The FIRE movement, or "Financial Independence, Retire Early", whose adherents try to retire before the legal age of retirement, is gaining in popularity. It started in the United States and as such, most resources online are for an American audience. We explain how you can reach financial independence in Belgium. We particularly dig deeper into investing, a cornerstone of the FIRE lifestyle, as it's our domain of expertise at Curvo.
What is the FIRE movement?
FIRE stands for "Financial Independence, Retire Early". The adherents of the movement are unhappy with the seemingly arbitrary retirement age imposed by governments. They calculated that it is possible for most people to retire before the age of 67, even if they don't earn a huge income, simply by adopting good financial habits and being in control of their financial life.
What the FIRE lifestyle teaches you
The FIRE lifestyle bases itself on two fundamental principles that will improve your financial life even if your goal isn't to retire early.
The first is about adopting good habits to increase your monthly saving. It shouldn't be a surprise that saving more today will lead to a better financial life for your "future you". Being aware of your expenses and controlling them plays a big part, and it's something you can start doing today.
The second principle is to maximise your savings by investing them in assets that have the highest chance of setting you up for success. It's not about making a quick buck but instead the goal is to invest in a sensible and proven way for the long term.
There's no right or wrong way of doing FIRE
Some people in the FIRE community become dogmatic about the "one" true way of doing FIRE. For some, you're not properly doing FIRE unless you only eat home-cooked meals (preferably something cheap like pasta) and you are willing to cross the city to save €1.87 on that set of 8 batteries.
We disagree. FIRE is a spectrum, and there's no right or wrong way of doing it. Everyone is unique and has their own preferences on what they're willing to change today in order to have a better future. In the end, it's about being aware of your expenses, and being in control of your financial future.
Is FIRE possible in Belgium?
It is, and people have done it. There are definitely easier countries to reach FIRE, but it has benefits that make it particularly attractive:
- A strong social safety net. For instance, Belgian healthcare is affordable and of a high quality. This is an important worry less while you focus on becoming financially independent.
- No capital gains on stocks. Belgium is one of the few countries that does not tax capital gains for investments in stocks. This is a huge advantage because profits on investing compound.
Good investing is the cornerstone of reaching FIRE
Reaching FIRE essentially consists of two tasks:
- Save more every month by increasing your income or reducing your expenses.
- Make the most out of your savings by investing them wisely.
When it comes to increasing your savings rate, it's often easier to reduce your expenses than increasing your income. It starts with getting visibility into how you spend your money. Track your expenses for a month, for instance through your banking app. Then question each expense: was it a necessity? Did it contribute to my happiness? Can I avoid it in the future?
Growing your savings by investing is more challenging to most because it requires diving deeper into the world of finance. In the rest of the article, we will teach you how you can start investing in a rational and proven way, without getting tangled up in technical complexities.
Investing with your bank likely won't get you to FIRE
For most, their bank is the one-stop shop for anything related to finance. Unfortunately, they are likely not your best partner when it comes to investing.
First of all, a savings account is not the place to keep you hard-earned savings for the long-term. For the past decade, the interest rate on savings accounts have been close to zero. On the other hand, inflation has been around 2% and is growing, meaning life is getting more expensive by at least 2% every year. So by keeping your money in a savings account, you will be able to buy less and less every year. Your savings are losing their value over time.
To earn a return on your savings, banks offer investment funds. These funds invest your money in stocks and bonds around the world. The issue with the funds offered by banks is that they're very expensive, mostly because they're actively managed. The fund managers try to outsmart other investors, which you pay for by giving some of your return to the bank. Unfortunately, the ESMA (European finance regulators) found out that the majority of them don't succeed in beating the average. When taking into account the hefty fee that the banker pockets, you'll be worse off.
Fortunately, there are ways to invest in the financial markets that bypass the banks and their high fees. In particular, we believe that investing in index funds (or ETFs) is the best way for most to make their money work for them in the long term.
Why index investing works
Investing in index funds is also called "passive investing" because you're not actively trying to outsmart other investors. Instead, you simply invest in as many different companies as possible across the world, thereby earning the average return of the global economy. Fortunately, the world economy has grown enormously over the past 40 years:
The graph above shows the evolution of the MSCI World index since 1979. MSCI World is a bag of over 1,500 stocks from 23 countries (US, Germany, Japan, UK…) and approximates the world economy. A €10,000 investment in 1979 in a fund tracking MSCI World would have grown to €880,000 today! This equates to an average yearly return of almost 11%. This is much better than a savings account! And index investing is also much cheaper than investing through your bank.
The two ways of index investing in Belgium
There are two ways you can start investing in index funds in Belgium:
- Do-it-yourself by managing your own investments through a broker.
