Welcome to the start of all financial planning. For expats living in Shanghai your monthly (or weekly) budget has most likely dramatically changed from your home country or previous living location, knowing your incomes and outgoings are the key to being able to plan your finances efficiently. From here, everything else flows.
I think from here it might be better if I speak of a general ‘ expat family household’ budget. I don’t know your situation any better than you know mine, but whether you are married with five children or single, I can presume that you are in effect a household. So that is what I shall do.
Expat Family Income
The first step to basic budget planning is to calculate your income. Personally, I would calculate this as a monthly figure, but you may prefer weekly, I shall leave that up to you.
How many sources of income do you have? Perhaps you have a regular salary, overtime payments or expat bonuses, maybe social security payments or a second job. What about your spouse? Does he or she work? How much does this partner bring in to the household finances?
Try to be as accurate as you can here. It is very important that the numbers are compiled carefully. Accurate numbers will enable accurate decisions later on. If you receive a variable amount (perhaps you earn commission or tips) can you try to calculate an average? Do you have old payslips or bank statements that you can work from?
Our goal here is simply to arrive at a number which you consider to be your usual monthly income. Total it all up. Obviously, use the net income figure since that is what you actually see in your pocket.
Expat Family Outgoings
Here comes the scary part! No matter how much you may earn, and how satisfied you may or may not be with that figure, we all wish that we were spending less.
The monthly spending calculation is going to take either a bit of guess work or a lot of hard work. This is because some of your outgoings are small and cash based. For example, your daily sandwiches at work, sweets for the kids, renting a video or DVD are all payments out that are potentially difficult to track.
However, the bulk of your spending will be on large, known and regular items. For example, international schools, family health insurance, loan repayments would all fit into this category.
Ideally, you will work out your income and expenditure over the course of two or four weeks. This way, you will be able to see how you are spending money and understand the pattern. With this knowledge, you will be able to understand you finances completely.
You may be reading this, thinking to yourself about the pathetic and basic things that I have started with. You might be right. However, I am constantly amazed at the number of people that have never actually tried to accurately calculate their monthly budget. For example, I have been writing this over two days (an afternoon and the following morning) and on the evening of the first day I met a friend that wanted to discuss finance with me. She is in her mid twenties, a bi-lingual expatriate who works for a major international bank and someone I look up to as being really quite bright. Yet, as we chatted she realised that she had no idea about her spending patterns and whether or not she actually has any disposable income. Who would have guessed it? So even if this is too basic for you, give it a go – humour me.
Hopefully, you now have two numbers. With a little luck, the income figure is higher that the outgoings. I hope you don’t need me to tell you that if you are spending more than you earn each month you need to take some action and soon.
If not, you will find yourself in one of three likely situations. Either your income and outgoings just about balance – you spend as much as you earn, your income slightly exceeds your outgoings – this might be by as much as 10% of your total income or your income exceeds your outgoings quite comfortably – this would mean you have a surplus of over 10% on average.
It may be that with a little tinkering you are able to snip at your budget.
Having looked at your spending habits quite closely you will likely have found things that you didn’t realise are so expensive to you. Even if you cannot make enormous alterations, even a small difference when applied and the money saved might do you a lot of good. Think of it as financial redeployment.
If you find yourself belonging to the second group that I identified, you will no doubt now be thinking of all the things you can do with the newly discovered money. You are in an enviable situation, many would love to have excess funds each month. You will find as you move through this report that you are confronted with options as to how to use some of this cash wisely. Be certain that you understand this, with even 8/10% excess each month, you will be able to do much to secure and protect your finances for the future. This may mean repaying a loan more quickly, saving money or using a protection policy to benefit loved ones.
Finally, to those in group three. You have excess income each month of more than 10%. Congratulations! Your finances should be in a healthy state. The contents of this report will help you to turbo charge them a little. You will be able to protect the things that need protecting, and save for the future. If you are able to save above 10% each month, then you will find that within a short period of time many of the financial planning basics will have been completed. Your financial future will be rosier than most as the majority of western populations do remarkably little saving each month. Any large scale financial problems (we hear about the threat of them constantly) will have a smaller impact on you.