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What Is FIRE – And Does This Work In Germany As Well?

The FI (RE) movement in Germany is still very small.

Therefore, very few people are familiar with the concept of financial independence. Although special interest media such as Wirtschaftswoche and even mainstream ZDF have already reported on the ‘exotics’ who want to retire at the age of 40, it’s effectively quite a niche topic.

So, what is ‘Financial Independence’? Basically, it is about being able to cover your expenses independently of paid work. In the extreme, this can lead to not working anymore at all and only living from (relatively) passive income streams such as dividends or rental income. That’s not an utterly new concept – there were ‘privatiers’ or ‘rentiers’ before – it’s more of a democratization. Today, financial independence is still not possible for everyone, but for significantly more people than the ‘upper ten thousand’.


It’s all about salary-independent streams of income

Many followers – and especially the younger ones – of Financial Independence are actually talking about ‘early retirement’ when they stop working in salaried jobs. But most of them do not really settle for retirement in the traditional sense, but pursue passion projects or new business ideas. And quite often they will also earn an income from these activities. They are not dependent on an employer anymore, though, which gives them a very high degree of autonomy.

Quite obviously you might say: yes, but isn’t that just like freelancers or self-employed people? But that’s where the difference comes in: if I, as a freelancer or someone self-employed HAVE to earn my living from my business, I am as dependent on this income stream as an employee is on his salary. Not everyone who is self-employed has voluntarily opted for it either, and many find it difficult to acquire new clients and live with fluctuating revenues. I think that’s something often overlooked when one’s angry about the boss or fed up about annoying red tape in the office as an employee.


It’s easier to build assets in the US

Now, salary-independent income streams don’t fall from the sky. In most cases, the capital from which passive income will flow has to be built up by saving across a longer period of time. In the US this is helped by a stock-friendly pension system, since stocks have historically provided the highest average yield. Through vehicles like the 401-k-plans, relatively large sums can be invested in stocks, funds, or ETFs out of the gross salary and will only be taxed at retirement age. On top of that, deductions on your pay slip are lower than in Germany for example, leaving you with more take-home pay to additionally save from.


Cost of Health-Care and Education – Advantage Germany

While I do find it a pity that Germany does not offer a similar system and is way too heavily invested in insurance-type pension schemes policy-wise , we also have advantages for the creation of financial independence in comparison with the US. Particularly helpful are our state health and education systems. In the US, health insurance premiums can very quickly rise significantly if you are not insured by an employer. As I’m privately insured myself and therefore quite familiar with the private health insurance system, I feel that many of the American FIRE bloggers underestimate the future development of their health insurance costs (not all of them, some are quite aware of the risk, and also warn FIRE aspires not to treat this issue lightly).

With all legitimate criticism of the German health care system, insurance costs in the state system are much better to calculate. The second advantage is our state education system. In order to be able to save and invest significant amounts, you have to earn enough money. That’s not a clearly defined amount, of course, because ‘enough’ also depends on subjective consumer expectations. But I think it is fair to say that the chances to be able to save and invest significantly correlate with the level of education. Even if a university degree does not guarantee above-average earnings, it is often a prerequisite for this.

Especially software developers, engineers, but also medical professionals seem to be well represented in the FIRE-movement. In the US, many of them have to repay student loans in the five- to six-digit range. In comparison, any semester fees at German unis are vanishingly small. I do not want to imply that there are no financial obstacles to studying in Germany at all. But studying here means significantly less of a financial burden. This might even become significant on the path to financial independence twice if one wants to take into account future study or even school costs for one’s own children.


Take the first step

You’re financially capable of living below your means? Great, then it’s just a matter of personal priorities whether you want to start your journey to financial independence! You can decide along the way how far you’ll actually go – just take the first step now.

Financial Independence Rocks!


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