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Financial planning for somewhere...?
January 14, 2014 6:40 AM   Subscribe

I graduated college last year. I know I should be at least thinking about saving and 401ks and things like that but I moved countries, started grad school and I don't know where I'll be living in three years let alone thirty. How do I do financial planning?

Like I said, I just started graduate school this fall. I moved from the US to Canada (I'm a dual citizen). It's in archaeology and it's graduate school, so I'm not making a ton of money but I want to be thinking about saving for the future. However, it's a Master's program and there's a fairly good chance I'll be moving to a third country in a year and a half for a PhD. I don't know where I want to live in the long-term, but I probably won't have a huge amount of choice with it if I stay in academia and at the moment, I'd like to live outside of North America.

Right now, I have a Canadian chequing account that I use for basically everything and a US savings/chequing account that I barely use because it's hard to transfer money between the countries.

I know right now I should be trying to set up some sort of emergency, just-in-case fund with at least six months worth of expenses. Is it worth setting up a Canadian savings account when I might not be in Canada in two years?

If I was in the US, I'd be looking at 401k and Roth IRA type accounts, I think? Is there a Canadian equivalent? If I end up living in a different country, how hard is it to use these accounts?

General advice and things to think about?
posted by raeka to Work & Money (8 answers total) 8 users marked this as a favorite
 
Set up appropriate banking accounts for where you are right now. You can always withdraw or transfer the money if you move.

As for retirement. There is a Canadian equivalent of a 401(k), it's called a RRSP.

Do you think you'll be living ExPat in a third country outside North America through retirement?

Sit down with someone who can explain RRSP to you and see if it fits your needs for now. Even if you deposit just $50 per month, you'll be in good stead as you get older.
posted by Ruthless Bunny at 6:57 AM on January 14


Your emergency just-in-case fund should be in a regular savings account, not tied up in an IRA. If opening a savings account would be annoying for you (what with the multiple banks and international issues) and you are disciplined, just tell yourself you want your checking balance to be at least $X and don't spend more than that. (Interest rates on savings accounts are so low right now that for the short time period that you'll have this one it doesn't really matter too terribly much.) If you are not disciplined, DEFINITELY open a savings account to physically set that money aside.

At your age I would make an emergency fund your #1 most important thing to build. I had one, was under or unemployed for 2.5 years, and spent all of it. If hadn't had that emergency money immediately accessible, I would have been fucked.

I didn't have an IRA until last year (so, when I was 27), which was the first year I actually had a proper income. (I didn't stick anything into an IRA until I had a few K set aside to rebuild my emergency fund.) Not ideal, but I'm not going to let myself be too terribly concerned about it.

Here in the states, a 401k is through your workplace. My workplace does not have a 401k plan so I don't have a 401k.
posted by phunniemee at 6:59 AM on January 14 [1 favorite]


When I was in grad school (okay, ages ago) I read this book by Andrew Tobias, and it set me straight about what I needed to do about my finances in general. I read a few other things when starting out, memorably this one by Richard Clason, that also had quite an impact.

I remember clearly putting aside $2K in an IRA one year when I was making hardly enough to eat (I had some savings that got me through grad school though). To this day I keep that IRA in a separate account, just to see how those amounts have grown over the years. (I did three years of graduate work and saved all the while; the amount now is surprisingly large.)

A few years later I lived abroad, and while those accounts were in the US they really just take care of themselves.

Best of luck!
posted by scooterdog at 7:30 AM on January 14


If you can fund a Roth IRA, this is not a terrible option for an emergency fund, as you may withdraw your contributions tax and penalty free. However, if this is a route you go, you need the account to be in something with low volatility, like a short term bond fund. Stock funds and other more volatile options won't do. Also, you'll need to ensure you can access the funds quickly enough if you need them; will your ex pat banking status complicate this and cause delay? But the advantage of using a Roth for an e- fund when you are just starting out is that once you miss out on a year's worth of tax advantaged investing, it's forever gone. If you fund your Roth now, you can claim that space, and later, when you have more money, build a e-fund elsewhere and use the Roth space for a different type of fund.

For Canadian resources google "financial webring," which is an Internet forum of Canadian investors.

The key considerations are where you think you will retire and whether that country gives any special tax treatment to the retirement accounts of other countries. If you never plan to return to the USA, for instance, IRAs don't make sense. Without getting too far into it, a jurisdiction where I lived as an expat was changing its tax laws to tax you every year on the appreciation in your investments, even if you did not realize the gains. Roth IRAs would not have been excluded.
posted by MoonOrb at 7:33 AM on January 14


The thing about retirement accounts (IRAs, 401ks, or equivalent) is that they're mainly about tax advantages, and so what you want to do depends on what country you'll settle in. If you don't have any savings I'd say concentrate on that for now & worry about the retirement accounts in a few years' time.
posted by mr vino at 7:36 AM on January 14


If you aren't sure where you'll be in 3 years or in retirement, then I'd say work on building that emergency fund by using a savings account in the country and currency in which you're earning money. I'd say to have a higher emergency fund than one might otherwise recommend, especially if you're going to be living a great distance from family/friends (in case something happens and you have to fly home quickly). After you settle on where you're getting your PhD and/or job, start looking at tax advantaged savings plans -- there are expat financial advisers who can help you navigate this; HSBC is one of the companies that specializes in this. Most western countries have agreements on how they handle the other countries' social security and retirement plans.

Remember that as a US citizen, you're taxable on your worldwide income (yes there are treaties and exclusions and credits, so in most cases you won't be subject to double taxation, but you're required to file a tax return in order to claim them).
posted by melissasaurus at 9:02 AM on January 14


Dave Ramsey's got you. Below is the summary. He says much more in the book Financial Peace and on his podcast.

http://www.daveramsey.com/new/baby-steps/

Here's the process:

Baby Step 1
Baby Step 1
$1,000 to start an Emergency Fund
An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen. Learn more

Baby Step 2
Baby Step 2
Pay off all debt using the Debt Snowball
List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first. Learn more

Baby Step 3
Baby Step 3
3 to 6 months of expenses in savings
Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund. Learn more

Baby Step 4
Baby Step 4
Invest 15% of household income into Roth IRAs and pre-tax retirement
When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth. Learn more

Baby Step 5
Baby Step 5
College funding for children
By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now. Learn more

Baby Step 6
Baby Step 6
Pay off home early
Now it’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments. Learn more

Baby Step 7
Baby Step 7
Build wealth and give!
It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It's really the only way to live! Learn mo
posted by jander03 at 6:23 PM on January 14


If you can fund a Roth IRA, this is not a terrible option for an emergency fund, as you may withdraw your contributions tax and penalty free. Yes, you can get your contribution out penalty-free, but not any gains. So if you $5,000 is now worth $10,000, you can only get half out without paying penalties.

More generally, as others have said: Have an emergency fund of six months of expenses and pay off all your debts (including, yes, student loans) before you worry about retirement accounts. Given that students often have negative cash flows, it may be years before you're ready to start thinking hard about where to put your excess savings.
posted by WestCoaster at 9:55 PM on January 14


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