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Chances are that a least a few of you out there have put off or just outright avoided talking to your partner about money. I know because I see a lot of you come into my office after this has become a problem. But a few recent studies show there are more Americans that you might think who are hoping a little avoidance might keep the tensions down.
In a CreditCards.com survey last January, 6% of respondents admitted to having a secret account or credit card, and far more, about 20%, said that they had spent $500 or more without telling their financial partners. Obviously, most of us won't go so far as to resort to secrecy. Instead we reach an unspoken agreement not to talk about things with our partners. We know it's not a great solution, so why do we do it?
Like the other decisions we make together in a household, financial decisions bring out the differences in our styles, tastes, and priorities. She's happy to spend more on hiking trips; her partner would cut down on the travel to get a better car. Neither position is wrong, anyway. This is simply a matter of preference, and in any healthy relationship, the two will find some sort of compromise. But compromise doesn't work as well when our sense of survival kicks in. And that's precisely what tends to happen when financial discussions turn heated.
Not a few of us are prone to a particularly strong belief that the world is unpredictable, that fate is capricious and that disasters can happen to anyone. When these sort of beliefs simmer in the back of your mind, you are often quick to make the leap from an apparently mundane financial decision to a sense of looming danger and vulnerability. Job losses, medical emergencies, housing emergencies and other far more amorphous dangers float in the back of your mind. And a perfectly innocent partner can trigger those fears by suggesting you take $800 out of the savings account this month to replace the old refrigerator. Those of you with financially anxious partners will recognize this moment and roll your eyes.
But before you get too smug about your ability to keep that $800 fridge in perspective, make sure you aren't one of those partners who spend money in the same spirit of anxiety. People who seem unconcerned about the consequences of their spending may also be living with the sense that catastrophe could strike. For them, hoarding does no good—the best strategy is to secure anything they really want or needs before it all gets taken way.
Not everyone is anticipating a financial crisis, of course, and I haven't got room in this one post to cover all of the other deep-seated emotions, desires, and fears that tangle our financial decisions. But if either of these situations sounds familiar, then those household discussions about everything from grocery bills and vacations to retirement contributions and job changes are going to demand a little extra care and a little extra understanding. As I routinely explain to planning clients, I can give you all of the financial options and the math behind them, but the right choice in the end will be the one you can live with.
We have a client at the firm who has been planning for years to retire to Costa Rica. Another client has moved to Mexico where she enjoys the fruits of her labor from a little house surrounded by, well, fruit. As the snow piles up every February here in Boston, the whole idea of escaping to another life sounds more appealing. Even those of us who can't imagine not having some sort of work during retirement are tempted by the idea of retiring to a whole new adventure. And in some cases, moving to another part of the world promises a better standard of living. So what are the practicalities of a retirement outside your home country?
Retiring abroad almost always means having financial transactions going on in two countries. Fortunately, our global banking systems have made this significantly easier than it once was. Like most immigrants/expats, you will want to do some careful planning with your cash flow. Start by keeping a U.S. bank account open to receive your social security checks (in most cases, you are still eligible while living abroad), pension checks or any other income. The same account can automatically pay any expenses you have left in U.S. dollars—these might be related to insurance policies, properties you own in the U.S., cash support for family still in the states, or just having your favorite U.S. peanut butter shipped over once a month.
Keeping all of that income and expense in the same (U.S.) currency saves you the added expense of currency exchange—and that can be a big savings. On the other side of the financial border, figure out what your monthly budget will be in your adopted country and have that automatically deposited in a local account once a month (but be sure to account, again, for the exchange rate and any bank fees).
Speaking of your monthly expenses, expect the unexpected in your new life. On one of our family's first trips to Singapore, we plunked ourselves down for lunch at a cafe designed for tourists on the island of Pulau Ubin. After giving three rambunctious children and four hungry, tired adults license to order anything and everything they wanted, we ended up with two tables overflowing with food and specialty drinks...all for a tab of about $14 bucks.
