've also discovered that focusing on stocks is not the best use of my time from a "quality of life" point of view. It's stressful and distracting. I have better questions to focus on and better uses of my time than worrying about whether such and such company faces an existential threat or is just going through a rough patch.

My returns thus far - while not catastrophic - align with returns I could more easily achieve by buying ETFs, and so that's what I'm mostly doing now. I just hope that the US/Germany thing doesn't bite me in the ass; if Germany adopts a PFIC type punitive taxation regime again for foreign mutual funds, I'm SOL. But best to save those worries for the future.

2023

The four big questions hanging over me now and likely throughout the year are as follows:

• Do I change jobs and potentially enter a riskier line of work in the hopes of greater life satisfaction and potential long term economic benefits? Or do I remain as I am now: basking in the weird safety of my current position, but potentially plagued by long term doubts around what might have been?
• How do I allocate limited savings for a potential risky life change?
• Do we participate in an expensive vacation that my family has planned out? We participated this year in Europe, but in summer 2023, it's further away and likely much more expensive. This is part of a larger question around family expectations and travel. I should probably write about this, but in general, I feel a lot of pressure to travel to see family, even though the prices are often higher for me, and my income is lower than the other people participating in the trip.
• Does the ticking time bomb of my poor Baby Boomer parent finally explode. There have been indications just in the past month that it might.

One change to the blog is that I will switch to quarterly updates rather than monthly. I find that I repeat myself too often month to month in these updates, and the movements within a month are often noisy.

With that, I leave you for now and wish you a happy and healthy 2023 full of great moments that let you forget about any financial stress you may have.

November 2022 Update: Electricity, Net Worth, Portfolio

We got a refund on our electricity. Hallelujah.

In 2016, I got it into my head to track our electricity in a spreadsheet. Weirdly, we're required to do our own meter readings and report them to the power company, and since the meter was right there in the apartment, I figured I'd track it. Every Sunday and first of the month, I dutifully snap a photo of the meter. Each photo's numbers gets plugged into a weekly or monthly spreadsheet, which tells me the change week over week or month over month. Add in some spreadsheet functions, and I can see how we're doing in a given year and how our usage has changed over time.

Image: Chart of average weekly electricity usage over time. Does not include heat, which is a separate bill.

Until recently, our average had steadily been moving upwards. This felt inexorable until we made some drastic changes. The main one has been reducing the shower's heat. As I've written before, this means lukewarm rather than luxurious. I also only run the shower when rinsing; while lathering up, the water is off. Both of us are in and our pretty quickly.

Long story short, we managed to save enough electricity to warrant a small refund from the power company. This was a nice boost to November and a pleasant surprise in a sea of horror stories about electricity prices.

All in all, I recommend this practice of proactive electricity usage tracking. Obviously, if I had a smart meter, this might be easier, but this current process forces me to stare at results and ponder why one week was higher or lower, which has prompted changes.

Net Worth

Image: Chart of our net worth in USD since 2013

Our net worth rose 5.33% in USD and .52% in EUR to $128,316 and €123,857 respectively. Liquid net worth stands at $99,626 and €96,164.

Euro Strength

The main driver of the discrepancy between USD and EUR returns was the strengthening euro. Last month, the euro could buy $0.98871, while now it can buy $1.036. That blunts the upward movement of gains in a USD portfolio.

It's fine by me though. One small benefit is that credit card purchases made on US credit cards are cheaper to pay off since the value of the debt has shrunk over time thanks to the currency movement. Yes, I track this.

Portfolio Performance

Image: November portfolio performance as a percentage. Green line = Wiseguy portfolio, yellow = individual US-listed stocks, red = S&P 500, blue = IRA

My portfolios, with the exception of my IRA, outperformed in November. The Wiseguy Portfolio did especially well, rising just under 8%. This was led by the strong performance of the Avantis International Small Cap Value ETF at 12.82%(!), the Vanguard Long Term Bond ETF at 8.55% and the abrdn Physical Gold Shares ETF at 8.45%.

Image: Breakdown of returns within the Wiseguy Portfolio in October and November vs. Vanguard's S&P 500 fund.

Portfolio Changes

Image: My IRAs in blue vs. the S&P 500 in red in 2022

After the last day of November, the trend following rules were hit, and I bought Vanguard's Total World Admiral Shares in my IRA. It is entirely possible that I'll get whip lashed out of that position if the market resumes a downward trajectory. Them's the breaks with trend following.

