How to use investing to make your plans a reality

What would you really like to do or have in the future? And is it true that there is a price tag attached to it? To realise your dreams for the future, you need a financial strategy. In this article, you will find tips on how to map out the costs of three common dreams for the future: taking a sabbatical, buying a house and retiring early. And we will show you how Peaks can help you determine an (investment) strategy.

Taking a sabbatical

Do you dream of taking a year off, perhaps to travel or just to have some time to yourself? Then you need to build up enough to cover the temporary loss of income during your sabbatical and to pay any additional expenses. But how do you determine how much you need?

Step 1. Make a list of your unavoidable expenses

Start by making a list of the expenses you will have to continue paying no matter what. These include your rent or mortgage (even if you plan to rent out your home temporarily – after all, your tenant may unexpectedly decide to leave) and your health insurance. Also include a grocery budget, because you will need to eat no matter where you are.

Also consider which subscriptions you can cancel. If you are going to travel through South America for six months, you can put your cinema pass and gym membership on hold. Cancel everything you don't need during your gap year and add up your unavoidable, ongoing monthly expenses. Multiply that by the number of months you are going to take off and voilà, there you have the amount of money you need to have available.

Step 2. Budget your additional costs

Depending on how you want to spend your sabbatical, you should also estimate your additional costs. For example, for airline tickets, fuel, accommodation and trips if you are going to travel. To get an idea of the exact prices, you will probably have to spend a few evenings googling. Exactly how expensive your trip will be depends entirely on your destination, your plans and the level of comfort you are aiming for.

Step 3. Subtract your costs from any income

It is of course possible that you will have income during your trip, for example because you are moonlighting as a digital nomad. But be honest with yourself: how certain is that income? Have you made agreements with your employer or client, or is the income still uncertain? Especially if your sabbatical is still a few years in the future, you will have to deal with a margin of uncertainty. Assume the worst-case scenario and adjust your financial plan accordingly. In any case, it is wise to estimate your budget more generously than you strictly need, so that you can cover any emergencies.

Buying a house

The fact that house prices continue to rise is not so convenient for first-time buyers - and yet you may dream of buying a house. You can estimate how much money you will need for this.

Step 1. Determine your housing requirements

Of course, everything starts with your housing requirements. If you want (or have to) live in the Randstad, you will probably pay a lot more than if you look for a home in the border areas of the Netherlands. And it also makes quite a difference whether you want a cosy little cottage or a spacious family home with a backyard. In 2023, the average purchase price of a home in the Netherlands was around €418,000, according to Statistics Netherlands. But there are significant regional differences.

Step 2. Check what you can borrow

You usually do not pay for a house out of your own pocket, but take out a mortgage. The size of the mortgage you can get depends on your income. It is possible that your maximum mortgage is not high enough to allow you to get a foothold in the housing market; in that case you will have to contribute something yourself. And if you can get a mortgage with enough headroom, it may be attractive to borrow a little less so that your monthly payments are lower. You will then have to make up the difference yourself. So find out what kind of mortgage you can get and what you would have to (or want to) build up yourself.

Step 3. Map out the buyer's costs

So, the cost of a house is pretty high. And that's not all, because the buying process itself also costs money. Especially if you are buying an existing house (not a new-build), you may have to pay ‘purchase costs’. These include, for example, transfer tax, notary fees and (possible) estate agent and consultancy fees. Unfortunately, you have to pay for all of these yourself, because you cannot include them in your mortgage. To get an idea of the buyer's costs, you can use this calculation tool from Money Wise. This is an initiative of the Ministry of Finance, among others. You can also deduct some of the buyer's costs later on.

Retiring earlier

The current state pension age is 67. But as life expectancy increases, so does the state pension age. The younger you are, the greater the chance that you will have to continue working until after the age of 67. If you don't like the sound of that, there may be opportunities to retire earlier. You can estimate how much you would need to save for this yourself by listing your expected income and expenses. This can be quite complicated, so it might be useful to consult an advisor. You can also use the Nibud Pension Disc-of-Five.

Step 1. Determine your required income

Ultimately, your financial plan starts with the question of how much (monthly) income you will need after your retirement to make ends meet. And what you want to be able to spend on fun things on top of that. In short, list all your expected costs. As a general rule, a ‘target pension’ of 70% of your last earned wage is used, assuming that you will probably incur fewer expenses after your retirement. But of course it is possible that you must or want to deviate from that rule.

Step 2. Check what you have already accrued

If you accrue pension through your employer (the ‘second pillar’) and/or individually through an annuity (the ‘third pillar’), you often have the option of having your accrued pension paid out before you reach state pension age. Be aware that the period over which you have to spread out your pension will become longer, and you will have to live on the same pension for longer. This will reduce your monthly benefit. If you live and work in the Netherlands,  you can see how much pension you have accrued through your employer(s) and what the expected value will be at your (desired) retirement age on mijnpensioenoverzicht.nl. If you're accruing an annuity somewhere, for example with Peaks, you can look up the expected future value with your provider.

Step 3. Will anything else be coming in?

Perhaps you have sources of income in addition to your pension and annuity payments, for example from savings or investments. You must include that income in your calculation as well.

Determine your investment strategy yourself with Peaks

Once you know approximately how much money you need for your dream for the future, you can start your financial plan: how are you going to raise the money? Increasing your income or living more frugally, combined with diligently saving, is of course an option. You can also choose to invest (part of) your money.

If you decide to invest (partly), the expectation tool in the Peaks app can help you determine your own investment strategy. Three things are important here:

• Your investment horizon. How many years do you want to have the amount available? With a short investment horizon, it may be wiser to remain more cautious. The choice is ultimately yours.
• One-time deposit. Do you have a nice amount of money that you can deposit immediately? You can use it to kick-start your investments. If you do not have such an amount available, you can still get started.
• Your monthly deposit. How much can you (and are you willing to) miss each month? You can automate your deposit, so you never accidentally skip a month.

Based on these parameters, the tool will show you the expected value of your investments – and thus the time horizon, investment and portfolio you would need to realise your dreams for the future. Please be aware that these are predictions that offer no guarantees. Investing involves risk, and there is always a chance that you will lose money or earn less than you had hoped.

Remember that investing involves risk and you could lose all or part of your investment.