As I wrote at the beginning of the year I had 3 goals for 2019. And one of them was not so much about taking action but it was about a big milestone and mental change as well. It was paying off the student loan. An Estonian student loan is about 6% interest rate, so no great 2% loans as in States... But many of us needed to take these loans out, and I needed as well. Most years I did not take out the maximum sum, and I think that one year I did not take out any, but I was 6 years in university and I had more than 6000€ student loan. And the payment plan was 10 years. 

And May 2019 was the last payment. So finally I am totally debt free! And this means I have extra 70€ every month to put towards investments or maybe just spend... It is my money to do what I want. But the feeling of having no such obligations is so freeing :)

I have been thinking about the costs of investing in my LHV Growth Account. 

There are many costs associated with this account. There is a monthly fee of 0,05% starting from the second year and there is also a 1% fee for purchases. Also selling ETFs is rather expensive with an 11€ fee + 0,3% per instrument, and LHV funds charge 1% of sales fee (not sure if this also includes the 11€ or not). Why I use it? Well, it is still the cheapest option offered here in Estonia, also due to the tax law I can postpone income tax on this account. In the future, I might also look into Interactive Broker or other options but at the moment I am using the LHV Growth Account.

But I had one more cost associated with this account. One of the ETFs I was using was an IEMM (Emerging market companies - iShares MSCI EM UCITS). And although they tell you the fund is operated in euro, they lie! So every time I bought my funds or every time I received dividends - it happened in USD. And every time I had to pay for the currency exchange for this. I decided to end this extra cost. So first I stopped buying this fund, and then I waited for the fund to go up enough that I could sell it without losses. So I had 32,149 shares of it and my personal purchase price had been 35,63€ (so 1145,47€ invested) and I sold at the price of 36,664€ (1178,71€) and paid 14,54 as a fee. So I sold with a tiny margin and was rather happy as the fund had been rather volatile. Of course, since then it has gone up being over 37,40€ at the moment, but you win some you lose some. At least now all my ETFs are traded in euro and I have therefore limited somewhat my monthly costs on the account.

Generally, tax season in Estonia is an easy time. You have to look through the prefilled digital tax form and just sign it. I think it usually takes about 3 minutes. 

As we had tax reform some time ago 2018 was the first time when the flexible basic exception was actually in use. So this year had surprises to many people... This meant that the people who were afraid of the new system asked to be taxed more than necessary throughout the year and now got a refund. And others had a nasty surprise of needing to pay more. So you either gave an interest-free loan to the state or now need to pay some back. The people who need to pay some of it back usually did not realise that if they had any additional income this was not just taxed at 20% but this also meant that they lost some of the tax free balance they had so also some other income was additionally taxed. I wish we had clear tax brackets where a person could know that if I earn this or this much my tax free amount a year is x. 

But no, now in Estonia we have some "lovely" complicated system for it:

• If your yearly income is less than 14 400 € the annual basic exemption is 6000 euros. So if you earn 10 000 a year, 6000 € is tax exempt and 4000 € is taxed at 20%, which means you pay 800 € in income tax.
•  If you earn above 25 200 € the basic exemption is 0 and all your income is taxed at 20%, so earning 30 000 € a year means you pay 6000 € in income tax.
• And if you are the majority of the population who earns between these 2 numbers of 14 400 euros to 25 200 euros, you need to take learn this rule by heart: 6000 – 6000 ÷ 10 800 × (income amount – 14 400). So even if a bank pays you dividends it changes your basic taxation. 

For me the tax report does not take 3 minutes, it took weeks and weeks to get the 14-page report in order. In general, it is rather easy. My wages, sickness benefit etc are sent in automatically, I just had to add most of my investments. The LHV growth account can be sent on automatically, also EstateGuru offers this service. So this just leaves the other portals. Most of them offer easy yearly income overview so it is just a matter of entering the data to the correct parts of the form. The issue I had for the second time in a row was CrowdEstate. For investments in their portal, the income tax has already been deducted and the clients to whom I borrowed the money should declare it themselves. Most of them had nicely entered the data and it was there the day tax reports become available. But for 2  companies it took them weeks and weeks: the Vakning OÜ and Starelement OÜ gave me a headache. They finally appeared about a week before the deadline of submission. All others were there before the 2 month submission period started, so shame on them. Vakning was the one most delayed and this was the company which had the same problem a year before as well (financial issues?). If I could leave them out of my auto-invest in the platform - I would do it in a heartbeat. Too much hassle and grey hairs, and for what?