Near the end of November, I sold Exxon Mobile for a small profit. The proceeds were sent to the Wiseguy Portfolio at the start of December. I'm not good at holding oil extraction companies and should probably avoid them. Berkshire and the small cap ETFs have significant exposure to energy commodities as is.

Other Factors and December Outlook

We received the yearly family subsidy for my wife's piano lessons. That will be stored in our high yield savings account.

December is shaping up to be a mixed bag, savings wise. Christmas is generally expensive, but I also receive my holiday bonus. However, some of my wife's customers were laggards paying their invoices in November, which meant fewer euros being carried over to December. Some of our expenses were also unexpectedly high in November.

We expect visitors from the US for Christmas, which is worth some spending and fun. It's such a pleasure to have anyone visit us over here, and we may do some small scale Europe travel. We will certainly get some kind of Christmas tree.

We also plan to make a donation to our local food bank, whose services we personally witness since they're in our neighborhood. More than food, they provide other nourishment for those who are having bad luck in their lives.

Until next time, count your blessings and help others where you can.

October 2022: Portfolio Performance, Net Worth

Throughout October, I spent much of my free time inputting all of my trades into the application Portfolio Performance.

I wanted to answer the question: am I any good at this? What have I gained by trading individual stocks? I'm not interested in bullshitting myself or anyone who reads this, and so despite the tedious nature of inputting hundreds of transactions and the RSI issues of sitting at a computer that long, I just took the time and did it.

The answer was mixed.

There were many times that I groaned at an ill timed buy or sell. But there were also times when my instincts served me well and saved me from a painful drawdown. It's not a stellar record by any means, but it's not horrible either for someone who barely knows what he's doing.

To summarize: I stumbled along and avoided doing anything disastrous. However, all my efforts added up to underperforming the S&P significantly.

One major takeaway is how fees add up. In my Interactive Brokers account, I've paid over $1,000 just in fees since 2017. Their fees are low, so it's hard to see just how they add up over time. That doesn't include interest costs from using margin either.

It's also clear that maintaining a steady asset allocation somewhere in there is important. The decision to implement the Wiseguy Portfolio was a good one. I'm a mediocre stock picker, and I shouldn't keep all my money in individual names.

The project isn't totally finished; I still want to enter my high yield savings account, since that has been my preferred holding place for cash the past few years. I also need to include the loan I took out, but that's trickier. My goal is an honest accounting, but that's easier said than done.

Here's an image for you though:

Image: Portfolio performance in 2022

Notice how the blue line drops a bit then flat lines with small ticks upwards? That's my IRA gone to cash in February 2022 when the trend following rule was hit and receiving monthly interest payments. This tweet from Cliff Asness sums it up:

Net Worth

As of October 31, our net worth rose in October 4.06% in USD and 3.14% in EUR to $121,828 and €123,220 respectively. Liquid net worth sits at $93,016 and €94,078.

Image: Net worth chart in USD

The stock market did well, and my various portfolios also performed well:

Image: October's portfolio performance chart

You can see that they underperformed the S&P 500 (red line), though my individual stock holdings (yellow line) traded places throughout the month. The Wiseguy Portfolio (green line) fared less well.

The euro strengthened, which lowered the value of USD assets relative to euros and raised the burden of our euro debt relative to dollars. However, my general belief is that I win either way: a strengthening euro is a raise for my income, while a strengthening dollar makes me richer in Europe. It's not a terrible position.

Image: net worth chart in euros

Portfolio Changes

After selling Store Capital at the end of September, I used the money to add to Enbridge, Alphabet, Lowe's and Ally Financial while starting new positions in Pepsico, Exxon Mobile, and Cloudflare.

Purchases

I bought an iPad Air. I love the thing. They've improved so much since my last iPad, and I used Amazon's incremental payments scheme to spread the cost over five months (reflected in the additional euro liabilities burden).

November Outlook

There have been some big portfolio changes in November, sadly. Namely, I sold Ally and spread that around to other companies. That was a long holding, and I hope to re-enter one day, but I would like to lower my tax burden before the end of the year, and selling at a loss can do that.

Otherwise, it's a normal month. Until next time, take care of yourselves and those you love.

