Planning for the New Year


First of all, Happy New Year! If you have been following this blog in 2017, thank you very much for reading. Starting from mid-May last year I managed a total of 55 posts. I hope some of them were useful. Now to try and keep up that pace in 2018…

A New Year, of course, means New Year’s resolutions. Some people are very good at making and keeping resolutions, and some people let their gym membership lapse in February. Often, when you look back on resolutions that didn’t work out, you will find that it was the initial goal that wasn’t clear enough, not just a lack of discipline or willpower. So here are some simple tips for setting financial goals for the year:

Be realistic – we’d all like a million dollars in the bank, but if the number is unreachable it will be easy to give up.

Be clear – “Save more money” is not a clear goal. “Pay my credit card down to zero and have an emergency cash reserve of $10,000 by June 30th” is much better. Write it in big letters and stick it to the fridge if you have to!

Start with something you can do immediately – open excel and start a budget spreadsheet, download an app, open an account, fund an account. Find something you can take action on right now to get you started.

Stick with one or two major goals for the year and track them – if your list is too long it can become overwhelming. Start with one or two major goals, make them as realistic and specific as possible, take action immediately, and review every month.

If you are running short on ideas, here are some examples:

Track your money – if you are not clear on your income and expenditure then this is a priority. It doesn’t matter if you use a spreadsheet, an app or a blank sheet of paper. Spend the first two months of the year tracking all incoming and outgoing money so you know exactly where you stand.

Prioritise debt – make a list of your liabilities and prioritise them by interest rate. Pay the most expensive ones down first.

Cover the basics – emergency cash reserve, basic insurance cover, some kind of pension. Take care of these three things before moving on to loftier goals. Automate as much as you can.

Set a savings goal – how much are you going to save this year? What accounts are you going to max out? Start by maxing out any tax-advantaged accounts like an IRA or NISA.

Identify bad habits – are there things you need to stop doing? Whether it’s online shopping binges or overpriced lunches, see if there’s any financial fat you can cut out.

Start a side project – is there something you love that you could turn into a side business and increase your income? You never know, one day you might be able to quit the day job!

Invest in knowledge – find a book you want to read, sign up for a course, follow a blog! Educating yourself is a low-cost, high-return way to improve your financial situation. Share what you find with like-minded friends.

I hope this gives you some actionable ideas. Thank you again for reading and please feel free to comment, share and get in touch.

Wishing you all the best for a successful 2018!



Death and Taxes in Japan


Benjamin Franklin said that there are two things certain in life: death and taxes. Following a change in Japan inheritance tax law in April 2017, those two things may have come into sharper focus for some foreign residents. You may have come across this Bloomberg article on the “bizarre” death tax that deters expats. It certainly seems that Japan does not make it easy for people to come and live and work here long term.

So what do expats need to know about the recent changes to inheritance tax law Japan?

Short term residents: Foreigners staying temporarily in Japan have been excluded from gift and inheritance tax on overseas assets. Staying temporarily is defined as residing in Japan for not more than 10 of the last 15 years and holding a “table 1 visa”, such as a work visa. If you are in this category and you receive an inheritance from a family member overseas, for example, it is not subject to inheritance tax in Japan. This also applies if the transfer of overseas assets is between you and another “temporary resident”. However, if you die and transfer your overseas assets to a Japanese national there is no exclusion. The transfer of Japanese assets will be subject to Japan gift or inheritance tax.

To keep it simple, if a relative dies and leaves you a house overseas – no tax in Japan. If you die and leave another temporary resident heir a house overseas – no tax in Japan. If you die and leave another temporary resident heir a house in Japan – taxed in Japan. If you leave a house overseas or in Japan to a Japanese heir – taxed in Japan.

Long term residents: If you hold a “table 2 visa”, which is a spouse visa or permanent residence, and/or have lived in Japan for more than 10 of the last 15 years, you are a long term resident. You are therefore considered an unlimited taxpayer. This means that any transfer of assets, in Japan and worldwide, will be subject to Japan gift and inheritance tax. This also comes with the controversial “look back” rule, whereby even after leaving Japan, the tax on worldwide asset transfers continues for 10 years. So a situation could arise, for example, where a long term resident leaves Japan, dies within 10 years, and an heir who has never lived in Japan will be subject to Japanese inheritance tax on the donor’s worldwide assets.