So, most of my income tax had been deducted by my employer as well as some of the portals. The LHV Growth Account allows the postponement of the taxes, so only for portals like Mintos, Bondora, EstateGuru, Grupeer, Envestio I need to pay an additional tax (plus the tax which comes from the added income and the lowering of my tax exemption of course as well).

By 1st of October this year I need to pay additional 306,80 € to the Tax and Customs Board which means I had 1199,37 € income from my investments and if you think the numbers do not add up, this also made some of my wages to be taxed due to the crazy tax law. I mean 20% of 1200 would be 240€ and taking into account that several income strains are either tax-deferred or already tax paid... should mean it gets smaller, not bigger. Well, this turned into a rant, but I hate this system. Not because it is unfair or something, but just because the numbers really do not add up. And if it is complicated for me, a person who actually loves math and personal finance topics, think of for example retired people who might be totally clueless of this system.

What is considered persons Net Worth is quite simple in theory. It is all your assets minus all your liabilities. Have you ever calculated yours? If not, you should.

There are many theories on what you should and should not include in these calculations. Some include cars, others say that a car is just an expense. Some include the house or flat they live in. Others believe you should just include investment property and not the ones you actually live in. If you decide to include such things you need to include the current market value (not the purchase value) of the said car / flat and then in the liabilities side, of course, any mortgages/loans you have. As I do not own any real estate nor a car it is an easy decision for me not to include such things.

I do remember some time last year I did this exercise as well, but I can not find my notes anywhere. So this time they are going online so I have a place to look them up when I reevaluate things.

I started looking at my assets with the cash in my wallet, money on my bank accounts, as well as, the emergency fund. As I recently booked a hotel for myself and several people for later this year and paid it on my credit card so I also added this as money owed to me to the plus side as I do expect to get this back within a week or so. Most people have already paid it so just few to go.

Then I remembered I have a coin collection - these are limited issue Euro coins, mostly just picked up from circulation. I have never bought any over the coin face value. I have not had the collection professionally valued so I do not know the full value of it, so I just calculated what it would be worth if I spent the coins as normal. Although when looking them on coins shops most of them are valued at least 3 times over the face value, many even 10 to 20 times more. So it is an understatement, but it is a number I can easily calculate. This is the moment when a person who owns (sellable) art or expensive jewellery would add this to the value of the assets.

When I looked at my pension account value - it is a mandatory account in Estonia for people of about 35 and younger. I looked up the current value of my stock portfolio, my investments in Bondora, Mintos, Grupeer, EstateGuru and CrowdEstate platforms (I grouped these for the graph).  And then I wrote down the LHV Growth Account value.

So these are all the assets I could think of owning (did I miss something obvious?) and the values:

wallet	105,84
money owed to me	165,70
bank accounts	1613,15
emergency fund	4221,71
coin collection	298,02
pension account	9006,94
stock	730,00
p2p	3971,79
p2p realestate	7667,09
LHV GrowthAccount	4859,06

There are of course things I could add here like the more expensive things I own such as my photography equipment, my guitar, my computer etc. But I do not see any value in this. These are things I would not in a pragmatic situation sell to make money, I would use other assets, so I do not think you really need to calculate such things. Some do, I did not.

So now we come to the liabilities, there are just 3 things there. 

My credit card is most of the year all paid up but as I just booked and paid hotels the balance is -770,18, which will be paid back on the mandatory date. I have never kept a balance over to the next month there. No need to take up these expensive debts. 

I took up student loans in university due to the reason that I really needed them but also as there was a programme that if you then moved to the state sector the state would pay it back (it was extremely likely in my selected field). So my heart was a bit more relaxed on taking out the loan. Fortunately, I did not take it out every year and some years I took just the amount I needed not the full amount offered. I say fortunately as (like many people) I got fully screwed over. They changed the law so that people who had taken out the loans expecting the state to pay it, had to pay it back themselves. In many majors like teachers, for example, you would work in the state sector and were 100% sure to have the state pay it back. Well this was not what happened. They added a deadline that if you had not been employed full year by that date state would not pay, and of course, I missed the deadline by about 15 days as signing my contract had dragged on for months... So I had to pay back thousands of euros from my small state sector paycheck. Fortunately, the balance isn't too bad any more. Just 502,51 still to pay.

Last liability is my mobile payment. I have never taken out any type of consumer loans. But as telecommunications companies sometimes make offers where taking out 1 or 2-year payment plan is CHEAPER than actually just buying the phone you want out right at the moment I have used this type of offer twice now. So 78,75 owed to my telecommunications operator. 

