You decide to live abroad for a few years – a new experience, travel opportunities, luxury lifestyle, tax free salary, why not? Home will still be waiting when you rejoin ‘normal’ life after your stint away. Then 4, 5, 6 years later… you’re still there! My colleague coined the UAE ‘convenience quicksand’ – how quickly the months turn into years, then before you know it, you’ve been an expat for decades! You may enjoy your life as an expat or you might hate it, but one thing that will most likely be niggling at you is the matter of money. It dawns on you that you haven’t been paying into a pension like your peers back home, and you may feel behind in retirement planning. High costs of living – increases in bills and school fees and groceries – coupled with frozen salaries and benefit-cutting may leave you wondering where to even start.
But don’t worry, help is at hand and there is hope for expats! I have put together a quick guide of 3 ‘p’s to expat investing so you can get started on the path to financial independence as an expat. For a step-by-step course on this, I highly recommend Steve Cronin’s Expat Saving and Investing Course. Jam-packed with information on everything from paying off debt to opening a brokerage account, to definitions of investing jargon, to making your first trade, to money mindset, this is the go-to course for achieving financial freedom as an expat. I attended Steve’s workshop in April 2019 and haven’t looked back; it was the most life-changing and impactful course I have ever taken.
1. Plan
The first stage is planning and saving. Before you invest, you must gain knowledge on investing strategies, figure out your own goals and evaluate your current situation. This part is crucial and often overlooked by expats who dive right into the market with no plan or strategy and end up losing money. This is what people refer to when they say that investing is risky: it’s not, investing without a plan is risky. Some steps to take before you jump into the stock market:
- Pull together the balances of all your debts, cash accounts and assets to calculate your current net worth.
- Track your current spending and savings rate so you know how much money you have available to invest. Here is a fantastic tool to track income, expenses, savings and savings rate.
- Build your emergency fund – most finance experts recommend holding at least 3-6 months’ worth of expenses in cash, in a savings account or government bond yielding as much interest as possible without actually being invested. This helps protects you from going into debt or selling investments if you experience a financial crisis. I have a FREE visual emergency fund tracker to help you save up for any financial storms that might come your way.
- Work out your goals – where and when would you like to retire? Do you have other financial goals such as buying a home or children’s education?
- Adjust your lifestyle accordingly by cutting back expenses or increasing income through a job change or starting a side hustle.
- Understand investing strategy – does stock market or property suit you better? Learn the pros and cons of both strategies. What is your risk tolerance? This will depend on your own personality and current circumstances and your age and time to retirement.
- Will you go robo-advisor or DIY? This depends on how much money you have to invest and your long-term goals.
2. Perform
The next stage is to perform, and I don’t mean the performance of your investments here, I am talking about how you perform! When you are acutely aware of your current situation and your future goals, and you have decided on your strategy and risk tolerance, the next stage is to begin the investing process. Here are some steps to follow for investing in the stock market as an expat (property is another beast and requires a different article to explain the steps):
- Decide on a brokerage – Interactive Brokers and Saxo Bank are popular choices for the DIY approach and Stashaway is ideal for those who seek a robo-advisor. Make sure you select a reputable broker with SIPC coverage (protects your money in the case of your broker going bust). Interactive Brokers is one of the cheapest and easiest options for expats. Opening an account will require proof of identity and address, then once your documents have been verified, you are ready to fund your account. I recommend that in settings, you select tiered pricing to get the best rates for your trades.
- Transfer money to your account. Expats use a variety of options, such as Transferwise and Wall Street Exchange, but the best option I have found is Lulu Exchange, who offer a 3.6735 exchange rate with USD and 157.5 aed fees total. At this point, try to keep transfer costs as low as possible by looking at exchange rate and fees. It usually makes sense to transfer larger amounts less frequently to avoid high costs, so it may be worth saving up until you have at least $5000 before transferring to Interactive Brokers.
- Pick an Exchange Traded Fund (ETF). An ETF is a basket of stocks that tracks an index (like the S&P 500 or the FTSE 100). Expats tend to invest in globally diversified funds (choices will vary depending on your nationality and where you want to retire – Andrew Hallam goes into detail on different portfolios for varying nationalities), which are domiciled in Ireland and trade on the London Stock Exchange (for tax efficiency). You have to choose a fund manager, such as Vanguard or iShares, then a low-cost ETF, such as VWRA (Vanguard all world accumulating fund).
- You’re now ready to invest! During trading hours (check the time difference), you need to click ‘buy’ and ‘limit price’ and ‘good till cancel’ to ensure your transaction will go through smoothly. Congratulations! You can now go about your day knowing that you have bought yourself a slither of the future.
3. Protect
Great work! By this point, you will have a good handle on your personal finances, and you are now investing for your future. But the work isn’t done yet. There are a few measures you can put in place to ensure you protect your hard-earned assets and investments.
- Purchase life insurance to cover your loved ones in the event of your death. Term life insurance with critical illness will suffice for 99% of people. If you have dependents who rely on your income, life insurance is a necessity, and purchase as soon as possible as the older you get, the more expensive the premiums become. I use Aviva through Friends Provident and have heard good reviews. Search life insurance on the SimplyFI Facebook group for more information.
- Create a Will. It’s best to have a Will drafted in any country which you have assets (stocks, property or business) and name a beneficiary for your brokerage account, as well as in your home country. I am in no way an expert on Wills, and you are best contacting a lawyer about the best ways to prepare for your impending mortality.
- Assemble a ‘death folder’ – ensure all your account information and important documents are stored somewhere where your partner or beneficiary can access it. If one person deals with most of the finances in the family, make sure the other person knows the investments, accounts and budget information. It would be beneficial for the whole family if you work together on financial goals to become more aligned in your values.
- Revisit your plan and strategy regularly. It helps to sit down and reconcile your spending with your budget each month, as well as creating a new budget. Every 6-12 months, it’s worth evaluating your overall strategy and plan, especially as an expat. Expats tend to move, shift and change more often than people living in their home countries, requiring more reconfiguring of strategy.
As an expat, there is already enough to deal with living in another country, so having a clear plan for your finances and maximizing tax-free salaries and advantageous employee packages can be one less thing off your mind, allowing you to enjoy the lifestyle until you return to the ‘rat race’!
This guide can be a great starting point, but if some of the steps still need clarifying, you’re definitely not alone. I attended a workshop in April 2019 that changed my financial trajectory. Steve Cronin’s Expat Saving and Investing Workshop gives a step-by-step guide to the above points, aimed at everyone from a complete beginner to a seasoned investor. Click here to learn more about his online course, complete with several Q&A sessions and access to an Exclusive Facebook Group.
This will change your life. Getting your financial house in order is a massive relief. Good luck and let me know how you found the workshop.
