I am a big believer in having emergency funds. For people living away from their home country, extra gravitas should be given to this concept. There are many reasons for this and if you have been living and working abroad for some time you will know people who have fallen on hard times but not been able to rely on their emergency pot as they didn’t have one.
They run out of money pretty quickly and can become an absolute pain in the proverbial. That “couple of weeks” they think it will take to get a new job turns into months and the time tinkering with the resume and making calls turns into one more Saigon Green than necessary.
When sitting down with clients, one thing that I go through is what their provision for this is. You should hold a minimum of between three to six months’ salary separate from your investments and even away you normal current or checking accounts. It may seem like a great deal of cash just to be sitting there, and next month I will go through what you can do with your emergency funds so they can earn something for you while sitting there, but for now, let’s look at the reasons why you need such a large amount.
1) Health insurance. This is the biggy when living abroad. You are not working anymore and therefore you do not have health insurance for you or your family. If you decide to stick it out here you will need cover directly and if you do not, if anything happens to you or your family here and you don’t have coverage, you may need every single pound, shilling and shekel you can get your hands on.
2) Credit cards. If you think that you can pay for emergency items on your credit card, think again. At present, the annual percentage rate for credit cards is on the rise and therefore you will eventually be paying back a whole lot more than what you bargained for. And if you think that you will be able to just get a cheaper credit card, think again. Remember, you are not working at the moment, your application will be declined. It is the same if you think that your existing credit card will still work for you if it is from a local lender.
Remember when you opened the bank account and credit card years ago and once in awhile they ask you for a copy of your work contract to prove that the money coming in is fully legitimate. Well, if your account comes up to an anniversary of when you opened it and you cannot give them the details of a new contract, you may find what you can do restricted.
3) Opportunity. Regard the fund as an opportunity fund. I am not saying dip into it for everything and anything, but if you have the cash sitting there, why not use a proportion of it if you know you will be able to repay it within a timescale that you set yourself. Opportunities in life appear from the ether once in a while, and this gives you the chance to grab them when they do.
Paul McLardie is a partner at Total Wealth Management. Contact him at Paul.firstname.lastname@example.org