So what can you do?

If Japan inheritance tax is a concern, and you are currently a short term resident, then the number one thing you can do is leave Japan before you reach the 10 year mark. (this is quite sad when you consider Japan’s long term demographic problems – you would think that encouraging productive foreign residents to stay and contribute to the economy would be a good idea, but there you go…)

If you are a short term resident with a table 2 visa, such as a spouse visa, you might consider changing to a table 1 visa if possible.

If you are a long term resident, you have some thinking to do, particularly if you have significant worldwide assets. Retiring in Japan may not be so attractive when it comes with up to a 55% tax bill on handing down everything you own. If you are going to leave, you will want to do it while you are still healthy and confident of surviving the 10 year lookback.

The April 2017 reform was essentially implemented to counter wealthy Japanese from moving abroad and passing on assets to heirs who were not born in Japan, or had given up Japanese nationality, but unfortunately the new rules will deter long term foreign residents from living out their life here.

Regardless of tax considerations, writing a will is something everyone should consider, particularly those with assets spread around the world. Most people would prefer to make clear “who gets what” after they are gone rather than it being dictated by local laws.

Further reading: this PWC report on the April 2017 reform is both clear and comprehensive.




Offshore Banking


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There’s something very exotic sounding about offshore banking. It conjures up visions of men in white suits checking into Caribbean hotels with suitcases full of cash. Since the release of the Panama papers, there is heightened suspicion about anything “offshore”.

However, for most expats an offshore bank account is just a simple, and perfectly legal tool to help manage their finances across different countries. As this post on the Common Reporting Standard discusses, the days of hiding money offshore are gone, and pretty much any institution where you open a financial account will require your tax ID number in order to report to your country of residence.

So do you really need an offshore bank account? Perhaps not. Most likely you have at least one account in your home country, and one in your current country of residence. People who have moved around a lot may also have accounts left over in other countries. There’s certainly no need to complicate things with unnecessary accounts.

For some people though, an offshore account may be helpful. Banks these days are coming under more and more pressure to track what people are doing with their money in order to comply with anti-money laundering regulations. In some cases the compliance burden is becoming so heavy that they simply refuse to make certain transactions. Typically these are “third party payments”. If you are trying to send larger sums of money to an account that is not in your own name, you will probably need to provide some kind supporting documentation explaining why you are making the transfer. Even then you may not be able to complete the transaction. I have come across several cases recently where banks in Japan refused to allow account holders to send money to a company overseas that they hold an investment account with. If it gets to the stage where local banks are preventing you from sending your own money to your own investment accounts, then an offshore account may be the right solution. That way you can send your money to your own account overseas, and from there transfer it on to your chosen destination.

Offshore accounts can also be useful when withdrawing money from overseas investments or receiving other payments from overseas. You may not want to bring the money back to Japan and have it converted to JPY for example. An offshore account allows you to keep it overseas, in the currency of your choice, until you need to use it.

Offshore accounts typically also offer online banking and credit / debit cards which allow you to shop and use ATM’s worldwide. This can come in handy when you travel, whether for business or pleasure. The application process typically involves completing an application form, including information on your personal financial situation, and submitting a copy of your ID and proof of residential address.

Although Caribbean islands do sound exotic, the best regulated locations for offshore accounts are the Isle of Man and Jersey. If you are looking to get started you could first check if your bank at home also offers an offshore account. HSBC and Lloyds are examples of big banks with an offshore presence. You could also talk to a financial adviser and find out if they have any recommendations.

I hope this helps you to get control of the current assets part of your balance sheet. Let me know if you have any questions.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.



Paying Down Debt vs Saving and Investing


The question of whether to focus on paying down debt or to prioritise saving and investing is one that many people wrestle with. Like most trade-offs there are several variables to consider, so let’s see if we can simplify this into some workable strategies.

Firstly, you cannot come to a conclusion unless you have a handle on your budget. Getting clear on your income and expenditure is the first step. That way you will know exactly how much you have left at the end of the month to allocate.

The next thing is to make sure you have some basic financial security. If you don’t have any savings it is perhaps prudent to pay off the minimum on your debt until you can build up an emergency cash reserve. Aim for a minimum of three months expenses so you have some breathing space if you lose your current source of income.