On the other hand, owning a little tin can of a car in Singapore will cost you a small kingdom. My point? Look carefully at what is and isn't expensive in your new home. Your housing or groceries might be ridiculously cheap compared to what you had at home, but your utility bills or transportation might be higher than you ever dreamed possible. And as an aside, don't expect to find cheap food in Singapore anymore—inflation can happen anywhere.
This one has been a big factor for U.S. citizens. In fact, our astronomical insurance premiums and health care costs in this country have made it almost inevitable that Americans save money on health care by going just about anywhere else in the world (why this hasn't been a red flag for us, I don't know). And the quality of health care in other countries hasn't been much of a compromise either. But you do need to know what the arrangements are in your new country before you move. Keep in mind that Medicare will not cover you abroad.
Some nations let immigrants participate in the national health system; others offer private health alternatives (often still cheaper than what we have here). Make sure you look into eligibility requirements and take into account your particular health care needs when choosing where in the country you will live; as is the case here, cities often offer more sophisticated care. And if you still need more coverage, look into international health insurance, which will cover you just about anywhere in the world (with the frequent exception of—you guessed it—the U.S.).
Surely this is the least appealing part of retiring abroad! If you are a U.S. Citizen, you will almost certainly need to keep filing a U.S. tax return, even if you don't owe anything. And you will have local taxes to think about. If your new home country has a tax treaty with the U.S., you might be able to avoid paying income taxes in both countries simultaneously. But there are all sorts of taxes to think about. For those in retirement who are buying property in their adopted nation, estate taxes are likely to be a concern. And if you have more than $10,000 during the year in almost any sort of account abroad, including an insurance policy, make sure to file an FBAR (Report of Foreign Bank and Financial Accounts). Even if you were one of those people comfortable doing her own tax returns and estate planning before, taking on the taxes and procedures of two national treasuries will probably require some professional help.
An Extra Seat At The Table
Ready to start planning your second life as an immigrant to some charming foreign nation? Research thoroughly, plan carefully and most of all, be flexible. And one more thing, make sure there's extra seat at the table for friends and family visiting from back home. After all, it gets pretty cold here in February.
The Secretary of State's Bureau of Consular Affairs has a web page to guide you through the basics of planning a retirement abroad.
A client walks into my office for a first meeting, puts down an envelope of assorted papers and takes a deep breath. I know exactly what is going to come next. I don't know yet what state her finances are in, of course. But what I do know is that she is already feeling embarrassed—embarrassed because she doesn't have enough money, embarrassed because she should have more, or just embarrassed that she has so much and still doesn't entirely understand what the heck she's doing with it. And don't let the "she" confuse you—all of this embarrassment around personal finances applies equally to men.
One of the most fascinating things about advising people on their finances is that you are often the only person who gets to hear what they are actually thinking about their financial situations. To me, their situations are almost never shocking—I've seen people with a lot more assets than you'd expect and plenty with a lot less than you'd think. What is shocking is how many people think their situations are unusual.
So here are a few bits of random information to make you feel better before the weekend—
Americans owe a total of about $8.17 trillion on their mortgages. Yours is just a drop in the bucket. And if you haven't bought a house, well, this is a good time to look at all those mortgage-bound borrowers and feel a little bit smug about your freedom.
Student loan debt stands at about $1.19 trillion, up about $78 billion from last year, which means that student loans are about as American as apple pie. In fact, more American than apple pie—how many Americans do you know who can make an apple pie?
The National Financial Educators Council tested over 8,000 people from 50 states on very basic financial literacy. The average score for adults 25 to 50 years old was a C-. Our oldest Americans (aged 50+) had the best grade with a resounding 75 out of 100. If you feel badly about the grade for your age group, at least you aren't in the 19 to 24 crowd. They got a cringe-inspiring 67% of their answers right. But then, again, mostly they're just trying to figure out the student loan apps right now.
The whole point of emergency savings is to spend it in emergencies. Also, emergencies—medical, employment, legal, etc...—happen all of the time.
