Two years ago John van Zuylen had no savings, yet today he has retired from full-time employment and has declared himself to be financially independent. So how did he do it?
Those who attended his talk on financial independence at a recent meeting hosted by the nonprofit personal finance community, the UAE Bogleheads Chapter, learnt that his ability to retire at 37 came by transforming the way he lived and spent his money.
From renting far cheaper accommodation to never paying full price on entertainment, asking for a discount wherever he went and even having free haircuts, Mr van Zuylen, from Belgium, has completely altered his lifestyle.
“I was working in a good company, earning over US$10,000 [a month] but I was spending it all,” says the former solar industry professional. “I did not see the point of saving and I was living the high life because I thought ‘well, I’ll just keep on making money’.”
It was a talk on financial independence in 2015 given by Sebastien Aguilar, co-founder of the UAE Bogleheads Chapter, that set Mr van Zuylen off on his new path.
"I didn't limit myself in my day-to-day life – it's not like I started eating pasta every night," he says. "We had a regular life but realising how simple financial independence and saving is, you become more motivated. It's not even an effort to save because it becomes the right thing to do. Suddenly I no longer enjoyed going to a restaurant because that no longer made sense."
So what is financial independence exactly?
Mr Aguilar says it has several definitions based on an individual's goals and personal circumstances.
“The general definition is the financial state where ongoing passive income covers all living expenses,” he says. “For some people this means being able to sustain one’s lifestyle without relying on a normal salary, and hence in a position of leaving one’s job. For others it is about having the freedom to choose what to do with their time, irrespective of financial constraints.”
When it comes to working out how long it will take to achieve a financial independent status, Mr van Zuylen developed his own formula that factors in the number of years an individual needs to support themselves after retirement, but also the percentage of income they can save and invest. Put simply, the higher the percentage of savings and the lower your expenses now and in the future, the faster you will achieve your goal of being able to support yourself without a regular income.
"If you want to save 5 per cent of your income every month, you still have 66 years left to work," he says, "But if you save 65 per cent, you have 10 and a half years; after that you will be able to keep the same comfort of living as you enjoy today. It's not about how much you make; even if you make a small salary you can still retire early."
Mr van Zuylen points out that to make the calculation yourself, you must factor in where you live after you retire, with plenty of countries offering lower living cost options than the UAE.
While one of his tongue-in-cheek recommendations is to never have kids, Mr van Zuylen’s path to financial independence was not entirely about constructive saving but also constructive investing.
And he admits he had an advantage: he leveraged a property he had inherited from his grandparents to invest in more real estate.
"We then managed to achieve financial independence very fast, so it's cheating a little as I realised I could use the building to borrow money from the bank and buy other properties with it. Of course I need to pay back the loan but I am creating other net positive rents out of this," he says, adding that his property investments are in Dubai and Europe and he also invests in low-cost exchange traded funds.
Mr van Zuylen points out that your monthly savings are simply your income minus your expenses. But while your income is rigid, unless you are lucky enough to receive a pay rise, how much you spend can be adjusted.
To reduce his expenses, Mr van Zuylen introduced a number of measures to his life to reduce his outgoings, focusing on key areas such as housing, shopping, driving, travel and going out.
One of his most important decisions came a few years ago when he and his wife relocated to Jumeirah Village Triangle, renting an 1,800 square foot villa for Dh55,000 a year.
"Before that we were paying Dh115,000, and suddenly we were in a brand new villa with a warranty," he says, adding that residents should not be "sheep" and follow others to the new, trendy communities. Instead they should check out newer, further out communities, to get the best deals.
Other housing tips included not having a spare room, checking your utility bill for any sudden spikes in cost due to leaks, and knowing your rental rights.
Today he says his rent is still around the Dh63,000 mark in an area where the average is Dh100,000 because he has read up on the property laws and knows his rights.
“That’s a lot of savings because I made the effort to read the rules,” he says.
His tips for grocery shopping include buying online and cooking at home, rather than eating out during work hours or ordering delivery when you get home.
To assess the savings he could make through online shopping, Mr van Zuylen compared regular store prices to online options, finding some differences in price as high as 83 per cent.
‘We never go into a normal shop anymore and we spend Dh140 to cover groceries for one week or 10 days,” he says.
Other shopping tips include taking advantage of promotions and free samples, never buying coffee when you are out, and utilising your freezer more to make produce last longer.
For driving, he never uses Salik toll roads, always drives under the speed limit to avoid fines and says buying a car is preferable to leasing.
“This is a hot topic,” he says, “but personally if you are planning to stay for the long run it’s better to buy but if you are staying short-term then lease and get rid of it when you go.”
His lifestyle saving tricks also include signing up for airline alliance membership programmes, taking the free toiletry samples at hotels home with him, and using his credit cards to build up air miles.
UAE Bogleheads Chapter co-founder Mr Aguilar is also striving for financially independence. While his full-time career is in energy management consulting, and the 32-year-old, from Belgium, enjoys his work, he says he wants to use his time in the future as he chooses, rather than basing decisions on where the money comes from.
“For example, me and my wife would like to be able to spend time with our future children. We want to be there for them and see them grow and develop. We don’t want to be constrained to seeing them only 30 minutes in the morning and one hour in the evening because we’re at work,” he says.
Other goals include travelling more without rushing back to work, focusing more on his health and returning to studying.
Mr Aguilar says the couple will be able to achieve this by the age of 45 by following the regular approach for building wealth: earn more, save more and lower one's living costs, and invest wisely.
"To reach financial independence you need to work on all three of these aspects in parallel," he says, adding that whether he and his wife retire early depends on the performance of their investments and the amount of money they need to cover their expenses.
“Because we are expats, the latter changes a lot depending on where we decide to live later. If we want to live in Dubai we would need 12 to 15 more years of work. If we move to a place with lower cost of living it would be less. And this is assuming that we maintain our current level of income. Changing to a lower paying job (or moving to a country where we would save less) would increase the number of years required to reach financial independence.”
So once you have achieved financial independence, what happens then?
Mr van Zuylen stresses that he is busier than ever. An entrepreneurial project he had developed in the past recycling items from homes, offices and schools suddenly took off again, which has delayed his planned return to Europe.
“I had built a company that did not take off but magically a client called me and now it’s working again,” he says, adding that his wife still works full-time in Dubai. “But this is not work, I’m just doing something I like, but at the same time I don’t depend on it to live.
“Just because I am not going to the office everyday does not mean I am idle,” he says. "I’m currently working on three different companies and I wake up at 5.30am because otherwise I would not have enough time to achieve everything I want.”
For those looking to start themselves on the road to financial independence, Mr van Zuylen's advice is to save one per cent more each month.
“The difference will be marginal but over the year you will be saving 12 per cent more and marginally with the compound interest there will be a much bigger effect," he says.
"Financial independence is not about being on the beach all day long – you are going to be investing your money and that money is going to generate interest to pay your bills. It's not a vacation – it's just that you no longer need to go to work to survive."
The Milestones of financial independence
For those interested in pursuing financial independence, they need to save and invest wisely. Here Sebastien Aguilar reveals the milestones you need to hit along the journey to get to a place where you no longer need to worry about working for a living:
• Financial Dependence: you wholly rely on your salary and your income may not cover your expenses
• Financial Solvency: self-supporting - your income covers your expenses
• Financial Stability: you have an emergency fund in place
• Debt Freedom: all high interest debt has been cleared
• Financial Security: basic living expenses are now covered by passive income
• Financial Independence: full expenses covered by passive income
• Financial Freedom: you have achieved bigger financial goals
• Financial Abundance: you now have a surplus income and have to decide how to responsibly manage it