If you have a mortgage, any type of loans, car lease, credit cards to pay back - all of this should be written down here. I now for some people the final balance might come out negative, especially if you have a huge mortgage. But it is important to know what your net worth is and are you making progress on it. Calculate it, and then look at it ever 6 months or so. It is important to remind yourself to pay back loans and increase investments. 

So, all in all, I have 32 639,30 € in assets,  -1 351,44  in liabilities and my net worth is currently 31 287,86 €. Could be better of course, but it is a work in progress.

And remember whatever your net worth is, that it does not and never should affect your self worth!

From time to time when I feel I need to unwind from work, I watch some youtube videos (yes, I am guilty of that)... and somehow I stumbled on an account The Financial Diet which provides short financial videos about twice a week. And I have kept on watching. 

There are two female hosts and a regular guest host as well and they have about 200 videos uploaded there.

To be frank, most of it is quite USA specific but most videos tend to have something noteworthy for the rest of the world as well. They do screw up sometimes and say things like "a good coat which serves you for many years is an investment", perhaps financial text should not state that, but hey, these slipups happen. Also, the hosts do not invest, which is important to know. But they talk about saving, earning extra money, bad money habits, spending mistakes etc. Nothing too deep, but nice relatable episodes- maybe worth checking out?

Do you have a favourite financial / investing youtube account or a podcast? 

Compound interest is one of the most important terms to fully understand for someone who is planning to invest money. It is important because it will make growing your money more effectively.

What is interest itself? It is a fee paid by someone for the right of using someone else's money. If you borrow money you pay it, and if you invest your money well you are paid for it. 

In growing your money compound interest is the interest you earn from the interest previously earned. So if you invest 100€ with a 10 % interest by the end of a year you have 110€. If you keep the money in the system the next year the principal of 100€ will again earn you 10€, but the 10€ you earned previously has also earned you and 1 extra €. This 1€ does not seem as much but as years pass it can actually make a huge difference. So basically the more time you have to let your money grow the more previous earnings will start also earning for you. The main things that help you here are the sum initially invested, how much you are able to add to this regularly, how much time you have and of course the interest you receive from your investments. 

As compound interest works it's magic ower years starting as early as possible is important. Start in your twenties if you can.  As they say, the best time to start to invest was 10 years ago; the second best time is now. So start now!

Here is a graph that shows it clearly. If you save 200€ a month and therefore invest 2400€ a year - in 20 years you will have more than 100 000€ although you have deposited less than half as much with 48 000€. You have more than doubled your money.

So what happens if you start later? If you start 10 years later by the same time you have deposited 24 000 and have earned just 11 000€. 

It is always easy to put it off, thinking that in my future I will earn more and will be able to invest more, so there is no reason to invest now when I have little money. Well, let's say you start 10 years from now and invest twice as much with 400 € a month. You will have invested the same amount of money, but the account value is just 71 000 € compared to 105 000€. So starting early with small sums is always better than waiting.

Also it is, of course, important to figure out where to invest. Saving money in a piggy bank is bad, also bank accounts have dismal interest rates (mine is at 0,3%), Savings Accounts offer up to 2% which is way better than nothing, but still dismally low. If possible strive for 7-10%.

Here is a graph that shows what happens when you invest 200 € a month for 20 years at different interest rates.

And as I stated the real magic comes in time, so the same amounts with 30 years of investing on the lower graph are really interesting visuals. As you can see the 10% interest is really taking off in an exponential manner.

So what can you do to take best advantage of compound interest?

1. Start right now!
2. Find a place which offers the best interest to you at the risk level you are comfortable with. If possible it should have automated investment option to reinvest all interest incurred. Perhaps use Mintos or Gupeer loans with buyback guarantee, which at the moment offer even 14% interest. Or a safer option would be to invest in dividend-paying ETFs, but with lower rates. 
3. Automate your deposits. Make an automated transfer to the chosen investment account or site that deposits money as soon as you receive your paycheck. So you even don't have time to miss the money you invest. Do it even weekly, even just 10€ a week is much better than nothing at all.
4. Figure out the tax system of your country and if there are any tax benefits use them. In Estonia there is an option to postpone income tax with some investments, so the 20% you would otherwise be giving to the government helps your money to grow... and you pay it when you start withdrawing money in the future. This extra 20% is very important in compounding the interest. I use this with my LHV growth account, when investing in ETFs. So figure out if there are any similar possibilities in your country.
5. From time to time look at how your investments are doing and if needed or new and better opportunities arise invest in offers giving you better interest. But make sure that you don't become too greedy. Higher interest means higher risk. Find a balance, even if it means investing a certain portion in safer options and part in higher risk and interest places. 
6. Be patient and do not withdraw the money to spend it.

