Finances are already complicated by living away from your home country. Expats need sound financial planning to tackle the financial implications of starting a family abroad.
Insure your lives
Not the most cheerful subject, but certainly one of the most important. The arrival of a child brings the responsibility to provide financial security. If you or your partner were to die tomorrow, would there be adequate financial support for your family?
Life assurance policies pay a cash sum to provide financial security if this were to happen. If you are an employee, check whether your employer includes life assurance in your benefits package. If so, is the amount sufficient?
Don’t be fooled into thinking that employer schemes will automatically provide the amount of protection you need. As a general rule, life cover should be sufficient to preserve your family’s standard of living until your youngest child becomes financially independent. In many cases, that will be at least 20 years.
For the self-employed and those who don’t benefit from an employer scheme, life assurance is cheap and readily available. Specific international policies cater for the needs of expatriates by offering flexibility and portability.
To give you a cost guide, a 30-year old male can insure his life for €250,000 for 25 years for around €40 per month. A female of the same age would pay less than €30 per month.
Given how affordable it is, all parents should make it a priority to ensure that they have sufficient life assurance in place.
Write a will
Keeping on with this rather morbid theme, a will is an important part of anybody’s family financial planning. Whatever your age; if you own property and have young children, it is strongly advisable to write a will.
To write a will, consult a notary. This process is neither costly nor time-consuming; it provides for your family in the case of an unexpected death. For expatriate parents, a major benefit of writing a will is the ability to appoint a legal guardian for your children.
Some countries have inheritance laws that include the principle of forced heirship. This means that there are rules to dictate who will inherit your estate on death.
Protect your income
As with life insurance and wills, it’s difficult to convince people that income protection is necessary until it’s too late. Statistically, though, people are far more likely to suffer from illness or injury during their lifetimes than to die.
Unless you have a generous employer scheme or are confident that your family can survive on government payments, you should consider a private income protection scheme. This is particularly important for the self-employed.
As many young families often depend on one income for a period of time, some form of protection for those earnings is essential. International income protection policies are available to expatriates and provide a regular income if you are unable to work due to illness or injury. It’s usually possible to insure up to 75% of your current income, which would be paid until you are able to resume working.
Save for the future
Sensible family financial planning dictates that protection should come before investment. Once you protect your family, it’s time to think about saving.
One of the major reasons for parents to save is to fund their children’s education. Childcare in the early years can be an expense (depending on where you live), but it pales in comparison to the costs of educating a child abroad. Expat families can’t underestimate the costs of education, for instance. Attending a university in the United Kingdom or United States costs between €20,000 and €40,000 per year; electing to send a child to an international school also incurs considerable costs. Parents need to be aware of the cost and should be prepared to start saving as early as possible.
Savings plans are available to expats from both local and offshore providers. You can generally find plans that offer good flexibility and allow you to pay low contributions. On the other hand, offshore plans provide better investment options, tax-free investment growth, and global portability. International banking plans can also boost the portability of your savings. The future of banking may head in a direction that facilitates flexibility and capital movement, so explore all of your options. If you’re feeling particularly adventurous, investing in cryptocurrencies is an interesting (if extremely risky) option.
Don’t like the idea of sacrificing any of your income? Saving only €250 a month accumulates €148,000 after 20 years, assuming modest annual growth of 8%. That’s reason enough to take saving seriously.
Don’t forget your pension
Parents must adapt their family financial planning to cater for their children. That said, it’s also important they don’t neglect their own long-term pension provision. If income levels allow it, families should make efforts to save for the future.
Various personal pension plans are available and are good places to start saving if you intend to stay long-term. These products generally offer tax-deductibility on contributions and a guaranteed rate of return.
In addition, offshore insurance-based wrapper products are attractive investment vehicles for expatriates. These products provide a wide range of investment options, centralized administration, and the possibility to take withdrawals of capital that aren’t taxable in your country of residence.
The arrival of a child can turn your world and your finances upside down. Having an extra mouth to feed not only increases daily expenditure, but also increases the need for appropriate family financial planning. For expat families, sound advice tailored to meet individual needs is even more essential.
It’s impossible to plan for every eventuality. But addressing each of the above issues can go some way to ensuring a secure and prosperous future for you and your family.