It is never too early to start planning your financial future
By Chris Webb
This article is published on: 17th June 2015
During conversations with many of my clients, I hear the expression “I wish I had done something sooner” so often, that I thought I should put pen to paper.
All too often in our younger years we race through the nitty-gritty details of our finances and neglect to focus on crucial “future proofing” in the process. During our 20’s we tend to spend, spend, spend. In our 30’s we try to save, but this is the decade when most of us purchase property and start a family so that makes saving for the future difficult. In our 40’s we’re still paying the mortgage and raising our children so inevitably it is difficult to put money aside to provide for your financial future.
But if you adopt a marathon approach to money (as opposed to a sprint – see my article on this topic), it can allow you to take a more holistic look at your overall financial picture and see how decisions that you make in your 20s and 30s can impact your 40s, 50s and into your retirement years.
It doesn’t matter how old you are, being financially healthy boils down to two things. The level of debt you have and the level of savings/investments you have. The only real difference is how you approach both subjects, as this will change with age.
Tips for during your 20’s
This is the best time to lay the foundations for a bright financial future. Try creating a budget and track your expenses. Keep evaluating over a few months to ensure it’s realistic. This may seem pretty basic but you’ll be surprised how many people don’t track their expenses. This is the best time to do it, your finances are likely to be a lot simpler now than they will ever be!
- Debt – Loans and Cards
It’s easy to think that making the minimal payments and delaying paying them off, to save more, is a good idea, but this strategy rarely works. The more you make the more you tend to spend, so getting round to clearing off these debts never comes any closer.
But now is the time to break the cycle of credit card debt or loans for good!
- Start an Emergency Fund
While you’re busy paying off your debt, don’t forget that you should always try to have a “savings buffer” in the bank. To help accomplish this goal you should transfer funds straight from your “day to day” account into a deposit account. One where you aren’t likely to get access through an ATM which reduces the temptation to spend it on a whim. Ideally, you should aim to have three times your monthly take-home pay saved up in your emergency fund.
- Contemplate Your Future – Retirement
At this point in your life, retirement is far off, but it is important to start saving as early as you can. Even small amounts can make a big difference over time, thanks to the effect of compound interest. Start saving a small percentage of your salary now to reap the rewards later in life. See my articles on compound interest and retirement planning to see the difference it can make.
Tips for during your 30’s
During this decade, your financial goals are likely to get a bit more complicated. Some people will still be paying off credit card debt and loans, whilst still working on the “emergency account”. So what’s the secret to juggling it all?
Rather than focusing on one goal you should be looking at the biggest of your goals, even if there are three or four.
- Continue Reducing Debt
If you’re still paying off your credit card balances then considering consolidating onto one card with an attractive interest free period should be your first task. Failing that you need to concentrate on the card with the highest interest rate and reduce the balance ASAP. The most important thing to consider with debt is the interest rate. If you have low interest rates (I’d be surprised) then there’s no major rush to pay them off, as you could manage the repayments and contribute to other financial goals at the same time. If your interest rates are quite high then the priority is to clear these debts down.
- Planning For Kids
Little ones may also be entering the picture, or becoming a frequent conversation. Once this is a part of your life you’ll start thinking about the cost implications as well. Setting aside a small amount of funds now to cater for the ever increasing costs of bringing up a child will reduce the financial stress later down the line. If you have grand plans for them to attend university, potentially in another country, then knowing these costs and planning for these costs should be part of your overall financial planning.
- Assess Your Insurance
The thing that most people forget. Big life events such as getting married, having kids and/or buying a house are all trigger points for reassessing what insurance you have in place and more crucially what insurance you should have in place. If you have dependents, having sufficient Life cover is paramount. Other considerations should be disability, critical illness and even income protection
- Start that Retirement Plan.
It’s time to stop just thinking about setting up what you call a Pension Pot, it’s time to take action! Starting now makes it an achievable goal, leaving it on the back burner because you’re still too young to think about retiring is going to come back and haunt you later in life.
Tips for during your 40’s
This is the decade where you need to make sure you’re on top of your money. At this point in your life, the ideal scenario would be to have cleared any debts and to have a nice healthy emergency fund sitting in a deposit account.
- Retirement Savings – Priority
During your 40s it’s critical to understand how much you should be saving for retirement and to analyse what you may already have in place to cater for this. In my opinion it’s now that you need to start putting your financial future/retirement ahead of any other financial goals or “needs”.
