Anyone that knows me or has worked with me knows that I teach people about how to manage their money. I don’t teach them how to earn it but I do teach them how to make money from investing wisely and constantly reminding them how to better spend their hard earned money efficiently. A lot of this is through protecting them from the thousands of get rich quick schemes & scams just waiting to lure their money away from them. Having been in the financial services industry my entire working career, dealing with other people’s financial affairs has been a massive part of my life. Working specifically with expatriates in and around South East Asia for the last two decades has highlighted more than a few traits of my fellow expats, so today I want to share with you the 5 most common bad habits amongst expats when it comes to self managing their wealth and income:
1. Living without a budget
Planning is extremely important in any industry and a budget is simply a plan for money. As we all know, if you don’t plan, you plan to fail. Any financial planner around the world will [should] be teaching you the most fundamental lesson of this industry; spend less than you earn. Sounds simple however so many expats push their limits and when we start factoring in credit cards, spending begins to outweigh earnings and the downwards spiral begins. I have, without exception, always spent less than 50% of what I have earned and I always try and teach this to clients, friends, family and frankly anyone that will listen.
An expat living in South East Asia where their cost of living can be substantially lower given all their allowances and benefits; should enable them to save a considerably portion of their income each month. Try it, you’d be surprised.
2. Relying too much on employee benefits
This is by far our biggest hurdle when speaking with an expatriate prospective client. “My company provides everything” is the comment we hear all too often. Assuming that their company provides them with essential benefits such as health & life insurance then this is of course good news, but often the benefits are not overly generous. There are two killer questions that can blow that statement apart:
Are you fully protected? The simple answer is that most expats are far from being fully protected and the reasons are quite simple when understanding the basic arithmetic; Assuming an expat has 5, 10, 15, 20 or more years until they retire or stop work, if they pass away at any point prior to their retirement date, that would mean their dependents are at a loss of an income and the benefits associated with being an expatriate employee. So if they have life insurance with the company and assuming it’s a generous policy – it could pay out three to four times their annual basic salary. What about all the other years they were going to be working until retirement? What about the bonuses, the housing allowance and all those other perks like education fees for their children? Are they fully covered? Unlikely. Additional personal life insurance is a must for anyone in this situation.
What happens when you leave the company? – One distinctive difference between an expatriate and someone working in their home country is the contracts. Here in Indonesia, most people will have a 1 or 2 year employment contract. Even if they have a 5 year contract, what happens at the end? When it’s over, all the perks will disappear. Insurance policies around the world such as health and life insurance become more expensive with age and people often become uninsurable due to ill-health and long-term sickness. So when an expat’s contract ends, so does all those insurance policies and they overnight become exposed and immediately vulnerable and so do their dependents.
My experience shows that many people in this position are either uninsurable or unable to afford personal life insurance and medical insurance because they simply left it too late to make their purchase. Life insurance premiums rapidly increase with age, so joining up early is always going to be the cheapest long-term option and health insurance is available usually only for the healthy people hence the name “health” insurance. The best time to buy health insurance is before a pre-existing condition can manifest. Wherever possible we recommend our clients to purchase their own basic protection policies so they know that they have the essentials and the ability to select the levels of benefits they need at all times. Most employees will consider a full or partial reimbursement of these premiums during their tenure.
3. Failing to save for milestone financial events
The easiest example of this is the cost of an education. Notice I didn’t just say tuition fees. The cost of sending a child to school from the age of 4 up to university in their 20s can be astronomical. The cost of tuition, boarding, clothing, trips, equipment, transport and food (the list goes on) will all add up to a serious number that should not be underestimated. And don’t forget there’s 16+ years’ worth of inflation to factor in there! Sure, an expat will [hopefully] be earning money along the way but they absolutely should have significant reserves before embarking on this journey and frankly in my years doing this job, very rarely do I see expats that can truly afford to pay for these costs out of income. Many while employed as expats may have their employer pay their children’s schools fees but what if in the future they are not working or their package excludes educations fees – then its going to be financially hard. Start saving the moment you and your partner decide to have children, trust me it will be easier.
4. Getting too comfortable as an expatriate
Whether expats have been in Indonesia for 1 year or over 20 years the fundamentals stay the same. They are only as good as their contract renewal. Regardless of how long an expatriate has lived in Indonesia, regardless of how well their company has looked after them during this period, if their company does not renew that contract, its game over. And for many it might not just be the salary that disappears. If expats are given other perks like housing, schooling, transport, medical care and pension contributions then these will all be gone too. I would always recommend having a minimum of 6 months (if not 12) emergency cash in the bank to cover all these living costs and fees whilst finding the next job. Too often we meet high earners with great lifestyles but with far less than 6 months funds in the bank.
5. Failing to buy property whilst overseas
We all know its near impossible to own property and land in Indonesia as a foreigner. Sure there are loopholes and new legislation about having the right to use an apartment for 25 years or so but in my eyes these are all far too risky. Expats may be thousands of miles from home and be forced to rent here in Indonesia. But why haven’t they bought a property in their home country. If not in their home country, at least in a country where ownership is clear and safe for property ownership. A good example is the United Kingdom where ownership laws are equal regardless of nationality or status in society. Property can provide a long lasting rental income and capital appreciation during their years overseas. I call it earning while I am sleeping mainly because it’s an arm chair investment but the idea that people are living in my property during the day when I am asleep given the time difference.
I hope you liked this post. Please comment, share, tell me I’m wrong and tell me what you think the mistakes are. If one person buys some health insurance based on my words today from this article and ends up claiming for a figure they couldn’t otherwise afford then my job is done and I’ll sleep easy. Enjoy the fruits of life while it’s still sweet.