Emergency fund - what, when and why? Do we need an emergency fund?

My personal policy is that everyone should have an emergency fund. So, everyone should have money put by for emergencies. This means that if you need to have a bigger purchase you will always have enough money to replace a broken freezer or a shattered car windshield etc. You should never face the need to sell your investments then the timing is not opportune, or to take out a loan for this. And you never know when unexpected things happen- for example, this month I had to bury a relative- funeral can be costly and anyone with relatives might experience such unexpected cost.  

The size of the emergency fund is a complicated question. Usually, an emergency fund is meant to be your safety cushion for unexpected expenses but also if you need to change jobs or perhaps are let go. So different people advise having enough money to cover living costs for 1-6 months, sometimes even a year. Usually, 3 months is an average what is suggested. When thinking about it- it is also important to think realistically how likely you are to be made redundant, and also how likely you are to find quickly next employment. So as a state employee I feel quite safe and try to keep at least 3 months living expenses as a backup, maybe a bit more.

How much to save for x amount of time? If I have an emergency fund for 3 months this does not equal 3 months income. Don't think of your current living standards. If you are good at budgeting and have been keeping a budget for several months then it should be easy to calculate all necessary costs. Keep minimalistic living costs, cut out investing, eating out and other expensive habits. Realise that emergency means emergency- you are not meant necessarily to live at your current comfort level. I do not budget- so the first benchmark is to calculate my current income and remove all investments. I earn about 1100 after taxes and invest about 300 a month. So general (and a generous) rule of thumb should be 800€ a month for me. Really the amount would be lower as some extra spending comes from working (during long working days I mostly eat out for lunch and also often buy prepared dinners). So I could live on 700€ a month reasonably, 400 of which is rent and utilities, leaving about 10€ a day for the rest. In summer then utilities are lower as there is no heating 620-650 could be the sum I need.

My emergency fund has been between 3000-5000€ so based on my calculations this covers 4 to 7 months living expenses.

How to save up for an emergency fund? This can be complicated based on how much you are used to spending and saving. The general rule is that saving up 3 to 6-month fund takes commonly 6-12 months. So do not think it comes fast and therefore do not give up in first 2 or 3 months. Make sure all unexpected money goes to the emergency fund. Take extra side hustles and find extra work- write articles, tutor school children, babysit etc. It is important to increase your income to save this money. Also of course limit spending. Perhaps one month stop eating out and next month decide to spend nothing on entertainment and look for free options. Changing what you save on makes this saving easier, and also makes you think more about your spending habits as well. Do remind yourself that you are living frugally to save up money for peace of mind. You do not need to worry about thing breaking, roof leaking or realizing you need to fight with bad mold in your bathroom etc.
Also paying yourself first is great advice. Add automatic transfers just after your payday and then you don't really see the money you save. It is much easier to, for example, pay 100€ at the beginning of the month to the emergency fund account than to try to make sure you have 100€ "left over" in the end of the month. Also if possible clearly mark the account as an emergency fund- this also helps to limit another spending from it.
If you are bad at saving adding real goals and rewards for reaching goals can be helpful. For example, if you have really limited your spending perhaps reaching 50% of the goal is the time you by a nice concert ticket for your self. Such goals help to motivate saving money.

What if you have loans such as student, credit card etc high-interest loans? Should you pay up loans or save an emergency fund? I say do both! The worst situation is if you but all money into paying up loans and then something unexpected happens and you are forced to take out a new high-interest loan. Try to pay as much into the emergency fund as you pay for your loans. And when emergency fund is filled to the desired amount then make all efforts to pay up high-interest loans. If you have high-interest loans then make all efforts to find extra income to pay these up.

And finally where to keep the emergency fund? It needs to be sperate from your everyday banking but needs to be quickly accessible. Perfect is to have it in a separate bank account and if possible even in a separate bank (so you are not constantly seeing it and having the temptation to use it). Do not invest it or put it in timed savings accounts. You might need it today or tomorrow. Having quick access to it is the perk you get from earning no (or close to 0) interest on this money.

Do you have an emergency fund? How many months could you live off of it?