- Focus Your Investments
Although you may not have paid much attention to “wealth management” in your 30s, you’ve probably started accumulating some wealth by your 40s. Evaluate this wealth and ensure that there is a purpose or goal behind the investments you have made. Each goal will have a different time horizon and potentially you will have a different risk tolerance on each goal. The further away the goal is, the more you can afford to take a “riskier” option.
- Enjoy Your Wealth
It’s about getting the balance right. Hopefully you’ve worked hard and things are stable from a financial point of view. You need to remember to enjoy life today as well as planning for the future. As long as important financial goals are being met there is no harm is splashing out on that dream holiday, and enjoying it whilst you can.
Tips for during your 50’s.
You may find yourself being pulled in different directions from a financial point of view. Maybe the children still require financial support, maybe your parents require more support than before? The key thing to remember is to put your financial security first, and yes I know that sounds a bit tough…….. You still have your retirement to consider and probably a mortgage that you’d like to pay off before retirement age.
- Revisit Your Savings and Investing Goals
Your 50’s are prime time to fully prepare for retirement, whether it’s five years away or fifteen. At this point you should be working as hard as possible to ensure you reach your required amount. This means that careful management of your assets is even more critical now. It’s time to focus on changing from a growth portfolio to a combined growth, income and more importantly a preservation portfolio. What I’m saying here is it’s time to really analyse the level of risk within your asset basket.
- Prioritise – Your Future vs Your Children’s Future (It’s a tough one….)
During their 50’s a lot of clients struggle with figuring out how much they can afford to keep supporting a grown child, especially when they’re out there earning themselves. The bottom line is that although it can be tough you have to continue to put yourself first. The day of retirement is only ever getting closer and unless your planning has been disciplined there’s a possibility you may need to work longer than anticipated, or accept less in your pocket than you hoped for. You are number 1…….
- Retirement Decisions and considerations
You should begin to revisit your estate planning, your last will and testament, power of attorney if you feel necessary and confirm that your beneficiaries on any insurance policies or investment accounts are all valid.
Once you’ve covered off the administration part then I’d suggest you sit back and look forward to the biggest holiday of your life……..have a great time!!!
Why it Pays to Make a Spanish Will as an expat
By Jonathan Goodman
This article is published on: 15th June 2015
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While you are enjoying your new life and possibly a new home in Spain, it is understandable that you might not want to think too long or too hard about the future, particularly about matters pertaining to your Will and inheritance issues for your children and heirs. But this subject needs to be covered and fully understood sooner rather than later. There are three central reasons for making a Spanish Will: One – It avoids time-consuming and expensive legal issues that your family and heirs will have to resolve. You can – and should – make a separate Will to dispose of any assets located outside of Spain. A British Will, for example, has no bearing on your Spanish estate. Two – Spaniards have to divide their assets equally among their family and heirs, and leave two-thirds of it all to their children. As an expat, you are exempt from this ruling and you can bequeath your assets to whomever you wish. Your estate will, however, be subject to Spanish inheritance tax, which is high when left by non-residents to non-relatives. In addition, expats resident in Spain are subject to the same taxes on any of their worldwide estate, too. Therefore, making a Will allows you to navigate these various taxes at your discretion. Three – Your estate can become eligible to a 95 per cent reduction in inheritance tax. This reduction only applies to the first €120,000, but is not available to non-residents, so bear this in mind when drawing up a Will. The Spectrum IFA Group in Spain are delighted to be able offer their clients a 15% discount when using the services of ‘AvaLaw‘, who over the last years have assisted clients from almost 50 different countries. |