Maybe that last point was not what you were expecting on a financial blog. But I find myself reminding people all too often that making ourselves (or anyone else) feel embarrassed about the ups and downs of life just doesn't make sense. And maybe, just maybe, if we talked about money more as a society, we might see that the person sitting next to us is trying to figure out all of the same stuff.
Stats are from the New York Federal Reserve's May Report on American consumer finance, available online for anyone looking for some laughs.
One of the best (free!) places to get good information on financial basics is the Practical Money Skills For Life video series—and my blog, of course.
It doesn't matter whether you are in your first job or are at the high point of your career—you no longer have the luxury of thinking like an employee. You heard me. Gone are the days when a worker would make her slow but steady progress up the corporate ladder to land contentedly in a pensioned retirement (I can hear you murmuring, "wait, what is this 'pension' of which you speak?"). If you are going to weather the storms of the modern job market, you need to think less like someone's employee and more like an entrepreneur in the business of shaping her own career. Here are 5 strategies to borrow from the entrepreneurs: 1. Use The Good Times To Prepare For Changes. A successful entrepreneur always has a long-term plan, and she uses those period when finances are stable to make progress toward longer term goals. Those periods when you are reasonably comfortable in your job are the best times for thinking ahead. Make your steady paychecks work for you—use the drop in stress to put some effort into broadening your skills and contacts in preparation for the changes that could impact not just your current job, but your industry as a whole.
2. Negotiate A Great Job Title. One of the best benefits of working for yourself is the ability to choose just about any title you want. Being the CEO may not get you out of making copies or bookkeeping duties, but it does set the tone for how you want colleagues and clients to perceive you. If you are just starting work for a new company or are being promoted, ask for a great job title. There is nothing wrong with "Administrative Assistant," but "Program Director" or even "Associate Program Director" indicates to colleagues and future employers that you are aspiring to do more.
3. And While I'm At It...Negotiate More Often. I wrote on this in the last post on negotiating, but it bears repeating. An entrepreneur constantly negotiates with clients, customers and the market as a whole about price. But she is also always negotiating terms —often, it's not the price but those details in the contract that make an opportunity more profitable.
Even if you can't change your salary, that same attention to detail can mean the difference between being trained and certified in a new skill or being stuck permanently in your current job title. Remember, employers are scrambling as much as anyone else to figure out the best policies to strengthen their teams. Your requests, whether in the initial job offer or over the course of your employment, shape your own career and give your employers a better sense of where and how their businesses can improve. Still think you can't negotiate? Check out this recent article from Akane Otani in Bloomberg Business.
4. Tell People What You Do. Run into any seasoned entrepreneur at a party or a taxi stand and she'll probably find a moment to slip into the conversation what she does. What's more, she won't say "I'm an accountant" or "I work at a software company." She will give you a quick but specific description of what she does, something more like "I work on taxes for small businesses" or "I come up with new software codes to make your utilities cheaper." Why does it matter? A successful entrepreneur knows that people you run into randomly often become your best contacts. But they can't help you progress if they don't really know what you can do. Next time someone asks you what you do for a living, make sure you give her a real answer.
5. Be Financially Prepared For The Bad Times. Entrepreneurs are painfully aware that a little bad luck can lead to some serious financial pain. But being the best employee in the world is also no safeguard against losing a job. Whether it's a business failure, a global recession or some emergency that takes you out of work, bad things just happen. To cope with these risks, come up with an emergency plan.
Your plan should be personal to you—some people have partners or family members who can serve as a safety net. Others have the ability to draw passive income from a rental property or an investment account. If you don't have any of these options (and plenty of us don't), know how much you would need to get you through a temporary disability or job loss. Then check to see if your employer provides disability insurance as part of your HR package. If so, check your policy terms, and see if you need to add more.
Most importantly (and I can't stress this enough) start working on a financial emergency fund that covers 3 to 6 months of expenses. You probably won't be able to create this over night, but don't give in to the temptation to blend your emergency fund with the savings account you set up to buy that new house/vacation/car. Savings is about the future we can control—emergency funds are our recognition that there are always parts of life we can't.