Although goal setting is usually associated with the new year I do feel it is important all year round, especially keeping track of your goals already made. I do believe in SMART goal setting. 

So all goals either big or small should be made based on the SMART acronym:

SPECIFIC - write a clear concise goal.For example, financial freedom is not a clear goal as financial freedom might mean passive income of 1000€ a month for me, but totally different amount to someone else.

MEASURABLE - it should be clear when you have reached a goal, and if possible the goal should be something you can track throughout the time you are working on it. So losing weight is not a good goal, as it is measurable but not specific (does not give you a target). Losing 10 kg is a clear and measurable goal. Writing a book is specific but not really measurable as a book is something you could work on and improve your whole life. But writing a 100-page first draft by a specific date is a measurable goal.

ATTAINABLE - making goals attainable is also extremely important. Making them too hard means you lose the drive to go for it when it becomes clear you will not be able to achieve it by the deadline. Also postponing deadline will set a very bad example and should not be done. Better is to rephrase the goal all together. Also making them too easy makes them uninteresting and also if you reach them you do not feel the empowerment from reaching an easy goal. So the trick is to set goals that are just hard enough.

RELEVANT - a good goal is something that is relevant to you. Goals set perhaps because someone else wants you to do something will have much less chance working, compared to the same goal if you truly want to achieve this yourself. For example, pressuring someone to quit smoking is quite unlikely to work, but the same person might quit smoking if they feel the need to do so themselves.

TIME-BASED - to keep track of goals it is important to give yourself clear deadlines. Deadlines keep you on track and for goals which need more effort, I feel it is good to give also sub-deadlines. Even if they are just mathematical goalposts they help to keep you motivated on longer goals. This is especially helpful for me, as I tend to be the person who procrastinates and then does all the work on last night day before the deadline. I know I should change that and clear goals are a way to do that.

What kind of goals I have? This year I have 2 main financial goals:

1) to have earned 1000€ from my investments by the end of a year. This goal is clearly based on SMART goal setting. Mathematically this means earning a bit more than 83€ a month- this is good as it gives me monthly subgoals. I exceeded this in January and fell short in February, but the two months together were over 166€, so all is good for now. We will see how the current month goes. As I have quite some investment which does not pay out monthly the months are quite uneven. Last year the yearly earning was about 628, so I am going for almost double the amount. Wish me luck!

2) to have my portfolio value 15 000€ by the end of the year. This is also mostly a smart goal. The main downside might be attainability. My portfolio value was about 12400 on December 31st. I am sure I can deposit 2600 in a year or about 215 a month (~20% of my wages), but as portfolio value also is dependant on the markets I might need to invest more than that. My TVEAT is almost -500€ and also most of the ETFs are in the red, so a great time to buy, but hard to keep portfolio value increasing. We will see, I am hopeful.

Also, I tend to set small goals on tasks I tend to put off. For example, Estonian income tax declaration deadline is 2.04 this year. So I told myself I need to do it at least 1 month before that. I succeeded but it was a close call as one of the CrowdEstate companies did not send in the tax info as promised and it took some emails to get it on my tax return so I could actually submit it. Now all I have to do is pay the 20% by 1st of October- another goal to pay it at least 10 days early. But not earlier, this zero interest loan from the state is a good thing :)

Possible other financial goals to go for, just to give you some ideas:

• Save up a 3 (or 6) month emergency fund on a separate bank account by date;
• Have a zero spend month;
• Read x amount financial books in a year;
• Pay up a loan you have by a date or if the loan is too large set a short time goal to pay back a certain amount;
• Save at least 5% of your monthly income and if possible invest it (it is easiest to make an automated transfer on your payday to investing site or to separate bank account so you do not even see the money  and won't miss it) or;
• Save and invest 1% of your income next month and increase this every month by 1% until you find a level that is sustainable for you;
• Pay up all your credit cards by date (or start from one card but plan to pay up all);
• Listen to at least 2 (another number) episodes of financial podcasts in a week;
• Figure out a way to earn x amount of extra money outside of your normal wages and invest it;
• Do a budget and follow it for a month or alternatively just track all your expenses for a month and make conclusions to improve your spending habits;
• Learn a new skill to improve your career;
• Find a zero spend activity you like and add this to your schedule regularly (possibly to replace an activity you spend on), like walking, going to free cultural event x times a month etc. For example, some museums have a free entrance day once a month, town districts have regular free musical events etc.

You have more ideas? Leave them in the comments.