03 Nov Save or Invest? What Expats Need to Know in Host Country
One of the most important decisions expats need to make is how to manage their finances. Given the higher income expats enjoy than what their host countries can offer, they find themselves asking whether to save their earnings, invest, or even spend a little extra budget for self-care.
Managing finances is already a complex responsibility when one works in their host country. Working abroad just complicates matters with the addition of different factors such as multiple currencies, different banks, and taxes in both host and adoptive countries. Fortunately, there are tips on how to save or invest coming from experts.
Research for your safekeep income
It’s safe to say that common sense dictates that a savings account is the go-to venue for securing one’s earnings. It’s practical, accessible and most importantly, it’s safe. The downside of keeping money in a savings account is the low interest rates that just can’t keep up with inflation rates.
HSBC Expat suggests doing research on inflation rates between an expat’s host and adoptive country to determine which account can maximize a particular bank’s interest rates. Another tip from the firm is to keep one’s savings in different currencies if an expat travels frequently or lives in several locations.
Insure one’s life
Expatica recommends investing in life assurance, especially for expats with children. It doesn’t hurt to get financial assurance for your children in the event that one of the parents passes away. Moreover, it wouldn’t hurt to do research on which insurance companies will work best for an individual.
Policygenius, an online insurance marketplace, suggests doing the following to buy a new life insurance policy overseas:
- Calculate life insurance needs based on how much an expat earns, outstanding debts and financial obligations, and duration of having financial dependents
- Decide the type of policy one needs. Is it a permanent life insurance policy or is it a termed one?
- Prepare the required documents to get started (proof of identity, income, residency, etc.)
- Shop around for a life insurance policy. Having multiple insurers might be the better option as many companies evaluate applications differently.
- Apply and do the interview
- Get a medical examination. It’s required to have a paramedical exam for insurance companies. This will surely apply to those without US residency
- Wait for the underwriting results
- Sign the documents and make sure to pay the policy
Keep a separate account for emergency savings
Having an emergency fund is an important step in becoming a financially responsible individual. HSBC Expat encourages to keep 3-6 months’ worth of living costs within close reach to cushion any unforeseen costs.
Keeping it separate from other savings makes it easier for an expat to categorize his or her finances and avoid picking from funds set aside for emergencies.
Don’t just get a regular savings account
If finances allow, getting a different type of account to save up money can be beneficial. Take advantage of interest rates trading off minimum deposit amount or liquidity. Policygenius elaborates the different accounts:
Money market accounts
These accounts are similar to deposit accounts where savings increase with a humble interest rate. However, it does require a larger initial deposit amount, and there is a possibility of being charged once the balance steeps below the specified minimum amount.
The advantage of having this type of account is its slightly higher interest rates. Moreover, money market accounts allow users to write checks against the balance — a feature that traditional saving accounts don’t have.
Certificates of deposits
Certificate of deposits (CDs) lets account owners enjoy higher interest rates. The trade-off here though is that it isn’t as liquid. CDs are designed to be a place to save money that an account user won’t need to access within the terms of the CD. It’s important to inquire how a bank institution defines its early withdrawal penalty.
Forbes Advisor enumerates the types of CDs:
- Regular CD (lower minimum principal investments, fixed rates, early withdrawal penalty)
- Liquid CD (no early withdrawal penalty however it typically requires the account owner to withdraw the whole amount)
- High-yield CD (high interest rates)
- Jumbo CD (opening balance requirements although other online bank accounts have no minimums)
- Bump-up CD (provides the option to raise interest rate if the bank raises rates during the CD term)
- Step-up CD (raises interest rates at regular intervals within the CD’s term automatically)
- Add-on CD (allows users to add a principal to the CD within the term)
- IRA CD (CDs held in an individual retirement account)
Furthermore, financial management involves other considerations. Retirement plans, education fees planning, tax compliances of both host and adoptive countries are just some of the aspects an expat needs to look into.
Though it might seem tedious, the extra work is worth the hassle knowing that handling finances the right way will lead to great benefits for an expat.