Obviously you want to try to pay off any high interest debt first. Credit cards are the number one offender here. With APR often as high as 18% it is wise to clear this as quickly as possible.

Student loans often come next. For people who studied in the US for example, student loan interest rates seem to be around 6-7%. If you are thinking of investing the money to get a better return and pay off the debt later, this is not an easy hurdle to clear without taking a lot of risk.

Where the trade-off question gets interesting is with home loans, particularly for people living in Japan with floating interest rates below 1%. There’s a strong argument for making your minimum monthly payments and saving and investing everything you can. I certainly wouldn’t disagree with that, but everyone feels differently about debt. I know people who never bought their own home because they couldn’t stand the idea of owing the bank that much money. If it keeps you awake at night, there’s nothing wrong with paying off your mortgage as fast as you can.

Once again, it’s good to make sure you are clear on your budget. Then make sure you have an emergency cash reserve, and have protected yourself in case you get sick or injured and are unable to work. In Japan you are required to buy life insurance to cover the loan in case of death, but in other countries you may need to consider this yourself. Paying into some kind of pension plan counts as one of the basics too and I would prioritise that over paying down debt. In his book Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!, Robert Kiyosaki talks about the concept of paying yourself first – make sure you are saving and investing for your future before paying the bank back more than you have to.

That said, if you are hitting your targets for saving and investing, then paying down debt is certainly not a bad thing. It reduces the amount of interest you will need to pay over time and the number of years it will take to repay the loan. Even 1% per year adds up!

For people in Japan, here’s an unexpected bonus: In order to get a mortgage in Japan you are required to appoint a guarantor. For expats this usually means paying a loan guarantor company, and you pay them up front when the loan is arranged. If you make ad-hoc lump sum payments to reduce the debt, the guarantor’s liability is reduced and they actually pay you back some of their guarantor fee. We recently made a payment of ¥1,000,000 on our home loan and received almost ¥60,000 back from the guarantor.

So to summarise, cover the basics first, prioritise high interest debt, and make sure you are saving and investing for the future whilst paying off the rest.




The Lifelong Expat


So you’re a lifer? Congratulations! For some people expat life is so good, they never intend to go home. Also of course, many people make their lives in their country of choice: they have a home, family, kids in school, perhaps a business, things that they never plan to leave behind to “return home”.

So, sticking with Japan as our example, how should you adjust your planning if you are staying here for life? Many of the basics do not change, but everything will have more of a Japan focus. We will look at each of these in more detail later but here is a summary of things to consider for now:

  • Protection – this is of course the first place to start. See the protection review here for the basics. This probably means taking care of some of your insurance needs with a Japanese insurance policy, which of course means policy documents and explanations in Japanese. It’s worth looking around for a local insurance agent you can communicate well with, and exploring hospitalisation insurance, income protection, and life insurance if you need it. You will find that Japanese policies come with all kinds of add ons, fixed rate guarantees, and other bells and whistles. Start by looking for the simplest policies that cover your particular requirements, and beware of over-paying for things you don’t need.
  • Buying a home – owning versus renting becomes a bit of a no-brainer if you are going to be in Japan forever. You will likely find that you end up with more space for a lower monthly cost if you own your own home. Ultra low mortgage rates are, of course, an attractive factor. Whether you buy a house or an apartment is down to your own preference, but we will look at the pros and cons of each later.
  • Retirement planning – if you work in Japan you will already be paying into the Japan national pension. Once a year it is worth reviewing how this is going and what your pension is likely to be. If you are paying into the national pension scheme, you are also eligible to start a Japanese 401k, which is a self managed pension. This offers significant tax savings over time and is worth considering.
  • Savings – another tax efficient way to save is NISA, which is based on the UK ISA. NISA is relatively new and, although it does have its drawbacks, dividends and capital gains are tax free. Once you have exhausted ways to save that carry a tax benefit, you should look at opening a local brokerage account. This is a great way to invest in stocks and low cost ETFs.
  • Investment property – from one room apartments to whole buildings, there are excellent opportunities for property investment in Japan.
  • Lastly, consider if you have other base currencies? Keep in mind that if you are planning to send your kids to university overseas, for example, you should save for that need in the currency you will be spending in. Also, for general investment purposes, remember that Japan only accounts for around 8% of world stock market capitalisation. Investing too narrowly in Japan concentrates your risk in one area, and you also miss out on the opportunity to diversify into world markets.

