Like resolutions to eat less and exercise more, vows to spend less and save more are a traditional feature of many of individuals' Januaries, including Americans who are living outside of the U.S., financial advisers report.
But this year in particular, with the New Year coming just at the end of some of the most volatile financial markets in recent memory, and with uncertainty hanging in the air as thick as the smoke that remains long after the fireworks have finished, it's thought many expatriate Americans will be beginning 2019 with a greater-than-usual desire to make positive changes to their financial situations.
Peggy and Chad Creveling, the husband-and-wife team behind Bangkok's well-known Creveling & Creveling Private Wealth Advisory – which specialises in looking after Americans – say the best way for such individuals to improve their financial circumstances is to instill good savings and investment habits; be consistent in their approach; get started early in life (if possible); and possess a basic understanding of finance and investing concepts.
Below, they offer twelve "financial resolutions" designed to help those looking to take advantage of the start of the new year to turn over a new leaf, savings- and investment-wise.
The first thing to understand is that change is never easy, particularly if you've been accustomed to doing things a certain way for a long time, and especially if you're introducing an element of hardship, sacrifice or simply a move out of a comfort zone into an area of uncertainty.
Nevertheless, if you start at the beginning and aim to knock off at least one of our twelve financial resolutions each month, by the end of the year, your finances should be on much firmer financial footing.
1. 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, maybe more so to those of us who live outside the safety nets of our home countries. Job loss, forced repatriation, loss of expat benefits, illness – these are all things that can happen to expat families. An emergency fund helps insulate you from some of life's curveballs.
Plan on setting aside living expenses of six months or more. Don't get clever with these funds; put them into risk-free deposit accounts in the currency you will likely need, in the event of an emergency.
2. Create a family budget
Expats typically operate in a currency other than their home country's, which can cause a loss of perspective when it comes to spending. Many of us spend in foreign currency amounts that we would never consider, if it had been priced in our home currency.
Nevertheless, for your long-term financial well-being, it's vital that you figure out how much you're spending, and on what.
For most of us, a significant amount is wasted on impulse purchases, avoidable fees, poor planning, and the inappropriate use of debt.
To get a handle on what you are spending, 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.
(For those unfamiliar with it, Quicken is one of the best-known personal finance management programs on the market, originally dating back to the 1990s, having been developed by Intuit, which sold it in 2016 to a private equity house.)
3. Set financial goals
Where do you want to end up? What are your life's dreams? This should be a fun exercise. Remember, if you don't know where you're going, you're not likely to get there.
Toward this end, set specific, quantifiable financial goals that answer questions like who, what, when, and where. Goals don't necessarily have to be so daunting that you never get started, like saving US$3m for retirement in 30 years. Set near-term goals that support longer-term desires.
For example, create a family budget and save US$10,000 for retirement this year, or open a 529 plan and contribute US$500 a month toward your child's education. (See an earlier piece of ours, Expat Financial Planning: Short-Term Stepping Stones Help Achieve Long-Term Goals, for some suggestions on how to get started.)
4. Enjoy saving
This is critical – and the point at which too many well-intentioned New Year's resolutions get derailed.
While forming habits such as saving may be difficult at first, once you get started it becomes much easier. Learn to enjoy paying yourself first.
For more help, again, see one of our earlier articles, Expat Financial Planning: Overcome Mental Roadblocks and Get Started Saving.
5. Pay off debt
The inappropriate use of debt is one of the quickest ways 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 done so already.
Be careful of the amount of debt-financed consumption you allow yourself; remember that it simply means that you're borrowing from your future to pay for the present.
6. Contribute to your employer's retirement plan
This can be one of the best deals out there, assuming you get a tax deferral, and your employer matches your 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 be able to contribute to individual retirement accounts (IRAs), even in some cases nondeductible ones.
However, beware of many offshore investment-linked insurance schemes often billed as savings plans, pension plans, or education funds. These are not the same as company or national retirement plans.
Their high fees will quickly erode any long-run investment returns you can hope to achieve, and will subject Americans to complex tax and reporting requirements.
7. Read a good book on investing
There's a lot of "noise," conflicting advice, misconceptions, and faulty "market wisdom" surrounding the business of investing one's extra income in expectation of earning an inflation-beating income.
Investing doesn't have to be complicated, but many people lack the knowledge and context to make informed decisions. As a result, they often get drawn into the type of short-term, emotion-driven decision-making that actually destroys wealth rather than building it.
We therefore recommend that everyone does themselves a favor and reads a book on the subject.
Some of the best, in our opinion, are:
- The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between by William Bernstein
- A Random Walk Down Wall Street (12th Edition) by Burton G. Malkiel
8. Develop an appropriate investment strategy
Once you've read the book or books of your choice – either on your own or with the advice of a competent, unbiased financial adviser – the next step is to create an appropriate long-term investment plan that is suitable for your unique situation and financial goals.
Strive for consistency, and do your best to avoid the classic investment mistakes that many expats make.
9. Review your insurance coverage
Review your need for insurance, as well as your existing insurance policies. Look at health, life, disability, homeowner or renter, 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. Also, make sure you understand your coverage – not all insurance policies are the same.
Generally, it's best to buy 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 adviser to help. Ideally, that is someone who is not compensated on the basis of the product they're selling you, for example, in the form of a commission that they receive from the insurance company.
10. Simplify your financial affairs
Keep your financial life as simple as possible. It's easier to manage that way, and you're more likely to stay on top of it.
This means doing such things as closing unneeded bank accounts; limiting the number of credit cards you have; using an online broker; and having your statements delivered to you online. Also making sure that you keep good records, so you can spot any unnecssary duplications of insurance or financial products, for example, more easily.
11. Make a will
Most people don't have wills, and many of the wills of those who do are likely to be out-of-date.
An updated will is especially important for expats who may be involved in dual-nationality marriages, and/or who have assets spread across several countries.
While you're at it, review beneficiary designations on all your insurance, pension, and retirement accounts. Ensure that your spouse has access to the financial accounts you share, and knows where the records are kept. Consider whether a financial or health care power of attorney is required.
12. Get competent advice when you need it
Don't be pennywise and pound foolish. The complexity and financial sophistication of financial products have 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, of course. Although you might expect us to say this, it really 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.
(As the saying goes, just ask any wife whose husband tried to save a bit of money by refusing to call the plumber!)
On a serious note, though, it does make sense, as we trust we have explained above, to resolve to use this time of year to bid farewell to any bad financial habits of earlier years and instill some good ones -- and in the process, get started on improving your own financial security, even if the world's financial markets seem undecided as to which way they're going to go in 2019.
With this in mind, we at Creveling & Creveling wish you all the best in the year ahead.
Based in Bangkok, Thailand, Chad Creveling and Peggy Creveling are the husband-and-wife founders and principal owners of Creveling & Creveling Private Wealth Advisory, which they founded 22 years ago. More information about them can be found on their website, www.crevelingandcreveling.com.