Why and How to Keep Investing and Saving (Especially When it Feels Difficult)

There are times in life when managing your money as an international professional, living away from your home country can seem seems hard. It may be the complexities of what you are allowed and not allowed to do, navigating the web of cross border taxes, working out what is compliant, and then being able to select the best solution for you. For some it is a cash flow juggle, being able to put some funds aside for the future, and for others it is finding the time to do so.

Whilst we can help to overcome most of these obstacles, getting to a conversation with a professional like Black Swan Capital/ Arisaig Wealth Management can also be a hurdle.

Here are some motivators and reminders of why it is important to start and then keep on with a good financial plan and some practical suggestions for how to do so.

Why you should keep cash reserves (even when interest is almost zero)

We see clints expressing futility at keeping a cash reserve. This is understandable when for much of the last decade bank interest rates are at almost zero and notably below inflation.  If you are earning less than inflation, your actual spending power is going backwards by the difference between inflation and your return.

Despite this, there are benefits to keeping cash reserves. Getting the balance right is important as having too much or too little can both be damaging to your plans.

The first benefit of holding a cash reserve is for peace of mind and to cover the practicalities of an unexpected expense or loss of income. If you are an international living in Europe as a reference point that might mean having sufficient liquid (financial speak for able to access) funds to be able to pay ongoing mortgage or rent, school fees and living costs for 3-6 months and maybe a flight home. We often use 3 -6 months cost of living as a reference for a target cash reserve. Depending on your circumstances, that could be as low as 2 months or as high as 2 years. Having a minim cash amount can avoid having to sell assets in a rush, and acute cash flow strain. A minimum cash amount gives you the peace of mind that you will be ok. If you don’t have this, it is a good initial target to work towards.

The purpose of the cash reserve is to be a safety net. It is not about the returns.

On the flip side, we also advocate not holding too much of your wealth in cash. Once you have made provision for emergencies- thinking of the worst the world can throw at you and how much that might cost- by keeping more in cash you can be holding yourself back. You do have the relative security of cash in a bank; it is not volatile like investment markets can be, but with low risk comes low return. As stated above most bank interest rates are lower than inflation so by holding cash you are actually eroding your wealth, not growing it, year on year.

This is where a structured and goals based financial plan is important. After making the analysis for how much cash to hold, and the decision to invest the amounts above that, the questions that hold many back are where and how. This will depend on what you want to achieve, how long you have, your attitude to risk and return, and the return you need. In any event, you need to be at least exceeding inflation.

When you have clarified how to invest, you can also apply monthly surplus income to this format to accelerate your growth.

Linking your investments to your goals

When we talk about investing it can feel intangible. Investing is ultimately a means to an end and not the end in itself. Having an investment in place can give you feelings of wellbeing and security and that is important but if it is aligned to your objectives, what you want to achieve, it can become more meaningful. To grow your investment to €1m is great, but to grow your investment to where you can cut back to 3 days’ work per week, take an extended holiday and buy a holiday house, or whatever it is that is most important to you, will be more relevant.

If you are finding it hard to stay motivated, focus on the goal, not the day to day. And if you feel it is still difficult, maybe you need to reconsider your goals. That is another important aspect of ongoing financial advice: updating your financial plan as your life changes.

Knowing when you can spend (and how much)

A good financial plan will also include cash flow analysis. It sits alongside the foundations of an appropriate cash reserve, an investment and ongoing additions to build your wealth. By not compromising your long term goals you can allocate cash flow to meet your immediate needs and wants. Not everyone wants to be a martyr for tomorrow, today.

Knowing your budget allows you to allocate a particular amount for discretionary expenses and perhaps an annual vacation makes investing and building your wealth seem less hard work.

Remember that markets go up over time, but not in a straight line

This is an important consideration. Another benefit of being focused on the goal is that is removes the day to day noise. It doesn’t matter if the markets, and your investment, go up or down from one week to the next, as long as the fundamentals are in place and that it is aligned with your targets.

If the abstract of goals still seems difficult as a means to manage this concern, you can turn to economic theory. As the heading states the short term might be more volatile but the long term tends to go up. Having the discipline when markets are falling can make a substantial difference in the future. By staying the course when it is most difficult, and especially maintaining regular investment additions, you are potentially buying into your investments at a discount. When markets recover that will mean larger returns.  This is actually one of the most impactful actions you can take that can impact your future wealth and wellbeing. If you are concerned about markets, or want to check if you investments align to your plans and objectives, arrange a time to speak with us.

Finally, consider protection

Protection is a fancy word for insurance. If you have dependents and/or debts it might be worth reviewing if insurances can be a useful part of your financial plan. It might remove the ‘what if’ worries and can mean you, or your loved ones are not forced to sell assets to cover costs should something happen to you. You can speak with us to see if it is something that should be added to your planning.

Again, consider chatting with a qualified and regulated financial planner that understands what it is like to be an expat in Europe. Speak with us by contacting us at info@blackswancapital.eu.