Money isn’t the most important thing. I think most of us can agree on this. And each of our personal definitions of what is the most important thing can and will evolve throughout our lives. Maybe now it’s freedom, maybe one day it will be stability. Family and friends and loved ones will always be a part of the equation. Hopefully good health. Perhaps some level of comfort, too. But not too much (might I direct your attention to another, far more badass, Canadian emigrant: Mr. Money Mustache, a hero and pioneer of living an unconventional life of financial freedom). Something that will serve any of these values is having your financial house in order. And there’s no reason why you should sacrifice this as you move from country to country. You just have to be a bit more on the ball.
There are many interrelated facets to getting your money right and all of them can be incorporated into your expat experience. We’ll dive more deeply into taxes and investing and thinking about retirement in future posts. This is to set the stage and to introduce some of the people who have influenced my thinking on this subject.
Perhaps the first hurdle I see in the path of many people is general lack of knowledge, which can often translate into fear. Fear of the unknown makes you paralysed and even less likely to seek out knowledge. Rinse, repeat. This is a vicious cycle and one that even smart people fall into when it comes to their finances. So don’t feel bad if that’s you! But do take action. If people who never leave their home town can skate by in un-blissful ignorance about their finances (spoiler alert: they can’t), we globally mobile nomads really can afford no such unsavoury indulgence.
So the first step is awareness. Educate yourself about your take-home pay, your tax rate, your savings rate, your net worth. You will want to have savings built up when you’re moving countries. There are eventualities that will crop up, and they will be so much smoother if you’re not living pay cheque to pay cheque. Do you want to miss out on a great apartment because they require 2 months’ rent as a deposit (because you’re a foreigner with no local rental history), only you haven’t been paid in your new country yet? No, no you do not. But I digress. You first need to know how much you’re currently saving, if you’re going to figure out how to save more, or how to analyse your ability to save in your new location. Dive in, get down and spreadsheet-y. Do it now.
You’ll find that the more you know and understand about where your money is coming from and going to, the less scary a subject it becomes. And the more you can optimise your financial life.
Fun with fx.
People aren’t the best at dealing in multiple currencies. It’s understandable, especially if most of your life you’ve only dealt with one. But you, my globe-trotting friend, must become nimble ninja, navigating in different currencies with ease (or, if not ease, some level of competence).
You will most likely have accounts in different countries, which is fine and can often work to your advantage. Just use them with intention. We’ll discuss more in a future post how you can think about dealing with having accounts in different countries, and how best to optimise them. That aside, when you are analysing your new country’s financial landscape, you’ve got to switch into the new currency. Or another way of thinking about it is to approach from currency-neutral perspective. Allow me to explain.
When you’re earning and spending, say, euros, it doesn’t matter to you (at least on a day to day basis) what the euro is doing against your home country currency. So the first thing you need to do is stop converting everything back into your home currency.
That’s simple enough. The next step, then, is to understand that when you’re in a different tax system, in a place with a different cost of living, it really, really doesn’t matter what your new rent in euros would have been in, say US dollars. Or pounds sterling. Or Japanese yen. Even smart people make this mistake, but you’re really comparing apples to oranges and you should stop. Here’s what to do instead.
Ratios are your friend.
If you think in terms of ratios, you can make intelligent analyses and assess your new situation in an apples-to-apples comparison. That’s much more useful, so let’s do that.
For example, when you are thinking about your ability to save in your new location, one way to look at that is as a percentage of your take-home pay. This takes differing tax rates out of the equation. We’ll talk more in future posts about how to think about taxes, but for now we will accept them as immutable facts of the universe, and that they differ from country to country is of little interest to us at the moment.
Monthly savings / monthly take-home pay = X%
If you used to save $500 of your take-home pay of $5,000, you had a savings rate of 10%. (Pro-tip: You should probably definitely be saving a lot more than that.)
In your new location, your take-home pay after taxes and whatever other payroll shenanigans may be going on (health insurance, etc.) is £2,500, and you find after few months that you’re consistently able to save £300. 12%! Still pretty minimal, but no worse off than before. If you think about it that way, the tax rates and annual salary amounts cease to matter so much in relative terms.
Housing is another area where this type of comparison is useful. For example, Dublin is an expensive city to rent in. However, the same can be said of Seattle and Vancouver. So when I realised I could find a place in Dublin that would be about the same percentage of my take home pay as I was spending in Seattle, I was somewhat comforted. And depressed. But knowledge is power. And I’ll devote an upcoming post to how to hack a new housing market to minimise the financial stress of living in expensive cities.
There are a few really excellent bloggers who have inspired and influenced me on the subject of personal finance and how it intersects with living intentional lives. The below blogs all offer unique and valuable insight into how figuring out your finances can further your dreams. Check them out:
The end-game for each of us will differ, and that’s fantastic. But the common thread is that intelligently making our money work for us will ultimately serve our values. And that’s what I’d like to help people do in the context of building globally mobile, location independent lives.