A strong personal economy has, historically, been built on traditional pillars: Make smart investments, manage expenditures, and build sound credit history. But in today's increasingly interconnected world, that alone won't cut it. Pursuing career, business, education and even retirement goals is challenging enough, but when you add in the complexity of today's global economy - such as currency fluctuations and market volatility due to sovereign debt crises - your financial picture can seem more vulnerable than ever.
Managing risks and identifying growth opportunities calls for savvy planning and forward thinking when it comes to life's major financial milestones. Let's take a look at four common milestones that should be weighed in every family's financial plan, along with a few planning guidelines for global individuals.
1. Career: Planning your path whether expat or entrepreneur
Stagnant economic growth in the U.S. and attractive career and business opportunities abroad are pushing people to travel the world in search of new experiences and pathways to success. Calculated career moves abroad can be rewarding, but can also put you underwater when poorly planned. Here are a few variables to consider when taking your skills across the border:
- Plan around and take advantage of exchange rates. The purchasing power of money earned overseas country will be different from the USD - a factor frequently overlooked when moving assets from one currency to another.
- Accessing funds remotely creates a taxable event - similar to ATM fees, only much more expensive. Be mindful when accessing portfolios to prevent excess taxes and fees - while still ensuring you have liquidity to manage daily expenses and unexpected costs.
2. Mortgage: Buying a home requires a strong financial foundation
Purchasing property abroad can be a difficult and expensive process. The number of fees, taxes and closing costs, on top of property costs, can quickly put what looks like a reasonable investment over-budget. A few things to consider:
- Credit history vanishes when moving abroad and the rules that constitute "good credit" change completely. A 750 credit score in the U.S. may mean nothing in, say, Barbados. It is possible to leverage already existing bank accounts and credit lines, however, especially when those assets are held at an international bank. When considering a move, have an international financial institution conduct proper due diligence.
- The laws and protections afforded to home buyers vary widely across international markets. Lenders can abstain from lending to U.S. buyers for any number of reasons--including old age. U.S. citizens looking to buy abroad need to be cognizant of the potential discrepancy in fair lending practices.
3. Education: The ABCs of paying for college
According to a recent HSBC study, more than one in two parents believe that paying for a child's education is the best investment you can make. Not surprisingly however, more than a third of adults say they find making financial decisions about their child's education daunting. Below are some key considerations when planning for your family's education needs:
- Plan around your earning potential. Many parents will be paying for their children's college tuition in their 50's, which puts them past their peak earning potential. This makes saving early vital. According to HSBC, 51% of parents wish they had begun saving and planning for their child's tuition earlier.
- Consider all avenues: Factoring in inflation and the increasing costs of education mean that all savings avenues should be explored to maximize interest. Weigh all viable options, including 529 plans, deferred compensation plans and traditional taxable brokerage accounts. There are also generous education-related tax benefits available that many people aren't aware of, but should be taken advantage of.
4. Retirement: Save while you're young - it never gets old
People are living longer and saving less for retirement, yet the cost of living around the world continues to rise. According to a recent HSBC study, more than 20% of people aren't doing anything to prepare for retirement, and nearly half (48%) reported fear of not having enough money to live on during retirement. Here's what you need to think about to bridge the gap between your dream retirement and financial reality:
- Calculate your cost of living. High taxation for high earners, increasing health care costs and long-term care challenges have raised the price of retirement in the U.S. Whether you choose to retire in the U.S. or settle elsewhere, you should calculate your own true cost of retirement and how far your funds will take you by talking to a trusted financial advisor.
- Discover your axis: Everyone has a different vision for retirement. Identify what is important to you - whether it be travel, generous gifts for grandchildren, or philanthropy - and discuss it with your spouse and with your financial advisor to make sure it is feasible.
Navigating these milestones requires sound financial management and foresight into all variables that may come into play in today's global stage. Planning early is optimal, but it's never too late to get started. Understand the tools that are available to you, and don't hesitate to seek the help of a trusted financial advisor who can help you take control of your future for a better tomorrow.
Budgeting and tracking your expenses will give you a firm grasp on how much money is coming in and where it’s going out. This can help you cut wasteful spending and free up more of your income.
Over 75 percent of Americans don’t have enough in savings to cover their bills for six months, and 25 percent have no savings at all. Becoming a smart saver will help you create a strong savings plan to be ready for an emergency or rainy day. Source: Federal Reserve, US Census Bureau, Internal Revenue Service
Most of us have 401(k) retirement or similar defined contribution plans, but don’t quite understand how to properly take advantage of all they can offer. By becoming financially savvy, you will be able to take control of your 401(k)/defined contribution plan and maximize your benefits.
Today there are more ways to get into debt than ever before. Many of us start straight out of school with student loans, credit card debt and more. Financial education programs can teach you how to spot debt pitfalls and ways to get out from under any amount of debt.
Over 40 percent of Americans are not saving for retirement, but it’s not too late. You can figure out the best way to save for retirement and create a plan to reach your goal. A good rule of thumb is to set aside 10 percent of your wages for retirement. Source: Federal Reserve, US Census Bureau, Internal Revenue Service
How would you feel if you didn’t have to worry about money issues or retirement? Financial security alleviates one of the most stressful issues in our lives and helps build confidence for the future.
The recipe for success is investing in solid companies and holding on to them for the long haul. Top investor Warren Buffet tells investors how taking a long-term view can benefit your portfolio with Coca-Cola: “If you had invested $40 in Coca-Cola stock in 1919 it would be worth over $10 million today.” So don’t try to play the market and run the risk of buying high and selling low. Make thoughtful choices and stay calm through short-term market upturns and downturns.
One of the most important things you can teach your children is how to handle their finances wisely. Start them off on the right foot and make them smart savers!