As an expat, you’ll likely face a higher level of uncertainty than you would if you were living in your home country. You may need to move at a moment’s notice, for example, so flexibility is key to your financial plan. The reward of managing your finances effectively is an improvement in your standard of living, not just while you’re living abroad but also in any potential return home. We asked Andrew Talbot for some tips so that you’re best prepared for any change*.
#1 Write up a budget
The first step to managing your finances as an expat is doing a budget. It takes a little effort, but it’s a great way to get a quick snapshot of the money coming in and going out. Most people say it gives them peace of mind about their spending, and makes them feel better about life in general. You can set up a budget using a spreadsheet or just write it all down on paper; there are also some great free budgeting apps available.
#2 Keep cash on hand
It’s always prudent to have extra money available; around three to six months of expenses is recommended. Remember, too, that investment accounts mightn’t offer instant access to your money, so keep some emergency cash for immediate needs in a separate savings account.
#3 Pay off loans and credit cards
If you have loans or you owe money on credit cards, it makes sense to pay off the debt that charges the highest rate of interest first. If you overpay your mortgage, it doesn’t just mean you have less to pay in future years; it might mean you can pay off your mortgage sooner – sometimes even years earlier. On a $150,000 mortgage at 5% with 25 years remaining, paying off a $5,000 lump sum reduces the interest by $11,500, which means you repay 18 months earlier. Overpaying when interest rates are low means you’ll have a smaller mortgage to be charged the higher interest on.
#4 Make saving a habit
The easiest way to get your savings working for you is to set things up so that you automatically add a bit each month. That way, you won’t have to remember to make the payment, and you won’t be tempted to skip a month. The best time to put money aside is just after you’ve been paid, so set up a standing order to go out on payday, or just after it.
#5 Decide on saving or investing your money
Saving is putting money aside, bit by bit, often to pay for something specific, like a holiday, a home deposit or to cover any emergencies that might crop up. Saving usually involves putting your money into cash, such as in a savings account in a bank. Investing, on the other hand, is taking some of your money and trying to make it grow by buying things you think will increase in value, such as stocks, property, or shares in a fund. To put it another way, investing involves committing money into an investment vehicle in the hope of making a financial gain.
- Investing is different from saving because it involves a greater level of risk and there is no guarantee that you’ll get your money back.
- Investment products are for the longer term and are suitable if you already have enough cash savings to keep you going for three to six months.
#6 Ascertain your attitude to risk
The right savings or investments for your situation will depend on how happy you are to take risks and on your current finances and future goals. Ask yourself how much loss you can take. Risk attitude is subjective and is likely to be influenced by current events or recent experiences. When stock markets are rising, we tend to feel comfortable with market risk; when they’re falling, we do not. You’ll also need to consider your goals – specifically if they are short-, medium-, or long-term.
- Short-term goals: things you plan to do within the next five years.
- Medium-term goals: things you plan to do within the next five to 10 years.
- Longer-term goals: things you won’t need money for for ten years or more.
#7 Check your insurance
When you move to a new country, you may lose some of the protection benefits you had in your previous country; your new company may not offer the same employee benefits as your previous employer, or your existing protection benefits will not cover you to the same extent. Major milestones in your life, such as having children and buying a house, are always a trigger to review your insurance needs.
#8 Manage your estate
Estate planning sounds complicated at first – and some people may indeed need complex estate plans. But simpler plans are often adequate. Regardless of their complexity, however, all estate plans have two overall goals. The first is to specify how a person wants their estate divided after death. In other words, who is going to get what property? As an expat, this is complicated by different jurisdictions and rules. You can use a will, a trust, a will substitute and/or a company as part your overall estate planning. The second goal of estate planning is to specify who will care for minors (children) until they reach the age of majority; this means that even young parents need some estate planning. Find out more, and download a temporary guardianship form, here.
#9 Use a currency broker
When it comes to transferring money to different countries, using a currency broker can be cheaper than the retail banks. If you’re sending money to your home country because of a house purchase or to top up bank accounts or pay school fees, these savings will add up. You can also look at future exchange rates to plan for the expenditure.
Book an appointment now.
Written in collaboration with Expat Financial Planning
For advice on savings, investments and other financial matters, call Andrew at 9824 1470.
Expat Financial Planning is part of Avrio Wealth Pte Ltd.
More financial tips for expats.
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