The story you are about to read is true; only the names have been changed to protect the innocent… Mr. Rainyday and Mr. Blueskies were catching up over a beer in Barcelona on a sunny Friday morning. Mr. Rainyday had barely taken a sip of his beer before he was on his pet topic — complaining about Spain, his and Mr. Blueskies’ adopted home as of a few years ago. ‘This time its dad’s flat in Andalucía. It’s over a year and a half since his funeral, and I’ve only just got it transferred to my name. Plus, it’s cost me a fortune. There’s no way it’d be such a hassle back home. It’s a total scam!’ ‘That’s funny,’ said Mr. Blueskies, ‘My dad died around the same time, had an identical apartment in the same building as your dad, and it only took us four months to get the apartment registered in my and my mother’s name. And, if I remember correctly, it didn’t cost that much, either.’ ‘Really?’ asked Mr. Rainyday, ‘How’d you manage that?’ ‘I don’t know. It all seemed pretty straightforward. Our advisor took care of everything for my dad. Was there a problem with your father’s Spanish will or something?’ ‘Will? What will? Dad didn’t have one, but I thought you didn’t even need one in Spain?’ ‘You don’t need one, but having one makes things a lot easier and cheaper for your heirs,’ said Mr. Blueskies. ‘Since my father had a Spanish will, I did not have to sworn-translate and legalize tons of documents, there were no surprises regarding the applicable law, no need to get certificates regarding which testament is valid according to the foreign law applicable to the inheritance, no need to pay lawyers to deal with all the unnecessary bureaucracy in all the countries, and no need to wait for a year or two to get the title of the apartment…’ ‘I see…’ said Mr. Rainyday. ‘Anyway, what outraged me even worse than the bureaucracy, was paying the 60.000 euros of inheritance tax for the property worth 300.000 euros.’ ‘Wow’, exclaimed Mr. Blueskies, ‘You paid that much, did you! We did not pay any taxes for inheriting my dad’s flat, since Roser advised my father to leave in his will 50% of the flat to my mother and 50% to me, so that we both could take advantage of the personal tax exemption of 175.000 euros that Andalucía had for all of us who were residing over there at that moment. What a difference, eeh, with some simple inheritance planning?’ Since Mr. Rainyday looked really sour, Mr. Blueskies changed the topic and started to speculate whether Barça is going to bring home all the 3 titles this season… |
Clients of The Spectrum IFA Group are eligible for up to a 15% discount
on making a Will with AvaLaw. Contact us now for further information
FACTA: the unintended consequence for Expatriate US citizens
By David Hattersley
This article is published on: 13th May 2015
I have an affinity with the USA, my first manager during a part time job with a UK insurance broker in the 1970’s was an American, a Malcom J Clifford who drove around in a red E.Type. Then, my first full time sales roles in the UK was a happy 8 years spent with SC Johnson, the US company based in Racine in Wisconsin. My first client in Spain was and is an American lady married to an Englishman who both worked offshore before retiring here. And now I have my first grandchild, born in the US, of English parents with my son-in- law working there.
It seems that there are an awful lot of “firsts” that I have to be grateful for, that emanate directly and indirectly from ties with the USA.
On a recent business trip to San Sebastian to look for potential expat clients, the majority seemed to be from the US, not an Englishman in sight. So for a potential niche market a seed was planted.
That was until I researched FACTA and began to understand its complexities, and in many ways its injustices to the individuals that retire or work abroad as US expatriate citizens.
The United States is the only OECD country in the world to tax its citizens based on their citizenship, not residence. It also, as an OCED country, has the fewest percentage of citizens living abroad (according to the US State Department, 7.6 million US citizens work or live abroad out of a population estimate in 2015 of 320,206 million which is only 0.023%). Help might be on its way though via the US Senate Committee on Finance. Hatch and Wyden released the Public Input on Bipartisan Tax Reform (see link below).
http://www.finance.senate.gov/newsroom/chairman/release/?id=3b14e94b-69f9-41e2-9fd3-
The interesting thing to note was that up to the final submission date of the 29th April a total 1,400 submissions were made of which 347 submissions were submitted in relation to “International Tax”. This came second only to an “Individual Income Tax” figure of 448.
Whilst the principle was fine, especially in relation to those that tried to dodge paying tax of any kind, anti terrorism, trafficking et al, the majority of middle class US citizens abroad were, and are, honest citizens, paying tax in their country of permanent residence whilst still trying to desperately retain their American citizenship. The rules are both complex and numerous, and it is easy to fall foul of these, and be penalised. There is a major differential between “large body Corporate” that gets many tax breaks vs the individual and or small company.
The majority of submissions started with “I live in or have lived in for a number of years and paid my taxes in”.
On reading reports on the impact on this legislation I have come to realise that the
“unintended consequences” have been numerous, which is strange for a country that promotes that it is part of the global economy, and believes in freedom of movement etc, democracy and fairness.