- Automated through an app that takes away the complexities of investing and assists you on your journey. This is the problem that we try to solve at Curvo, because not everyone has the time, interest and motivation to dive deep into the world of investing to manage their own investments.
Let's dig into each option.
Option 1: do-it-yourself
There are several steps involved when setting up your own investments:
- Choosing the indexes in your investment portfolio. MSCI World is one of the many indexes you can invest in as a Belgian resident. You need to choose the right mix of funds that is in line with your goals, time horizon, and appetite for risk. To help you get started, you can inspire yourself from the Curvo portfolios that are offered through the app.
- Open an account with a broker. The best way in Belgium to invest in index funds is through ETFs. And to buy ETFs, you have to go through an intermediary called a broker. There are several brokers available in Belgium and they differ mostly by cost and ease of use. Our comparison of brokers is a good starting point.
- Choosing the right ETFs. For each index, there are usually several ETFs from different providers you can choose from. It's crucial to pick the right ones though, because the way they're set up can have important tax implications for you. For reference, we recommend you go through the things to consider when choosing an ETF.
- Make your investments every month. For most people, investing every month is preferred over saving up a large amount. This is called dollar-cost averaging (or rather "euro-cost averaging" for us). Investing regularly allows you to minimise the risk of buying at the wrong time. By diligently buying every month, you invest no matter how the markets are doing, whether they're low or high. We further discussed this in our article on dollar-cost averaging.
There are advantages to managing your own investments:
- The allocation of your portfolio is in your hands. You decide what you invest in.
- Cheap. Just like repairing your car yourself is cheaper than having it fixed by a mechanic, managing your own investments is cheaper than having someone else manage them. And the less fees you pay, the earlier you'll reach FIRE.
However, there are also downsides:
- You need to do your own learning. Figuring out how to start and understand the intricacies of passive investing in Belgium takes time, motivation and a certain amount of self-confidence.
- Figure out the tax implications. Belgian taxes are complicated and they change all the time!
- Learn how to rebalance. After a while, your portfolio will need to be rebalanced so that it's still in line with your goals and risk level.
- Manual labour and mental effort. It doesn't take too long to calculate and execute your transactions every month, but it's a tedious task that becomes repetitive over time.
Option 2: automated through an app
At Curvo, do-it-yourself is how we started. Our founder Yoran spent hours researching and figuring out how to build an optimal portfolio to set him up for financial independence. From this experience, he realised why none of his friends were investing: it's complicated. Managing your own investments successfully takes a combination of interest in the world of finance, a considerable amount of time, and a healthy dose of self-confidence. Especially if you're going through the process alone.
He built Curvo. Curvo's goal is to make index investing accessible to everyone who wishes to improve their financial future and gain financial independence. And they do this by removing all the complexities involved in investing, so you don't have to worry.
There are advantages to using Curvo compared to doing it yourself:
- No expertise needed. The complexities of investing are taken care of so you don't have to worry.
- The portfolio is automatically set up for you. The best portfolio for you is built based on your time horizon, financial goals and appetite for risk.
- Investments on autopilot. Set up monthly contributions through a direct debit ("domiciliëring" or "domiciliation") and your money is invested automatically.
You can learn more about how Curvo compares to do-it-yourself investing.
The cost for using Curvo is an all-in 1% fee per year on your total investments. This may be more expensive than the broker fees when doing it yourself. This means you'll likely reach FIRE a bit later, but you get peace of mind throughout your investment journey.
Learning more about FIRE in Belgium
There's a growing interest in Belgium in the FIRE movement and personal finance, and we're happy to see more initiatives happening with the goal of spreading knowledge and tips. We really enjoy the Joney Talks podcast. The host Jonathan interviews interesting guests from the world of personal finance, and you'll be sure to learn something to help you on your journey to FIRE. Our founder Yoran appeared in an episode on passive investing in Belgium.
We also recommend you check out two Belgian communities specific to FIRE. The first is FIRE Belgium, started by Sébastien Aguilar. The community gathers and discusses on three Facebook groups, depending on your language of preference: English, Dutch or French. Another similar and vibrant community is the /r/BEFire community on Reddit.
We learned that FIRE is a movement that's about gaining financial independence. It teaches you important skills that will improve your financial well-being, even if your goal is not to retire early. It's definitely possible to reach FIRE in Belgium, and we saw that passive investing is a great way to grow your savings over the long-term, where your money isn't lost to inflation as with a savings account. Investing in index funds is also cheaper than investing through your traditional bank.
There are two ways of doing passive investing in Belgium: do-it-yourself or in an automated fashion. It's cheaper and you can FIRE earlier if you do it yourself. However, if you don't have the time to learn the intricacies of investing, why not use something like Curvo instead? It takes away all the complexities of investing and makes it simple. Yes, you'll pay a premium but it's worth it for peace of mind.