September Update: Electricity Reduction, Net Worth, Wiseguy, Euro

My work picked up in September, and life felt like it regained a some sense of normalcy. I was concerned with the ongoings at my job, and there were work politics and friendships to manage. Since I'm not traveling, I could devote myself to my hobbies and to fitness. My wife took new bold steps in her business and is attracting new better-paying customers.

With a moment's reflection, it becomes clear that things are not normal. For one example, we've done a good job lowering our electricity usage by reducing the temperature of our showers. Lukewarm is the best description. We've relegated using our clothes drier to being emergency use only. I've tuned our Synology to only turn on and back up our computers at night. I wake up and immediately unplug the chargers in my bedside table, since they're mini computers, drawing a small current at all times. Lights come on and are shut off quickly. The fridge and freezer are less cold. The kitchen water heater isn't as hot. I cook food in bulk and eat it throughout the week.

We also haven't used our radiators at all yet. It's starting to get chilly in Germany, but we are resisting using them until it's absolutely necessary. We've always kept hot water bottles, and so we've used those when the chill was too oppressive.

For our efforts, our electricity was reduced to 193.4 kWh in September, down from an average of 259.75 kWh per month in the first half of 2022. That's about a 26% reduction. As the weather cools and the sunshine becomes ever shorter, our usage will inevitably creep back up, but I continue to look for other ways to reduce our demand here.

Net Worth Changes

Image: our net worth in a stacked bar chart. The dark blue line is the net sum of assets and liabilities.

Our net worth fell 3.66% in USD and 1.89% in EUR to $117,080 and €119,469 respectively.

For this month, it was entirely due to declines in our stock and ETF portfolios. There was one area of - short term - good news, when Store Capital agreed to be bought out at a premium to what I paid, which brought in a sudden burst of profit. However, this could not counteract the declines elsewhere.

Cash

I continue to hold what are, for me, substantial cash positions. Additionally, my IRA remains in a money market fund as the trend following rule triggering a purchase has not been met. As interest rates rise, these sums bring in ever greater monthly income. However, that is not enough to counteract the S&P 500's regular down 1% days in any meaningful way.

Wiseguy Portfolio

Image: The Wiseguy Portfolio (green line) vs. S&P 500 (red line) in September

The Wiseguy Portfolio did what it should have in September, but it was cold comfort. It "only" fell by 8.51% vs. the S&P 500's 9.87%. I continue to add to it, however, and I add to that which has done most poorly. In October, I added exclusively to the international small cap value fund, since that had been the most battered. In September, unfortunately, we didn't have the income to make a purchase.

Euro

The euro continues to decline, which leaves me conflicted. On the one hand, I'm worried because I earn euros, and although a $500 addition per month to the Wiseguy Portfolio will likely be enough on its own to make us wealthy over time, if $500 per month becomes out of reach, my plan may come undone.

Image: Our net worth in euros over time. Notice the lower volatility.

On the other, I feel ganz schön clever for having all these dollar assets, because in euros, our net worth has been much more stable than the dollar equivalent. My US bank accounts have grown in euros over time by just sitting there.

As I said. Conflicted.

Life Goes On

Despite all the worries, we're trying to live our lives as happily as we can. I have lived without hot water entirely at one point in my life, and it had no effect on my happiness. Ultimately, relationships are wealth, and we've had some social occasions this last month that reinforced that truth. Additionally, we expect my sibling to visit in Christmas, which excites me to no end.

It's a frightening time, but human life is more than the numbers and more than the creature comforts.

Until next time, stay healthy and hug those who need hugging.

July and August 2022 Updates: Travel, Inflation, Rent

In most of July and early August, I was taking advantage of my summer vacation to travel through Europe and the United States. Meanwhile, Europe's bad news kept piling up.

With power prices rising and the rivers drying up and a war and the currency falling in value, it's a worrying moment here. To put it mildly. I've been captivated by the potential for major disruptions to our lives and for the lives of millions of Europeans whose livelihoods rely on industries, which themselves rely on inputs such as natural gas and electricity, both of which have exploded in price.

What does Germany do if its major industries shut down? I don't know.

That said, even while vacationing within Europe, it all felt far away. Shops were open and happy to sell over-priced chocolates or locally made clothing. The wine and cheese in France were still excellent. Paris is still beautiful. The museums remain treasures. People were generally pleasant and happy to see us. My family who visited France loved it and some said they wanted to move there.

