During my 25 plus years in Financial Services, of which 11 years have been spent helping expats in Cambodia, I’ve come across my fair share of teachers. In recent years, many of these are millennials who have left their home countries and moved to Asia to broaden their horizons, experience a new culture, enjoy the higher disposable income, make new friends and have fun. But unfortunately, many expat teachers take the fun part so seriously that they live for the day and focus on enjoying life and forget about future planning.
I understand – when you are young and responsibility-free with retirement a distant possibility, it’s easy to feel that life will always be that way. But sadly, it won’t. The years somehow whizz by. People settle down, start a family and then suddenly realise that retirement is not so distant after all, and they are horribly unprepared for it. This often happens at the exact time when children start becoming expensive with their teenage tastes for expensive gadgets and trainers, demands for pocket money to fuel their blossoming social lives, school fees to pay and university fees on the horizon. Those who haven’t already got into the habit of saving for retirement can panic and wonder how they are ever going to accumulate a decent nest egg with all the other expenses that they have to meet.
That’s why I am constantly repeating the mantra to all of my millennial clients to prioritise saving. That doesn’t mean becoming a hermit and foregoing all pleasure, but there is a balance to be struck between enjoying the present and planning for the future. I’m very much in the ‘you only live once, so go for it’ camp and think anyone should and milk all the enjoyment that you can out of life in this wonderful country, but it is possible to prioritise your savings at the same time.
Start simply by setting an annual financial goal that you’d like to save. Divide it by 12, and you’ll have the amount you need to put aside each month, which should be prioritised on payday – before you have the chance to fritter it away on a meal with friends or cocktails at the Chill SkyBar!
Invest your savings wisely too. Your money will work much harder for you invested in well-chosen funds than it will while sitting in the bank, where it will be gaining next to nothing in interest and could even be losing real value to inflation.
Investments? Well-chosen funds? If those terms are totally anathema to you, then maybe you need a helping hand with your retirement savings. A financial planner can not only help you work out a more comprehensive financial plan than that outlined above with precisely determined goals based on your age, means and needs but can also advise on the level of risk you should be taking with your savings. Millennials can afford to take more risks than those closer to retirement age, but risk is personal, and some can tolerate more than others. Good financial advisors will take the time to work out your tolerance level.
Contrary to what many people think, you don’t have to be fabulously wealthy to have a financial planner. Indeed, I have helped lots of teachers maximise their high disposable income while living in Asia to put away a tidy nest egg for the future.
This time of year is ideal to start thinking of 2020 New Year resolutions. Perhaps one should look at my future expat financial planning.
If you would like to discuss these matters further and receive professional advice on the financial implications your financial decisions will have, don’t hesitate to contact me and together, let’s give your finances their yearly health check.
Common Challenges in Expat Financial Planning
Working and living abroad has some significant implications regarding expat financial planning. Different countries have varying rules and regulations in addition to currency differences, differing inheritance laws, investment options, and tax rules.
Being aware of the major matters that will influence your financial planning could help mitigate the challenges you’ll face in a new country of residence.
Regardless of whether your living expenses will increase or decrease when you move out of your home country, understanding how your finances will change is essential to executing adequate financial planning and reaching your financial goals. Before leaving your home country, start to navigate certain costs you’ll have to cover in the new country, including accommodation, transportation, shipping costs, flights, travel insurance, and any other nitty-gritty expenses your income will have to account for.
You will likely have to open your own local bank account to manage your money effectively via online banking and physical banking. Keep in mind that many expats are small fish in a big pond, and it isn’t always possible to rely on friends or family members to compensate for your expat financial shortcomings. You will need to ensure your monthly budget and investment portfolio will keep you financially stable in this new country.
When certain family members move abroad while other members, such as siblings, children or spouses, remain in their home country, they are referred to as a transnational or cross-border family. Family members often go through the process of moving abroad to access better financial opportunities. Nevertheless, there are always challenges.
Countries that have a different currency often entail a significant increase in living expenses, which, if not planned for, could have a detrimental impact on the sufficiency of your income. Expats need to take repatriation costs into consideration in their financial planning, as well as the cost involved in remittance.
Tax Rules and Regulation Compliance
Many expats forget to navigate the tax rules of their new country and fail to pay compulsory taxes. Expats living abroad are required to file their federal tax return as well as state tax return if their income is higher than the relevant minimum threshold. Expats’ new country of residents may require them to pay taxes, in which case they will need to be aware of the risk of being taxed twice. Double taxation could significantly affect an expat’s financial plan and hinder them from achieving their long-term financial goals. Therefore, it is worth seeking out a competent financial advisor who can offer advice on the best way to handle your tax liabilities to prevent being taxed unfairly.
Creating a Well-structured Long-Term Investment Strategy
Investing and saving sufficiently should be a pillar of any expat’s financial planning strategy. With so many investment opportunities available globally, making sure your money ultimately works for you is pivotal to helping you achieve your financial goals. This may be more challenging for expats than others due to the heightened risk of being taxed unfairly or unknowingly. For instance, many expats pursue investments, not knowing of the inheritance tax liabilities that will fall on their family’s shoulders in the long run. Furthermore, expatriates must also be aware of the currency risk associated with many investment options. Therefore, understanding the various channels that may lead to investment complications is the key to successful financial planning.
Create A Strategy
Establishing a diligent long-term investment plan can secure your financial stability wherever you are in the world. An expat would do well investing in a flexible long-term plan to ensure you will still reap the benefits of their choices even if they travel a move a lot. More factors come into play in expat investments, which include fees, regulatory requirements, and safety considerations.
The following steps outline the correct procedure for creating a surefire long-term investment plan as an expat.
(1) Establish your financial goals
The goals you ultimately want to achieve will guide the direction of your financial decisions and investments. Do you need to save for your children’s education? Do you want to retire in a different country or your home country? Do you want to retire early? Find the answers to these questions to set a realistic timeframe by which you will likely be able to reach these benchmarks.
(2) Establish your risk tolerance and timeframe
Although your tolerance for risk may vary during different stages of your life and career, it is essential to have a basic idea of the risks you are willing to take in order to find appropriate investment options that align with your tolerance level.
(3) Consider tax implications
Tax liabilities are an inevitable factor in many investments. For instance, if you decide to invest in property, inheritance tax may come into play to a large extent. Therefore, it is worth exploring what the best countries are for particular investment types.
(4) Choose the most suitable investments
Taking your risk tolerance, goals, timeframe, and tax liabilities into account, decide on the best way to invest your money.
(5) Seek Professional advice
Although some attempt to manage their investments and financial planning alone, the guidance of a financial advisor could greatly facilitate the process. Financial advisors are often experienced in navigating situations very similar to your own and can offer valuable advice on frequently encountered challenges to keep you on the right path to constructing an efficient financial plan.
I started in the financial services industry back in 1995 and I am now the Country Director of Infinity Financial Solutions (Cambodia) Limited, specializing in corporate and individual medical and general insurance needs along with expatriate financial planning.