So you are in your early thirties and are working in a high-profile Asian financial centre. You have the high-pressure job, the good salary, and perhaps a good bonus. You’re making HKD 100,000+ per month and it’s a lifestyle many could only dream of. And yet, although many would say you are successful, the truth is you’re not there yet.
Being wealthy is having the funds to walk away, to know you will retire comfortably, not to have to worry – it is not being stuck in a rat-race of high earnings and equally high expenses!
So let’s have a look at the 5 things you can do in Hong Kong to become wealthier.
1. Start planning, saving and investing right now.
At your work you probably wouldn’t dream of proceeding without a plan: be it for your current project or deal, be it the yearly budget, be it the company’s 5-year plan. Yet when it comes to our personal lives, so many of us forget our business mind-set and just go with the flow. But, as the saying goes, “To fail to plan is to plan to fail”. Unfortunately, that is one of the main reasons why even high-earning professionals often fail to secure financial independence and comfortable retirement.
So before anything else, you need a comprehensive Personal Financial Plan. To understand what such a plan involves, read our 7-page guide “All you need to know about Financial Planning”. You’ll see that an important part of such a plan is specifically preparing for retirement, which we discuss in “All you need to know about Retirement Planning”. Another important issue is Planning for Education Expenses.
If you are fortunate enough to realise, early in your career, that work alone won’t make you wealthy, you are in luck: the sooner you start working on your plan to become wealthy, the more likely you are to achieve your goals. This is for a number of reasons:
· By beginning to save earlier, in order to reach a given financial goal, you only need to put away a smaller part of your monthly income, which is obviously easier to achieve. You also develop the right financial habits right away.
· By investing earlier, your funds will compound for longer, resulting in proportionally much higher returns. For example, $100 invested at 5% for 10 years yields $63 in returns. Invested for twice as long – 20 years – it doesn’t yield only twice as much, but 2.6x times as much, or $165!
· By investing earlier, you have a longer investment horizon, which enables you to go for investments that have higher long-term expected returns in exchange for more risk, because you have time to recover from drops in value that could occur in the interim.
2. Spend what is left after saving, rather than saving what is left after spending
One of the key outputs of your personal financial plan is knowing how much of your income you need to save and invest to meet your financial goals. Knowing that figure will allow you to put saving right at the beginning of your monthly budget – together with rent, rather than as an afterthought – after meals and drinks out, clothes, holidays on beautiful beaches and so on.
If you are a professional working in a city like Hong Kong, it is almost certain that you can adjust your budget to save as much as you should. Of course, rent in Hong-Kong is expensive across the board, but maybe you can go for something in the HKD 25,000 range rather than in the 40,000 range? And of course you want to visit your family and friends back home, but maybe you can skip the long weekend trip to Thailand and put half of your HKD15,000 holiday expenses into your pension before you’re tempted to spend it?
Saving regularly every month is highly advisable, as we discuss in detail in our comprehensive guide “Understanding Monthly Investment Opportunities”. If you have received one-time income such as bonuses or inheritances, you also should try to save as much as possible of that too. We discuss that in “Understanding Lump-Sum Investment Opportunities”.
Realise that opportunities for saving aren’t necessarily equally good throughout your lifetime. If you are currently working overseas, now could be an excellent time to save. An expat in Hong-Kong typically pays 15% in tax, vs 45% back in the UK – doesn’t it make sense to use that opportunity to build up as much net worth as possible?
3. Make your money work for you as hard as possible
I’m very sorry to say, but even the previous 3 points: planning, starting early and saving diligently, is not enough to make you wealthy if you do not ensure that such savings are properly invested.
The main culprit for that are global interest rates, which since the 2008 financial crisis, have been set by governments at all-time lows, and in many cases are even negative! A secondary culprit is the demise of defined-benefit, employer-matched pensions. As we explain here, corporate pensions will probably only provide a fraction of the savings you need.
This means that, to have a decent return on your savings, and build up an adequate retirement pot, you need to look beyond savings accounts for good investment opportunities.
Investment Property is one option that might be right for you, as we discuss in our comprehensive guide “Investment Property: secure your investment and maximise your return”, as well as in articles on Property in Hong Kong, Property in Key European Markets, Mistakes First Time Buyers Make, and How to Boost Your Property Returns. Property investment doesn’t necessarily require large lump-sum investments, as we’ve discussed in “Can you invest in property with $50,000?”
Equities may be another option, as we’ve discussed here. The right asset classes at a given time for your personal portfolio can vary, and specific investments are best discussed with a financial advisor.
4. Minimise taxes and fees that eat into your returns
Apart from maximising your investment returns, you should also look to legally minimise your investment expenses, such as taxes and fees. As the saying goes, “a penny saved is a penny earned”.
We have put together easy-to-understand guides on how the most important UK taxes – Income Tax, Capital-Gains Tax (CGT) and Inheritance Tax (IHT) – work.
How your investments are taxed can vary dramatically depending how they are structured, so it is important to ensure that they are in the right ‘tax-wrapper’ for your personal situation. For overseas professionals, QROPS – Qualifying Recognised Overseas Pension Schemes, which we discuss in detail, can be useful. UK tax residents, on the other hand, can benefit from reading our guide on Self-Invested Personal Pensions – SIPPs.
Finally, making sure your investment returns are as high as possible and taxes and fees are as low as possible is usually easiest if your savings are consolidated in one place. See our articles on Consolidating Your Pension Pots.
5. Manage risk and the unforeseen.
Although building up your net worth should be one of your financial goals, it shouldn’t be the only one. Remember that things unfortunately don’t always go well and you need to prepare for illness or even the wellbeing of loved ones in case of your death. For more information, see our comprehensive guides on Medical Insurance, Critical Illness Insurance and Life Insurance.
In summary, having a high-profile job is not sufficient to make you wealthy and allow you to retire comfortably: you also need to pro-actively plan your finances. That’s the bad news. The good news is that it isn’t difficult or painful. Just by planning and starting early, saving regularly, maximising investment returns, minimising taxes and fees and properly managing for risk, you can grow your wealth. Importantly, a period working overseas can be an excellent time to get started.
