We have all been through an extraordinary period in the last 18 months, and by all accounts and expectations, we will remain in a changed way of life. With freedom of movement increasing in Europe, and life morphing to a new version of normal, many people are questioning what is important to them. We share some of our experiences and discuss how many of our clients are reviewing how they plan to hang on to the positives of the last year and a half when it comes to managing their money.
What financial habits changed in lockdown?
We observed two patterns of change during lockdown in relation to personal financial management:
1) some expats in Europe saw their household income fall as their work was reduced or jobs were lost. In these cases, the focus was on finding new income, minimising expenses and adjusting long-term financial plans. Those with robust plans in place were able to draw on their emergency cash reserves. This was precisely the reason for having the cash reserves there.
2) the second and, amongst our clients, the predominant group, were expats in Europe that were able to continue working with no reduction, and sometimes an increase, in their income. Many were able to transition to a remote working model. In this scenario, many clients reported, they were spending less money because they were not commuting to the office and considerably less on the related discretionary expenses of lunches near the office, drinks after work with colleagues and impulse purchases to and from work (think coffee and snacks).
In addition to this, with most countries closing restaurants, bars, social venues and non-essential shops, there was nowhere else to spend money.
The result of this is that clients in this group reported having more money each month. Many of these clients were able to take advantage of this by putting some of that surplus towards their long term goals by increasing their investments.
Where are we at now?
Summer is coming to an end in Europe, schools and universities are opening to on-campus teaching and more people returning to work in their offices, at least part of the time. One of the first observations people are making is that with commuting comes an adjustment to their life balance and also to their discretionary expenditure.
If you are in the same group as the majority of our clients and you found yourself with reduced expenses and surplus income, the challenge and opportunity now are how to hang onto that.
The likelihood is that over the summer you may have been spending more money, as more avenues exist to socialise, and spend.
What can you do?
Before the summer splurge becomes embedded into your new habits, we encourage you to have a critical look at how you are spending your money. Many bank apps make this easy for you to classify your expenses by type. Review your expenditure across the lockdown period and note what you didn’t spend money on.
What have you done without that you realise you don’t need and can cut out?
Then think about what is really most important to you and consider how many of these savings you can make permanent so you can focus on the higher priorities. They can be small frequent expenses that have a significant cumulative impact. This is what we call opportunity cost.
The opportunity cost of purchasing one item is not being able to purchase something else with that money. So, if an annual vacation that costs €2,000 is important to you, it might be worth avoiding spending €10 every day on snacks at the train station. Saving this amount daily could pay for that vacation.
There are long term and larger goals as well. Perhaps it is buying a house or securing your quality of life in retirement.
By taking the time to assess your cash flow and through smart allocation of your surplus cash, and applying this through a structured plan, you can make profound changes to your life, now and in the future.
What to do with money in your bank account
If you have been saving through the pandemic lockdowns and the cash is building up in your bank account, it might be wise to get advice to put it to work towards your important life goals. Interest rates are around zero and with inflation rising you could find the money in the bank effectively going backwards by up to 3% per year.
Don’t just invest for the sake of it though. Always consider the bigger picture, what you want to achieve, your values, your personal circumstances – especially as an expat in Europe as you may have specific restrictions or requirements- and what’s important to you. Get advice from a regulated and independent professional.
If you would like to reassess your financial situation or would like advice about how best to manage your money, contact us at [email protected], we will be happy to speak with you.