There are many different scenarios so I will just highlight a few that have major consequences for individuals living abroad;
- Married couples where one is a non US citizen and not recognised by the US, paying taxes in the country of residence, and the US citizen having to consider giving up their US citizenship because of the losses sustained by being taxed by the US as a single person.
- Onerous paperwork via FACTA, that is not fully understood with very few choices of locally based small accountancy firms that understand it, yet still paying legitimate taxes in the country of residence and having to pay for the filing of local resident taxes too.
- The ability to save for retirement, because local pensions do not comply with US regulations on pensions, and could be subject to tax both on the way in and on exit.
- Currency “ghost gains” applied by the US IRS on a capital gain. Whilst large companies can use a “functional currency”, individuals have to report in US$. If an American bought a primary residence for 200,000 Euros when the exchange rate was 1 EURO = $1.50 ( ie 133,333.33 US$ ) and they sell the same home for 200,000 Euros when1 Euro = $1.00, ( ie 200,000.US$ ) they would have a US taxable gain of $66,666.66 in phantom profit. This same example applies to mortgages and a variety of other investments. In many cases Americans have to pay taxes on these exchange rate gains but cannot use the losses if they occur.
- The substantial reduction in the number of foreign institutions in the country of residence offering banking, savings and investments, that are compliant to the country of residence. This is due to the increase in both legal and compliance costs of these institutions of complying with FACTA. But, a US citizen who is resident in a foreign country cannot open a US sited bank account or investment either.
These are just a few examples, and whilst we cannot change the rules or the reporting procedures, we can at least provide limited financial advice, a range of products and services appropriate to the country of residence to which we operate in, and investment advice that is locally compliant, written in English and available in multi currencies.
The Spectrum IFA Group & the Decorative & Fine Arts Society
By Charles Hutchinson
This article is published on: 2nd April 2015
The Spectrum IFA Group and Charles Hutchinson in the Costa del Sol were proud to sponsor a recent event for the DFAS (Decorative & Fine Arts Society), which is the local branch of NADFAS (National Association of Decorative & Fine Arts Society).
The lecture in March was held at the legendary San Roque Golf & Country Club where the centre piece is the magnificent Domecq mansion. Attended by over 100 people on the 18th March the informative lecture was entitled “Romancing the Stone” and was given by Joanna Hardy on the subject of Jewellery and Gem Stones. She is a world famous authority on the subject, having been with De Beers, Sotheby’s, Phillips, regularly writes for the Daily Telegraph and features regularly on the Antiques Roadshow.
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Le Tour de Finance 2015
By Spectrum IFA
This article is published on: 26th March 2015
After a very successful string of events during 2014, Le Tour de Finance is back and has started its spring series.
The events in 2014 were a huge success, with large numbers attending all the events with fact filled sessions followed by an opportunity for an informal questions and answers session over complimentary refreshments and a buffet. The initial events in 2015 have been even better! The first events have been held in truly spectacular surroundings in Les caves, de la Maison Ackerman, near Saumur, the Château Colbert in Maulevrier, Pays de la Loire.and at the Chateau de Javarzay, Chef Boutonne, Deux Sevres
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The relaxed and open forums are a chance to expand your knowledge of personal finance as an expat resident in France. The panel of speakers are experts in their respective fields and are on-hand to answer questions you may have about protecting and strengthening your personal financial situation while a resident in France.
The spring events are continuing throughout April in Spain and Italy:
Spain:
- Barcelona – 14th April
- Sitges – 15th April
- Denia – 16th April
Italy:
- Castiglione del Lago – 20th April
- San Gineso – 21st April
The Spectrum IFA Group is an European leader in professional personal financial advice and will be covering subjects such as; QROPS, pensions, tax advice, investments and wealth management, healthcare, and mortgages.
Le Tour de Finance is an excellent and relaxed forum in which you can get those important questions answered, plus mingle in a pleasant and relaxed atmosphere with other expat residents whilst enjoying a buffet lunch.
All of Le Tour de Finance events are very popular so we therefore recommend you to book well in advance using the form below:
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Can You Avoid Spanish Inheritance Tax?
By John Hayward
This article is published on: 27th February 2015
Savings with UK banks and investment companies could form part of a Spanish Inheritance Tax (IHT) calculation.
If you have money in a Spanish bank, the Spanish tax authorities know about it. If you have money in a UK bank, they probably know about this too due to information passed over by the UK tax authorities. Of course, if you have over €50,000 in a UK bank account you will have reported this to Spain within your Modelo 720 form.
