I know the topic sounds very boring but trust me its actually life changing once your understand it. Simply put a financial plan is a living blueprint that shows your financial situation, goals and strategies for achieving those goals. So here are the most important steps for Financial Planning in Germany
Set your Financial Goals
You can certainly set aspirational goals like buying your dream house with cash in the next 5 years. But you also need to be realistic and set Specific, Measurable, Achievable, Relevant, and Time-bound financial goals.
So if you are just starting your professional career in Germany, setting a financial goal to buy a house in the next 5 years is not quite realistic.
Meaning that you have to take your current situation into the goal setting process. As I said in the beginning your financial plan is a living blueprint so you adjust it as your life evolves.
So ask yourself, What do I want my life to look like in 5 years. Do you want to own a car? Do you want to be married with kids or something else.
Because every person has their own outlook on life and every situation is different it is quite difficult to give you concrete examples however based on talking to hundreds of expats in Germany.
Financial Goals for Expats in Germany
Some financial goals could be
- In 5 years I want to be earning 25% more than what I am earning right now.
- I want to have €25,000 saved for a down payment on an apartment within 4 years
- I want to start investing €1000 a month in the stock market by the end of this year
- or I want to send €12,000 back home every year to support my family or build property
When your financial goals are clear, the steps suddenly don’t feel so abstract anymore. But you should always remember that your financial goals should reflect your values, not just your numbers.
If you’re not sure what your goals are yet, ask yourself what kind of freedom or stability you’d like to have and when. That usually points you in the right direction.
Know Where Your Money Goes
Let’s talk about cash flow. If you don’t know what comes in and what goes out each month, everything else becomes guesswork.
An accurate overview is key to creating a financial plan specially as an expat in Germany. Seeing where your money goes can help you develop immediate, medium-term and long-term plans.
Developing a budget for example is a type of Immediate Plan. A 3-tier ESP budget can be a good starting point.
Here you assign 60% to your essentials, like Rent, Utilities, Transportation, Insurances and other recurring payments. 20% to Personal Expenses like dining out, vacations and entertainment. and 20% is allotted towards your savings and investing.
I recommend that you start simple, a pen and paper is enough to get you started. You can always improve your budget, modify it , leverage specialized tools to optimize it. But remember not to get overwhelmed because budgeting fatigue is a real thing.
Build Your Emergency Fund
Life has its twists and turns. Unplanned things happen quite regularly. You can lose your stable job in Germany, You can have an accident while riding your bicycle, you can even have a burnout. You cannot plan for those things but you can have section for emergencies in your financial Plan.
Having cash put away for emergency expenses is essential. You can start with €500 and work your way up. Aim for 1 month of essential expenses and then got for 3 months expenses.
In terms of concrete numbers, €500 is the bar minimum it doesn’t matter what financial situation you are in. As a single employee plan for something between 2 to 3 thousand euros and if you are married with kids, your emergency fund should be at least 5000€ if not more.
Remember to have this money as cash in a current or a savings account without a lock-in phase. So that you can quickly access these funds when you need them.
Steps 1 to 3 are our foundations, the sturdier they are the more stable our financial plan plan becomes. Before going to the next steps, please hit the like button if you are getting value from this video and turn on notifications to get more videos on building wealth in Germany.
Goal Based Spending
With your goals set, your budget in place, and your safety net ready, it’s time to match your day-to-day spending to the future you want.
Most expats I talk to share some version of these three long-term dreams:
- Owning your own home
- Quitting the daily 8 to 5 grind
- Retiring early
Buying a Home in Germany (Financial Planning in Germany)
Lets take the example of buying your own home. you would need about 10% as closing costs and about 20% as a down payment. So for an apartment worth 200 thousand euros you would need about 50 thousand euros just to buy the apartment not to mention any other renovation or maintenance costs.
So for this financial goal we need around 60k euros. Here you might be saying, you don’t actually need this much and there is something called as 0% financing where you get two loans, one loan to cover 100% of the mortgage without putting in any down payment and another loan to cover the closing costs.