To be fair, when I visited the US, all of its problems felt far away too. American food is great. Everyone is nice in a way that feels increasingly foreign and yet increasingly welcome. I think "Maybe I should move back!" after I've touristed in the US, but when I speak to my younger family members about their jobs, the prospect seems less appealing.

All of them are in the rat race. All of them are working their butts off. All of them don't get enough vacation time. I didn't ask about health care, but I know what that's like. All of them are likely earning more than I do, but the price for that is enormous uncertainty and very little freedom with their time. Whenever I spoke about my job, I couldn't help but feel like I was bragging, even though I'm somewhat unhappy with my career and am considering other prospects.

But as soon as the words leave my lips, "Six weeks summer vacation.... yes, it's paid," I know I have something valuable that my working-age American family doesn't have. It's a tricky social minefield, and it's an inevitable topic of conversation because I just have so much free time in the summer. Meanwhile, my American loved ones balance seeing me with their work schedules.

We'll see though. If Germany can't manage its current troubles, it's possible that the system that supports me and my colleagues falls apart. That's unlikely, but it can't be ruled out.

Net Worth: Inflation and Stocks

Our net worth increased 7.46% in July ($123,947) and fell 2.01% in August ($121,453) in USD. In euros, it rose 9.45% in July (€121,160) and rose .44% in August (€121,697). Liquid net worth at the end of August stood at $89,890 and €90,070.

Image: Chart of our USD net worth over time. Notice the value of euro debt decreasing quickly.

The falling euro is scary. On the one hand, my euro wealth continues to rise because of my overwhelming reliance on dollar assets for my savings. On the other, I have received a large pay cut relative to the US, which I felt acutely whenever I paid for a restaurant bill in the US. Inflation in the US plus a falling euro equals pain for euro jobbers like me.

The upsides are that if there's an emergency over here, my USD cash has become more valuable in euros. Likewise, the value of my European debt has decreased significantly in dollar terms.

Stock Market

The stock market since June has been volatile. The S&P 500 rose in price in July to touch the 200 day moving average and has since fallen. My assumption is that it's in a downtrend, and so my IRA remains in a money market account. Ironically, my lack of action since February in the IRA has been the best trade of my life. The interest I earn in it has gone up over time even as the overall market continues trending downwards.

So far, despite the new downward price action, I don't feel any urge to make major portfolio changes.

My Evolving Rent Thoughts

I have to admit: I've been triggered by the rent increase we got in June. Until then, I'd never had a landlord increase their rent on me. And for him to do it then, just as all our economic realities were getting more precarious, felt especially grating.

I admit that this is irrational. He's also an investor, and investors want rising cash flows from their investments. I get it. But I don't like being a landlord's cash flow¹, and so we've been looking at buying properties again. I still hate the upfront cost of buying something here, but man, I hate having my rent raised. So I'll keep looking.

For a few weeks there, I felt like I was in a rush to buy something. But that has subsided. I've calmed down. I'm still worried about a potential rent increase next year too, but I see that our requirements for a property are specific enough that I can't and shouldn't just buy any old thing.

Other Notes: Computer, Refund, €9 ticket

In July, we bought a new computer for my wife. Her's starting crashing, and since she relies on a stable computer for her work, we bought a new MacBook Air for her. We were going to pay for this from occupational cash flow, but amazingly we finally got the second federal stimulus payment in the form of our 2020 tax return refund. Plus interest! That more or less covered the cost, and it came at a perfect time.

That said, we're going to be financially tight for awhile here. She's making a major change in her business, and the short term effects are likely to be reduced cash flow in the short term with increased cash flow later since she'll be in greater control of her time and pricing. She's being bold, and I'm happy for her.

Finally, we will both miss Germany's €9 ticket, which allowed us both to travel throughout Germany for €18 total per month in June, July, and August. It's back to the old complicated expensive system here, and we'll mourn grievously.

That's all I have for this time around. Take care of yourselves and your families. Until next time.

---

1. Especially for this landlord. I like our apartment and its location, but his management of this building leaves a lot to be desired, and we're currently fighting with him about our Nebenkosten. ↩︎

Update June 2022: Bear Market, Options, Life in Germany

In June, our net worth fell by 5.93% in USD and 3.04% in EUR to $115,344 and €110,695 respectively. Liquid net worth was at $83,151/€79,800.

