Have you ever tried saving up for anything?
It’s not always as easy as it’s cracked up to be, is it?
Unless you’re super-disciplined and/or a ‘natural saver,’ even the most sincere intentions to regularly put aside a bit of money at the end of each month towards whatever goal you have in mind can easily go off the rails.
And when you’re living and working abroad, you’re likely to be in an environment that is far from conducive to saving money, even if you’re receiving a much better salary package that you were back home.
If you want or need to save money – be it for an emergency fund, a short-term goal, such as holiday or something longer term, like a property, your kids’ college fees or your own retirement pot – here are my top 6 actionable tips for expats.
Tip #1: Plan It, Track It
Numero uno – take the time to work out your monthly income versus expenses.
It’s a chore and not one I relish myself, but I absolutely believe it is a necessary starting point. It’s far easier to reach a goal if you have a plan.
It’s like glancing at the petrol gauge when you set off in your car, just so you know you can reach your destination. Getting a handle on your income and expenditure is the same sort of thing.
Try to do this as early into your expat assignment as possible, because a common pitfall for many new expats is to treat it as a holiday, which invariably leads to over-spending that can easily spiral out of control.
Some expats are still lucky enough to receive a decent package when it comes to things like accommodation, school fees and travel expenses.
The bottom line is, plan your essentials and your general living expenses first, then work out what you have left at the end of the month to play with.
After that, you can decide on how much of what’s left you want to save.
What proportion depends on your goals, but for most people , it’s a compromise somewhere between what you need to save to reach your goal and what you can (or want) to save. I’ll write about this another time.
After you have made a plan, you need to track and review it to make sure you are staying on course.
Whether you do that in a notebook, on a spreadsheet or one of the many budget apps available, is up to you.
Do whatever you are most comfortable with and whatever is most convenient.
If it is a hassle for you, you won’t stick with it.
Lastly: remember that you are not on holiday!
Tip #2: Consider the Latte Index
I always find that whenever I am in a new country and handling a currency in denominations I am not used to, it always feels a bit like monopoly money.
And that can be dangerous, as it makes it so easy to spend without really considering the true value of the notes you are handing over when you are paying for that coffee and muffin.
The Latte Index is an interesting way of measuring currency values against the Dollar. Although this is really about Purchasing Power Parity, I think it is great reminder that things you habitually spend money on back home can be much more expensive in your host country.
For example, here in China, the cost of things like a Starbucks latte, cars, jewellery and designer clothes, are significantly more expensive than they are back in the UK, but other things, like sending items domestically by courier, public transport and manual labour are dramatically cheaper.
Working this out early on and adjusting the spending habits you are used to back home will save you a lot of money later.
Another seemingly innocuous everyday activity that can decimate your budget, if you’re not careful, is food shopping.
In any expat enclave, there are always supermarkets catering for those missing their creature comforts like breakfast cereals, confectionery, sauces and all the other regular food items that would fill your shopping basket back home.
They’re not produced locally, so, of course, they’re imported and sold at a premium price.
In Shanghai, I’ve seen simple imported vegetables, such as tomatoes, at ten times the cost of those found in a local market, which is plain ludicrous.
Buying these things at a premium rate, just so the background music to your shopping experience can be a pan-pipe cover of Ed Sheeran’s ‘Shape of You’ while you push a trolley with a kids’ toy car attached to the front is pretty extravagant – even if you are rich.
By all means, hit those places when you’re craving a pack of chocolate digestives, but for the love of God, please . . .
. . . step away from the perfectly-polished, pre-packed, premium-priced peppers and try buying those items at a local store.
You’ll be amazed at how much you can save. And the produce usually tastes better anyway.
Tip #3: Open an offshore bank account
Opening an offshore bank account is 100% legal.
Whilst there are limitations and restrictions for some nationalities, if you are living outside your home country, you are generally allowed to open a transactional or savings account in an offshore financial centre. My experiences are limited to the better-regulated jurisdictions, such as Jersey, Guernsey and the Isle of Man, but there are many others you can use.
Banks that offer accounts to expats, as a minimum, will provide you with online and telephone banking and a debit card, which will make managing your finances across borders much more simple.
Some can even offer mortgages.
You can usually choose a multi-currency option, which can help with the management of currency fluctuations and there may be some tax advantages, but for most of us, let’s not get fooled into believing this is a big selling point, unless you’re dealing with millions.
On the negative side, I have found that some accounts have pretty high minimum balances and most will charge a fee if you go below that.
But that’s banks for you.
If you wish to have the option to invest some of your savings, another way to go is to use a low cost, multi-currency investment platform that allows easily accessible cash holdings as well as access to stock markets.
I know of some that even have pre-loaded debit cards attached to them.
Related content: How To Open An Offshore Bank Account
Tip #4: Shop around . . .
. . . for the best currency and money transfer deals.
Over the years, I must have lost so much money on foreign currency exchange and transferring money overseas, simply because I did not bother to do my homework.
Banks for example, never offer great deals on exchange rates, so a better option might be to set up an account with a foreign exchange broker and transfer the currency via them.
You can make some decent savings this way.
Some transfer methods are more expensive than others and there may also be regulations that limit your options anyway.
It may also be worth considering options such as:
Another less sophisticated, but nonetheless effective method I have encountered is to change money with other expats in your community or social circle.
For example, if you want to convert local currency to EUR and send it back home, maybe there is someone you know who is happy to accept the local currency in return for transferring EUR to your account from a bank in their own country – thus by-passing the intermediaries completely!
It goes without saying that this should be done with caution and you need to know and trust the person in this kind of transaction.
Tip #5: Book flights home in advance
If you are one of the fortunate ones whose employer foots the bill, then this tip doesn’t apply.
If you’re not, I can tell you that you’ll be amazed at how many people I meet that do not do this.
If you are in a position to book your flights well in advance of your travel dates, you can almost always take advantage of cheaper rates, which can save you hundred of Pounds/Euros, especially if you have a family in tow.
When you are checking ticket prices online, remember to clear your cookies and browsing data before going back to check the same travel dates, as I have found that this can affect the prices offered quite considerably.
Check out independent travel fare aggregator sites and apps like Skyscanner, as the prices shown aren’t influenced by cookies and browser history.
Tip #6: Beware of financial salespeople
Most financial advisers/offshore IFAs/Wealth Managers/brokers (delete as applicable) you find in the expat community will try to sell you a product.
More specifically a contractual regular savings product or an expensive investment platform of their own proprietary mutual funds or other expensive front-loaded mutual funds, structured notes and alternative funds.
They recommend these because their remuneration is based on selling these funds and so their interests are never in line with those of the client. More on this another time.
In the meantime, suffice to say that this tip will apply 99.9% of the time. Do not buy a regular savings product or any product from a commission-based financial adviser (aka, financial product salesperson).
These products will cost you an arm and a leg and they are more often than not completely inappropriate for expats in the long term. Don’t get me wrong – they can work okay if used exactly as intended, but I can tell you that problems always arise when your circumstances change (which invariably happens) and you want to stop or need the money early.
Most of these contractual regular savings plans peddled by commission-based advisers are far from flexible and transparent and there are vastly superior options available out there. Trust me.
I will be writing about expat savings and investment options and what to look for later, so make sure you subscribe to Expat Financial Guy to catch all the latest posts!