Yes that is true but not everyone is eligible to get those loans. These depend on your situation, income and expenses. For example credit institutions look as your visa type if you are not a German citizen, the type of job you have, if you have a permanent contract or a limited one, whether your spouse or partner also has a job.
How much you earn and how much is remaining after your monthly expenses. That’s why we need to modify our spending based on our goals.
Related Guide: How Much House Can You Afford in Germany?
Is it possible to buy a house and retire early in Germany?
Lets say you earn 3900€ after taxes. Your monthly expenses are about 3000€ leaving 900€. This means that if your income and expenses remain about the same, you would be able to have those 60 thousand euros in about 5.5 years.
Obviously your income would increase during that time so you could essential reach the 60k goal sooner. But we all know that Lifestyle inflation is real. So each time we get a raise , we want to buy a better car, move to a bigger apartment so on and so forth.
Assuming you bought the house in 3 years using your 60k savings. At an interest rate of 3.5% fixed for 15 years. You would be paying 1000€ per month as your mortgage. In an Ideal world lets say everything fits perfectly and your rent is entirely replaced by your mortgage payment and running costs.
At the end of the 15 year period you would still have about 40 thousand euros left on your mortgage. But you don’t have just one financial goal maybe in addition to Owning your own home you also want to retire early, in lets say 15 years.
For that you would need about 1.9 Million Euros based on the 4% rule. This means that you would need to be investing 6300€ each month at a growth rate of 7% per year.
Get Consultation on Financing a House in Germany
Why Buying a Home in Germany is not possible (in 3 years)
Buying a house in three years and retiring in 15 years do not fit together based on realistic salary growth projections. Let me explain this. Lets say your net salary increases 5% each year for the next 15 years.
Even if you are able to save 4000€ each month and invest that amount at a return of 7% per year, you would still be short about half a million euros to retire at your current life style.
But as I said in the beginning your financial plan is a living blueprint. So you can change your long term financial goals based on the circumstances at that specific period of times. For example, you set a goal of buying a house in 3 years and increasing your net salary each year for the next 15 years.
By the end of year 15 you could have a million euros invested and a fully paid off apartment. At that moment you could set a goal of retiring in 5 years. Or you could quit your job and start a business.
You should also be regularly looking at where you money is going and keeping your emergency fund up to date based on your expenses.
Related Guide: How to Buy a House in Germany with ZERO money!
Estate Financial Planning in Germany
Estate planning might not be the most exciting topic, but if you’re an expat living in Germany, it’s something you shouldn’t ignore especially if you have dependents or assets in more than one country. German inheritance law can be surprisingly strict and may not reflect your personal wishes unless you make them legally clear.
Without a proper will, your estate might be distributed according to local rules (which generally follow familial hierarchies), potentially creating complications for non-German partners or distant relatives. As an expat, you can usually choose whether German or your home country’s inheritance law should apply to your estate but only if you make this explicitly clear in your will.
Beyond writing a will, estate planning for expats in Germany often includes setting up powers of attorney (Vorsorgevollmacht), living wills (Patientenverfügung), and naming beneficiaries on investment or life insurance accounts.
These documents are critical in case you’re ever incapacitated or unable to make financial or medical decisions. It’s also a good idea to speak to a legal advisor familiar with both German and international inheritance laws to ensure your plan holds up across borders.
Investing for your goals
I know this step should come before step 5 but I wanted it to be separate yet connect to the forth step in a way. So while you are spending and saving based on your goals. You should also be investing the un-alloted funds. You could buy gold, invest in additional real estate invest in the stock market which in my opinion is the easiest way of starting investing as a beginner.
Related Guide: How I would Start Investing as a Foreigner in Germany
Is Financial Planning in Germany actually Possible?
I totally think that Financial Planning in Germany is totally possible. But you have to spend some time on it. You have to analyse your current situation, set future goals and start from there.
Once you do that, you can plan according to your goals. Obviously your financial planning in Germany should be a living blueprint. Because your situation and your goals will change with time. So this financial plan should also be able to flexible.
That said consistency is key. Once you have made your Financial Plan in Germany, you must stick to it for at least a couple of years before you make major modifications.