The long-term expat


Last time out we looked at the opportunity for short term expats. Today we move on to the long-termers. This is quite a loosely defined group, and will cover a broad section of the expat community. What we really mean by long term is:

  • You are not here on a short term expat posting – or you are but it is likely to renew many times before you move on.
  • You plan to leave the country you reside in at some point in the future, whether to go home, work somewhere else, or retire somewhere else.

This means you will spend a significant part of your life in your current country of residence. Let’s assume it’s Japan for clarity, but it could just as easily be Hong Kong, Singapore or elsewhere.

Once again, your number one financial planning issue is going to be base currency, and it’s quite possible you will have more than one. So you need to ask yourself what are the things you need to save for in the future, and what country are you planning on them taking place in? So if you are saving for retirement in Europe, you may have Euro as your base currency for that need. If you are planning on sending your child to college in the United States, you may have USD as your base currency for that. If you may actually end up staying in Japan forever you may need to keep some assets in JPY just in case.

My main point here is that currency risk can be a killer. I just found this interesting site that monitors national debt, and here is Japan’s debt clock. Now Japan may manage this well over the next 20 years, or it may not. What do you think will happen to the value of JPY if it doesn’t? If you are retiring in Europe, do you really want to be saving your money in JPY with a view to converting it later, when you move back?

Other than base currency, here are a few other things to consider:

  1. Protection – we have covered this in the protection review earlier. You should also have a plan for repatriation to your home country in case something goes wrong with your current employment and you have to leave in a hurry.
  2. Property – if you are going to be here for a long time then have you considered buying a property in Japan? Thanks to the developed world’s lowest interest rates, it can be very cost-effective when compared to renting. If you have the means, buying a property back home can also give you some extra income while you are away and a place to either go back to or sell to generate capital.
  3. Structuring – deciding where and how to hold particular investments is going to be important. You may have limited options for investing in Euros in Japan for example. It may be more tax effective to use an offshore structure or a structure back home. US citizens cannot escape worldwide taxation and need to think carefully about how to report assets. If you were to die, you probably want your assets be passed smoothly to your designated family members. Skilled advisers can add significant value here, just choose them carefully. (more on structuring in future posts)

The Expat Opportunity


There are many different types of expats: some are posted overseas by their employer and do 2-3 year stints in a couple of countries and then return home. Some come as travelers, students or teachers and end up living and working overseas for a longer period. And some, like me, come for an adventure for a couple of years and never end up leaving! Whether you are a short term contractor, a long termer, or a lifer, the need to plan for your financial future is a constant. However, the method will vary depending on your circumstances. Over the next few posts we will consider each of these expat types and the opportunities available to them.

Today we will start with the shorter term expat contractors. If you belong to this group then I’m sure you are aware that you have an incredible opportunity to secure your financial future. You will probably never have as much disposable income as you have as an expat, and what you do with that income can really impact the rest of your life.

I recently spoke to someone who spent several years as an expat in Asia before returning to his home country and he told me: “I realise now that the investing I did in those years as an expat really set me up for a life of wealth.”

So what are some things you should be doing if you are here in Asia and enjoying the benefits of an “expat package”? Here are a few ideas:

  1. Make sure you understand what your base currency is. If you are unsure then this post will help you define it.
  2. Max out contributions to anything that gives you tax free growth first. This is most likely going to be pension type assets, such as a 401K or IRAs in the US, or ISAs in the UK.
  3. If you are paid in your base currency and receive a housing allowance in the country you are posted to, then you have a significant opportunity to invest back home or offshore. You may want to consider talking to an adviser both in your home country and a qualified expat adviser based in the country you are living in.
  4. Consider buying property in your home country, if you haven’t already. You have the option of renting it out while you are away, and you may achieve considerable capital growth over time too.
  5. Have a plan for how you are going to repatriate yourself and your family in case your employment comes to an unexpected end – you will need to plan for plane tickets, shipping belongings / furniture, and a place to live when you get home.

Most of all,  be sure to set aside some time for financial planning while you are away. The expat lifestyle can not only be fun and rewarding, but also incredibly busy. Make sure you don’t forget to make the most of the saving and investing opportunity of a lifetime.



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