The Bear Market

The S&P 500 officially entered a bear market in June, but this has felt like a bear market to me for awhile. I was holding stocks like Netflix, Facebook, Amazon, Paypal, and Cloudflare from 2021 into 2022, and they're down much more than 20%. It's funny: I knew holding that stuff was really risky, but I couldn't see a way out. I didn't want to sell and pay taxes, so I just held and watched money evaporate. Dumb.

However, even when I did sell, I'd often buy shares in a different company that hadn't started falling yet but inevitably would. For example, if I sold Cloudflare or Square I'd put the money in Amazon. So there was this sense that there was nowhere to run: stay in the name and lose money or sell to buy something "safer" and still lose money.

The names in my individual stock portfolio have gotten progressively more boring. One advantage is that they aren't nearly as correlated, even though on the really bad days, they still all fall together. But at least it's not one big tech trade, which rises or falls based on how the world is viewing tech as a whole.

Painful as this has been, I have learned a lot:

• Be careful of correlations.
• Valuation eventually does matter.
• Paying taxes is better than a crash.

Lastly, this experience has convinced me that most of my money should be in a basket of diversified ETFs, where single stock risk won't wreck my day.

Options Trading

In June, I bought and sold my first options contracts. This is small potatoes, but I bought a call option and sold it the same day, and I'm holding on to a few puts on the overall stock market.

I've long wanted to be able to buy this kind of insurance on my portfolio, but I just didn't follow through with my broker. That said, because it's new, and because it's risky, I don't want to commit a lot of money to this. I remember on Reddit's /r/Wallstreetsbets when there were a few weeks of easy gains for the guys who bought weekly calls on SPY. Inevitably a bunch of other people followed and bet huge sums only to see their options expire worthless.

I recognize the risk that goes along with options trading, and I'll size accordingly.

Life in Germany Right Now

The other day, my wife and I along with a group of others assisted a Ukrainian family move in to a new home. They obviously don't know anyone, so organizations have sprung up to help house them. The family, like many such families coming to Germany, consisted of a mother and her children: the men tend to stay behind in Ukraine.

During this last week, the power company Uniper said that they might need financial assistance from the Bundesregierung due to rising gas prices in addition to lower gas flows from Russia. As I wrote in my last piece, we were asked by our local power company to pay more for our electricity due to the current price realities. When we first moved in, our electricity was around 24 cents per kWh vs. the 39 cents we're now paying. Electricity prices have always felt high here, but now every click of a light bulb or every drop of warm water feels consequential.

The whole situation is unsettling, and it's only summer now: few people use air conditioning here. What happens in the winter when we're all cranking up the heat? I don't know.

There are shortages too, though they're limited to specific items. For example, my employer told us to conserve paper due to a paper shortage. Canola oil in Germany is now basically a distant memory.

Weird as it may sound, I've begun asking myself what event would cause me to buy some plane tickets and bail on Germany. My usual trigger is something like the war expanding into other countries or hitting a NATO country.

I don't want to leave though. It's really a very pleasant country to live in. So let's hope for some kind of peaceful resolution to this violent madness.

Forecasting

My wife and I will be leaving this week to enjoy our summer vacations. We're going to France, so there's clearly still plenty of fun to be had in Europe, despite the present reminders of hardship. Afterwards I'll be flying to the US. I need to hug my family members and, ahem, log into my US accounts from the address I claim as my residence (haha).

And with a vacation comes expenses, but it also comes with my employer's summer bonus. So I've sent off a lot of money - for me - to the various savings account, and I think I've set aside enough for the two of us to enjoy ourselves. My wife also needs a new computer, so that will take a bite out of us.

Until next time, take care. Enjoy yourself in whatever way makes you happiest.

Inflation Bites: Action vs. Acceptance

Image: Consumer prices in Germany broken out by sector, from Destatis

When I woke up this morning, it really hit me for the first time: we aren't in total control of our expenses. I kind of freaked.

Electricity

In the past month, we've been hit with two disturbing price increases. First, we were hit with a price increase for our electricity. It's gone from 31.345 cents/kWh to 39.827 cents/kWh, which is a 27% jump. It would be even worse if we changed contracts, since existing customers get slightly better deals than new customers, so there's nowhere to run.

