Regular Saving and Investing
The opportunities and costs regarding saving or investing are serious considerations for expats. When your income level rises against reduced expenditure in a different country, you may be able to save more; exchange rate differences and tax benefits can also cushion your savings and investments.
Living in a different country involves navigating investment options at home and abroad, managing different currencies, and even money transfers across countries.
A savings account is often considered a go-to option for savings and accessibility. It generates a definite interest periodically and allows you to deposit and withdraw your funds with ease. For the short term, this is a sound route to consider, but over time, your money starts losing value because interest rates cannot keep up with inflation rates. Effectively, savings accounts are not as risk-free as they seem. Inflation rates may also differ depending on the country you live in, so even if you earn well, your savings may not generate wealth.
To counter this, it is best to save in a country with a low inflation rate, in a currency that you regularly use, and for the relatively short term.
Saving is not the only option to consider. Many expats actively invest their money as well. Investing can be done in two broad manners:
1. Regular Savings & Investments
Regular savings & investments: You invest a certain amount across assets every month or at regular intervals. The funds you decide to invest are in your control. Usually, this is for when you are trying to build a large pool of funds for emergencies, children’s education, a house, etc. You needn’t worry too much about market conditions. This also allows you to benefit from Cost Averaging. This refers to building your portfolio over time and easing short-term market pressure on your wealth. This is particularly useful for new investors with small funds to spare.
2. Lump Sum
Lump Sum: You invest your money in one go. This strategy is likely to yield greater returns. However, timing in the market can be an important factor affecting these returns. If you have the risk appetite and funds, this option can be an excellent opportunity to create wealth.
How to Save
Saving is undoubtedly good financial practice, but not many people know how to save effectively. Make sure you have these in place:
- Curbing unnecessary costs
- planning for the long-term
Let’s say you want to save X amount every month, but you may not be able to keep this up. Instead of relying on manual transactions, set up an automated standing order with your bank to debit a certain amount every month to be put away as savings.
2. Curbing unnecessary expenditures
It is widely acknowledged, that before you can bring in new money, you should stop wasting your existing funds. Recognise fruitless expenditures and nip them in the bud. This could also mean incurring a sizeable one-time expense if recurring ones can be eliminated.
3. Planning for the long-term
The first thing that you should ideally consider when planning your money is setting aside an emergency fund. Once that is taken care of, you can focus on your larger aspirations. Your investment strategy should reflect these goals. If you want results in the long run, you must stay invested for that period. Choosing your investments means looking at hidden charges and fees, the risk involved, the lock-in period, and return rates. A professional financial adviser can help you determine the best options keeping in mind your target.
What do expats need to worry about?
- Pension planning
- Standard of living
1. Pension planning
Many expats retire abroad to avail favourable weather, the standard of living, and pension options. If you are hoping to retire abroad, you may have to plan for a pension transfer. Depending on the destination country, several legalities are attached that determine if and how much tax will be levied on your retirement funds.
2. Standard of Living
If your job requires you to move around, your money should be able to maintain, if not elevate, your lifestyle. An ideal financial plan would offer you flexibility and adaptability when you move to a new country. Even if your money stays in one country, it should remain accessible.
You may be familiar with tax laws in the UK, but changing jurisdictions can bring confusion and uncertainty. It is crucial to understand the taxation nitty gritty as an expat. Particularly when you have long-term financial goals, taxation may eat away at your returns. Download our free tax country guides to help you understand what your local tax rules are as a British expat.
What to do
For all of these aspects, a financial adviser who understands planning for expats can help you out. At Hoxton Capital Management, our advisers are particularly aware of the daily financial concerns of expats. Schedule a call to get started on your wealth creation.