What is your base currency?

Soon we will get started with your financial profile, where you will be recording your income and expenditure and building your own personal balance sheet. In order to boil this down to the most important numbers you will need to decide which currency to calculate in.

For expats this can be a tricky business. You may live and work in Japan for example, and earn money in JPY. However you may have assets, or even income, in your home country or elsewhere in other currencies. How do you decide which is your base currency?

For completing your balance sheet and adding up your total assets we could argue that it doesn’t really matter. Just pick the currency you use the most and convert all values to that. However from a financial planning perspective there is a clear rule: Your base currency is the currency you are going to spend the money in. If you are just going to live in Japan for a few years and then move back to your home country permanently, then the fact that you earn in yen is largely irrelevant. You will need to plan in the currency of your home country as that’s where you will spend the money. This is important to help manage currency risk. It would be a shame to build up a tidy sum in assets in JPY, only to find when you move back home and need to start using the money, that the yen has crashed and you are getting a really bad deal on the exchange rate.

If you are going to stay in Japan forever and retire here it’s pretty simple. Your base currency is JPY. However, what if you plan to send your child to university in the UK and need to save for that? Yes, it’s actually possible to have multiple base currencies. In this case you would save for retirement in JPY and save to pay for your child’s education fees in GBP.

So before you start your financial profile, it’s important to work out your base currency. When you fill out your balance sheet use the currency that you are likely to spend most of the money in. Feel free to contact me if you are unsure.