Right now, we're trying to get our electricity use under control; shorter more precise showers, bulk food prep, and turning electronics off and unplugging them are some of the steps we're taking. So far, it's only made a slight difference.

I've considered buying more efficient electronics (a new stove or refrigerator), but would these new objects actually pay for themselves fast enough to be worth it? I doubt it.

Rent

Even worse, our rent was raised by 17%. Back when we signed our lease, we agreed to have our rent tied to the Verbraucherpreisindex (the German consumer price index). The landlord explained this to us, and I even remember him telling us, but I didn't totally understand what it meant because, well, not understanding everything you're hearing is just part of the immigrant experience¹.

However, I didn't really understand what I was signing. I feel both like an idiot and like I'm sitting on a time bomb. If inflation continues rising in Germany, we could not only be priced out of our existing apartment, but we could be priced out of our neighborhood entirely, forcing us to downsize our living space and move much further from my employer.

German housing sucks right now. I looked around the city to see what prices are like for buying apartments and houses, and it's all bad news. From an American perspective, houses are laughably small and are often comparable to apartments in terms of actual living space. However, they are still expensive and often situated away from good public transport.

Apartments are probably a better option, but they come with mandatory building expenses and neighbors. To be fair, both apartments and houses are often joined to a neighbor's structure, and although I'd like to have some real privacy, privacy is out of our budget.

Let's not forget that mortgages have also gotten more expensive, so previously affordable mortgages are now priced out. Naturally, my German savings account still pays me nothing.

Running the Numbers

As I mentioned in a previous article, you take a huge loss up front when you buy property here. If we saved up €50,000 for a down payment on a place, it's likely that most of that would just go to the Grundsteuer, the Makler, the registration costs and so on. It's a pure loss up front, and it's the kind of thing that leads to sunk cost fallacies: no matter how much I'd want to make a life change, I'd always have this huge expense in the back of my mind.

So I'm trying to look at the numbers rationally and chill out. The rent increase is about 112 EUR. Divide €50,000 by €112, and that's 446 months or 36.16 years. So does it make sense to spend €50,000 to save myself from 36 years of this rent increase?

No, damn it, it doesn't make sense².

Remodeling as Further Disincentive

Another number to consider: if we moved, we'd likely have to remodel in some fashion. German houses and apartments often come without floors, for example, or toilets or kitchens. All of that costs money. So let's say we moved and remodeled, and it cost us €20,000 on top of the €50k we already spent on taxes and fees. That another 178.57 months of this rent increase or just under 15 years.

The risk, of course, is that this isn't the only rent increase. The German CPI jumped by 17% year over year in May, so let's extrapolate into the future. If rent increased again by 17% from our new level, that would be a €129.61 increase. Combined with the previous raise that's a €242 additional payment. So €70,000/242 = 289 months or 24 years. So would it make sense to save and then spend €70,000 up front in order to spare myself 24 years of a worst case scenario rent increase?

I don't think so. But now I'm less certain. And if it happened for a third and fourth year in a row, the numbers start to get worrying very fast. I have to remind myself however, that even if we owned a place, a world in which prices are rising by 17% every year is a world where we're still on the hook to buy things that are increasing 17% every year. If a water heater breaks or if the roof needs repairs or whatever, that would be on us.

I don't have a good answer, and I think I'll have to live with that. My hope is that our incomes will also rise to meet this new challenge, but I can't guarantee it.

Accepting a Loss of Control

Image: various price changes from Destatis

I'm not happy with it, but I have to live with being out of control to some extent. Otherwise I'll drive myself crazy. We do have control over some things, such as our groceries, which have also gone up in price. In that realm, we still have some maneuverability, so we'll have to do what we can there to feel like we have some power.

Hopefully, this doesn't go on forever. And hopefully, I won't be writing a similar article a year from now, chastising myself for not seeing the signs of impending doom via inflation and taking decision action. I'm not sure what action is best besides trying to earn more and spend less.

I'm sure you're feeling some pain from inflation. This is a difficult period for everyone. Just make sure you look at the numbers before taking some kind of drastic action to save yourself from it. It might not be worth it.

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1. This is a relatively new method for German landlords to extract higher rents since the default method is for rent increases to be determined by the city. ↩︎

2. I would like to own property one day, but the upfront costs continue to dissuade me from going too far down this path. ↩︎