Many of us expats look forward to a new year with a renewed desire to make positive changes in our lives. From a financial standpoint, improving our circumstances requires instilling good habits, being consistent, getting started early, and possessing a basic understanding of finance and investing concepts. To help ensure you have a prosperous 2013, here are 12 financial New Year's resolutions. We recommend starting at the beginning and aiming to knock off at least one each month. By the end of the year, you'll be on much firmer financial footing.
- Set up an emergency fund. If you don't already have one, setting up an emergency fund should be one of your first priorities. Unexpected things happen to everyone (including job loss, illness, and unanticipated expenses), perhaps especially to those of us who live outside the security of our home countries. An emergency fund helps insulate you from some of life's curveballs. Plan on setting aside living expenses of six months or more.
- Get a handle on spending. Often, expats use a currency that differs from the one they use in their home country, which can create a sense of unreality when it comes to spending. ("After all, it's all just funny money.") Nevertheless, for your long-term financial wellbeing, it's vital that you figure out how much you're spending, and what you're buying. Most of us waste a significant amount of money on impulse purchases, avoidable fees, poor planning, and the inappropriate use of debt. To help make your spending real, use a multi-currency personal financial planning software program like Quicken to help you translate your finances back to a currency that has meaning to you.
Set financial goals for the future. Where do you want to end up? What are your life's dreams? This should be a fun exercise, but remember, if you don't plan to get somewhere, you're not likely to arrive. With that in mind, set specific, quantifiable financial goals that answer questions like who, what, when, and where. Here are some examples of what long-term financial goals might look like:
- By age 60, retire in a tropical location and enjoy a lifestyle with living and travel expenses similar to you pay now.
- Purchase and live in a two-bedroom condo in the hills of Chiang Mai.
- Pay for four years of college for your two kids at a private university in Boston.
- Start enjoying saving. Saving is critical and is where many well-intentioned New Year's resolutions get derailed. Although making saving a habit may be difficult at first, once you get started, it becomes much easier and can even be enjoyable. First, see resolution #2. Next, learn to enjoy paying yourself first. For more help, see "How Expats Can Overcome Mental Roadblocks and Get Started Saving."
- Pay off debt. The inappropriate use of debt is the quickest way to jeopardize your financial security. Use cash or a debit card for purchases, not a credit card. Pay off or consolidate consumer debt to lower your interest charges. Look into refinancing mortgage debt or swapping variable rate debt to fixed rate if you haven't already.
- Contribute to your employer's retirement plan. This can be one of the best deals out there, assuming you get a tax-deferral and employer matching contribution. If you don't have a company retirement plan, look at other tax-advantaged options. In Thailand, Provident Funds, Retirement Mutual Funds, and Long-Term Equity Funds can all be useful. Depending on their situation, Americans may find be able to contribute to Individual Retirement Accounts, even in some cases nondeductible ones. However, beware of investment-linked insurance schemes, which are often billed as savings plans, pension plans, or education funds. These schemes are anything but, and their high fees will quickly erode any long-run investment returns you can hope to achieve.
- Read a good book on investing. There's a lot of "noise," conflicting advice, misconception, and faulty "market wisdom" surrounding investing. Many people lack a complete framework and context for making informed investment decisions and tend get whipsawed by short-term, emotional investment decisions. Do yourself a favor and read a book on investing. Two of the best are The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between by William Bernstein, and A Random Walk Down Wall Street (10th edition) by Burton G. Malkiel.
- Develop an appropriate investment strategy. Once you've read the book, create an appropriate long-term investment plan that is suitable for your unique situation and financial goals. You can either do this on your own or with the help of a competent, unbiased financial advisor. Then, stick with your plan, and do your best to avoid the classic investment mistakes that many expats make.
- Review your insurance coverage. Review your need for insurance, as well as your existing insurance policies. Look at health, life, disability, homeowners or renters, auto, liability, and, if you are over 55, long-term-care insurance. Make sure that you have adequate coverage, but don't buy what you don't need. Generally, it's best to purchase each type of coverage separately and not lumped in with some other financial product. If you can't evaluate your insurance needs yourself, seek out an unbiased advisor to help. Ideally, that will be someone who is not compensated based on the insurance product sold to you.
- Simplify your financial affairs. Keep your financial life as simple as possible. It's easier to manage and you're more likely to keep up with it. Close unneeded bank accounts, limit the number of credit cards, use an online broker, and have your statements delivered online. Keep good records. See "Ten Tips to Simplify Your Financial Affairs While Living Overseas" for help.
- Get a will. Most people don't have wills, and for those who do, it's unlikely to be up to date. Yet having a will is important if you want to take care of your children and spouse, particularly in cases where there are ex-spouses and children from previous marriages. While you're at it, review beneficiary designations on all insurance, pension, and retirement accounts. Ensure that your spouse has access to the financial accounts and knows where the records are kept. Consider whether a financial or healthcare power of attorney is required. See "Why Expats Need Estate Plans and How to Get Started."
- Get competent advice when you need it. Don't be pennywise and pound foolish. The level of complexity and financial sophistication of financial products has increased immensely in the past few decades. So has the slickness of the marketing. In today's world of specialization, it is impossible to keep up with it all. You don't have to do it all yourself. It can often be cheaper and more effective in the long-run to get competent, unbiased advice when you need it, rather than attempting to go it alone. Just ask any wife whose husband tried to save a bit of money by refusing to call the plumber.
This New Year, resolve to bid farewell to bad financial habits, instill some good ones, and get started on creating your own financial security.
Have a great holiday season and all the best in 2013!
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future. For more information visit crevelingandcreveling.com.
Copyright © 2012 Creveling & Creveling Private Wealth Advisory, All rights reserved. The articles and writings are not recommendations or solicitations, and guest articles express the opinion of the author; which may or may not reflect the views of Creveling and Creveling.