For a Spanish tax resident inheritor, Spanish IHT is due on worldwide assets. Therefore, a Spanish resident wife, inheriting from her husband, could pay tax based on their Spanish property and other Spanish assets PLUS tax on the overseas assets.
The English Will does NOT stop the Spanish tax authorities claiming Spanish IHT (Succession Tax) on overseas assets. The Will governs the distribution of the estate, not its taxation directly.
We can help mitigate, delay and even sometimes completely avoid Spanish IHT by placing money in a Spanish compliant insurance bond based outside Spain. Suitably arranged, the bond could save many thousands of euros in inheritance tax.
Financial Independence: What’s your number?
By Jonathan Goodman
This article is published on: 16th February 2015
What does financial independence mean to you? Are you on track for a future free from financial stress? Do you know what your number is?
Knowing the answers to these questions could help determine how soon and how well you could retire, yet many of us don’t…
If you are financially independent you have amassed enough wealth to generate a passive income sufficient for meeting all financial obligations, without the need to work. Your potential for financial independence is dependent on your current net worth, your target net worth and the years remaining before retirement, as well as how much you spend. The more money you spend now and going forward, the more you will need to accumulate to support your lifestyle.
So how do you calculate exactly when you could comfortably retire?
Number Crunching
The first step towards financial independence is to calculate how much you’d need to save. A simple formula can tell you not only how much you will need, but also how close you are now to getting where you want to be:
- Study your statements and determine how much you require annually in order to meet all your financial obligations. Could this number be reduced? Are there any unnecessary expenses? Could home and car insurance premiums be reduced? Is downsizing your home an option?
- Determine what return you could get on your investments. As intimidating as the stock market may seem at first glance, it’s possible to assemble a portfolio that pays you 3-5% in dividends annually. This dividend income is cash paid to you monthly, quarterly, or annually and doesn’t erode your investment.
- Calculate what nest-egg you need to build to generate the annual income you require. Annual income required divided by the percentage return you expect to get. Calculations should include cash only, not property or assets.
Remember…
- This calculation does not account for inflation or taxes.
- This calculation only covers essential expenses. Determine how much spending money you need monthly, then calculate the annual amount and add it into your figure.
- Your life could change in the next few years, which means you’d have to recalculate. If you decide to upgrade your home or have a family, you’ll need a bigger number.
What’s Your Number?
Smart Ways to Make the Most of Your Finances
By Chris Burke
This article is published on: 10th February 2015
The year 2015 is picking up speed, and now is the perfect time to stop and re-evaluate our finances before we slip back into our old comfortable routines. A time to review the past year and determine those areas with potential for improvement, to make sure we are getting the most out of our investments and reaching all our financial goals.
Do you know where your money goes each month? Could you be making more if you invested elsewhere? Is your credit rating a true reflection of your financial situation, and are there things you could be doing to improve your standing?
Follow these smart ways to make the most of your finances and put you and your family on the right track for a wealthier future.
Study your Credit Report
Have you ever seen a copy of your credit report? Most people haven’t and it may surprise you to hear that they very often contain errors. Research online and get access to your report and make sure there aren’t any mistakes which could be having a negative impact on your rating. If you don’t, you could be at risk from undiscovered inaccuracies.
Study your Cash Flow
Set some time aside to study your cash flow. Go over all your statements from the past year and crunch those numbers to gain a true understanding of where your money goes each month. How much are you spending? Where is it all going? Where can you make cuts to your monthly outgoings?
Credit Cards & Banks
Check the Terms and Conditions of all your credit cards and compare terms, rates and fees with those of other cards. Are you getting the best deal or are you just renewing cards out of habit? Get rid of credit cards which don’t give anything back, and compare rewards and cash back with other offers. If your current bank is letting you down and not providing the service you need, change.
Understand Investments
Most of us don’t fully understand investments. Be the minority. Do your research and find out as much as you can about viable investment options. Use the Internet and its many free tools, and study the market to assess how to make the most of your finances.
Seek Professional Advice
Ultimately, the best advice is professional advice. The Spectrum IFA Group can assist you in reviewing your financial situation and advise you on smart ways to make the most of your finances. For more information or to contact one of our Financial Advisers please use the contact form below.