Managing your finances as an expat in Germany

It is important for expats, especially international professionals, to keep a firm view on what is most important to them. They should know what their goals and objectives are and understand what they are trying to achieve. David Bellingham and Edward Mainwaring-Burton from Black Swan Capital explain how to manage your finances and avoid setbacks as an expat in Germany.

In a practical sense there are also some key aspects of your life that will change when you live outside your home country. Here are five things you need to think about, which can impact your financial goals of today and tomorrow:

Staying long-term

When you leave your home country to embark on the exciting life of an expat, you will typically put your home country pensions on pause. There will probably be no further contributions to your home pensions, and if your home country has a state pension, then you will likely stop accruing towards that future payment. This means your future pension building pauses.

This is okay if you start building a pension in your new home country straight away However, pensions are often not commenced for some time, and in some cases not at all. In some countries in the EU where employer pensions are not compulsory, your employer may offer you cash in lieu of that. This can seem attractive when you have landed in your new home and are dealing with expenses, but it is eroding your future income.

What to do?

There are several options and considerations when working out the best strategies for you and ultimately it will depend on your specific circumstances. You will need to think about the pension options available to you, comparing their advantages and their pitfalls. If you don’t intend to retire in your current country of residence, what impact will drawing income from there in retirement have on your future life?

You will need to understand the tax and currency impact, as well as when and how you can access this pension - which may be different from your own country. Whatever the case may be, it needs to match up with your goals and, sometimes, looking outside the pension system is preferable. You need to think about these questions in the broader context of your life plans and be mindful of what you are trying to achieve and how this component helps you to realise that.

Currency

An area where you can inadvertently end up spending more money than you expect, is when you have to move funds between different currencies. This can be complicated and can come with a whole lot of extra costs - big and small - and sometimes hidden carefully from the view of the unsuspecting saver.

It’s good to understand the real costs of changing money from one currency to another. Typically, there is one fee that everyone talks about, one that everyone just takes for granted, and one fee that people often don’t realise is a cost at all. Of course, the most noise is made about the smallest cost, because why would any bank want to broadcast how much money they are sneaking out of a client’s transactions?

The small but loud fees

The small fees that people tend to overlook are commissions, transfer fees and transaction costs. Call it what you like, but most currency exchange services nowadays will tell you they don’t have these. Otherwise, they might state in their promotional material something along the lines of, “Only 10 euros per transaction!” On the surface, it sounds like a great deal. Naturally, however, this is kind of misleading as this is not where the institution is making their money.

The most important, but ignored fee

This fee has a few technical names, namely: bid / offer spread, bid / ask, margin. These names show that banks have designed them to be difficult to understand for their clients. This fee is the difference between the buying price and the selling price of any currency - and it can cost you a lot.

You might have seen the exchange desk at the airport or around the tourist hotspots of your city with a list of currencies on a board showing its current buying and a selling price. This is the same principle.

Those little kiosks can sometimes have a bid / ask of 10 percent, but even your high street bank will often have a bid / offer spread on 5 percent or more. This means that every time you move your money with online banking, 2,5 percent of it could be going straight from your cash to the Champagne Fund of a bunch of shareholders. Using a dedicated currency broker can substantially reduce these margins, but it’s important to understand this cost for any transfer you are making.

The sneaky fee

The final cost involved with money transfers often doesn’t even feel like a fee, so it is frequently ignored. When you execute a cross-border / multi-currency transfer with your bank, you will probably find that it takes three to five working days for the money to arrive.

This so-called “clearing time” used to be necessary to reconcile records between different banking systems and registers. However, in today’s online and widely-connected world, it really isn’t necessary. In fact, the European Union has very strict rules about how long banks can take for a transfer, in order to prevent these delays. The truth is, during this period, your money is not in the sending account nor in the destination account - so where is it?

While it is in limbo between your two accounts, the amount you requested to transfer is still available for a bank to leverage. It’s all about keeping control of your assets for as long as possible to squeeze every last drop of potential growth from your hard-earned cash, while not having to share that with you for a little while. That is why it’s important to always understand how long your transfers will take and why. Don’t be afraid to look at a longer transfer period as a fee.

Take control of your finances

As an expat, it is important that you are aware of the different charges that you may incur as a result of living in a foreign country. The best way to ensure that your assets are protected is by using the services of an experienced financial advisor, who can save you costs, time, and hassle when you have to move funds around the world.

Being an expat in Germany can have complexities when it comes to managing money. Speaking with an expert, such as Black Swan Capital, can help you make the best decisions for yourself, and get your money working towards your goals. You can contact them directly at [email protected] or book an appointment via their website.