Income doubled, how should I spend it?

September 22, 2018 6:26 AM

I recently started working a new job that's pretty much doubled my income (hooray!). But now I'm not sure how to spend it. Obviously I should save some of it, and I should finish off my student debt, but how? And what else?

Complicating factors: I live in China. Currency controls being what they are, it'll be roughly every three months that I can send money back for boring paperwork reasons. I also don't know how Social Security works for people that work overseas. I did work for a bit in America, but I'd like to be paid in to the system. Is that possible? If so, is it just by staying current on filing taxes?

Also, how should I be saving money? I assume that I should have 10k or so in a savings account and my 5k of student debt paid off, but what about after that? Do I invest in an index fund?

Now that I have more of a budget, I also feel like I should be donating more. Besides here and Khan Academy, I'm not sure what places actually can make use of my money.

What other things are worth investing in now that I have the dosh? Any Boot Theory ideas floating around?

posted by Trifling to Work & Money (12 answers total)

For non-rich people like us, you should have no debts (other than mortgage). You should have 3-6 months salary in liquid cash for emergencies. You should have minimum 2 years income stashed in interest bearing funds as a start for retirement. After you get that squared away, and continue to regularly bump up your retirement, think about increasing your donations etc.
posted by seanmpuckett at 6:36 AM on September 22, 2018 [17 favorites]

Try charities in Hong Kong and Taipei if you don't really trust the ones on the Mainland. As a bonus, HK charities especially will have more information in English.
posted by storytam at 6:46 AM on September 22, 2018

I take it you are an American living in China. Consider and plan for what would happen if you had to leave China and return to the U.S., whether for medical, personal, or job reasons. Put aside money to cover these possibilities.
posted by mai at 7:15 AM on September 22, 2018 [2 favorites]

It sounds like you are a US citizen. If so and you'd like Social Security and Medicare to exist when you are of retirement age, consider making donations to Democratic congressional candidates in the states. Think of it as both a donation and an investment in your future. (If you want a list of Senate candidates that could use your money, here's Justinian's take.)
posted by mcduff at 7:47 AM on September 22, 2018

Pay off your student loan, then save up. People say to save up 3-6 months of living expenses, that's standard, but I think a year is more reasonable.

Do not change your current personal spending habits. That's what's called "the golden handcuffs" because you can get used to it.

For somewhere to donate, right now I've been liking Give Directly. They're not perfect, but they're the best I've seen. I like to think of it as remittance reparations.
posted by aniola at 8:09 AM on September 22, 2018 [3 favorites]

What’s the interest rate on the student loan? With a low rate plus the tax deduction it might make more sense to keep paying it over time (although accelerated) rather than throw all your new liquidity at it.
posted by notyou at 8:24 AM on September 22, 2018

You should look to cover your long term and short term needs.

Your short term needs are your day-to-day living expenses and are an emergency fund so that you can get home and set yourself up and/or cover 3-6 months living expenses and/or deal with any reasonably possible calamity.

Long term needs include paying off your student loan, saving for a home deposit if you will want to buy at some point, and investing for retirement.

My suggestion would be to allocate your spare cash to 3 things to start off with:

• emergency savings
• paying off your student loan
• investing for retirement

This is slightly complicated by your living in China, where you may not have easy access to low cost investments with suitable minimum payments and other terms and conditions. If that's the case, the stick to the first two but think seriously about how you will pay for your retirement. If you start early it will be much, much cheaper in the long run.

For more information try getrichslowly.org by Metafilter's own jdroth.
posted by plonkee at 11:30 AM on September 22, 2018 [1 favorite]

You need first to get competent tax advice concerning your work situation. The arrangement for handling American citizens earning income abroad is complex and I'm not sure how much last year's tax-looting bill changed it. Whether you will expected to pay FICA depends on information about your employer that we don't have access to. If you're expected to file and pay FICA, then you will be earning towards SSI. I don't believe you can pay voluntarily into the system otherwise--but you should really take care to make sure you are paying any taxes you may owe in the U.S. Your employer won't be taking care of it like back home.

Putting aside the tax situation, this is the kind of question that gets asked a lot around here, so I won't recap everything many people have said many times that you can find by searching, but--emphasize paying off your student debt unless you are subject to Chinese taxes and the treatment of the interest is incredibly favorable. (This is another reason to get a CPA's advice first.) I did this during my stints in jobs that pay much better than other jobs in the field, and I frequently thank past-praemunire for having done so. Unless the payments are very small indeed, they will represent encumbrances on your choices for up to decades to come. You don't want that. You may find the higher-paying jobs too demanding. You may find you want to come back home where the salaries are different. You may get sick, or laid off, or...Paying off my student debt in a fairly accelerated fashion was nothing short of an investment in freedom.

(One final note: if you're conservative, you may think, well, if three months' emergency fund is good, why not six months? Why not a year? And indeed there's no magic number, and part of the answer depends on your own risk tolerance, and given that you're living abroad, you may want more. But, and this is a subtlety that not everyone gets, your emergency fund needs to be in liquid form--that means, basically, savings or money market--because you need to be able to access it right away and you need it not to be subject to market swings, where you might lose your job at the same time the value of the investments plummets. That means a relatively low return (in the U.S., around 1.8-2%). Unless you are able to save handsomely for retirement regardless, this is too low to tie up a lot of money in. You need that money in investments for retirement. So don't get carried away.)
posted by praemunire at 11:55 AM on September 22, 2018 [1 favorite]

Nthing getting competent advice regarding ex-pat money issues and taxes ASAP. Having configured ERP systems for these circumstances and others, I can say it is usually complicated and that some money rules and conventions in China are arcane to say the least.

Once you figure that out, then proceed with other plans.
posted by Altomentis at 12:34 PM on September 22, 2018

Here is a flowchart on how to handle your sudden increase in income.
posted by moiraine at 12:34 PM on September 22, 2018 [1 favorite]

Congratulations on the increase in income! A few facts: you don't get to decide whether you pay into social security. That only happens if you're working for a U.S. governmental institution or in a country where the U.S. has a bilateral social security agreement (China is not currently one of those countries. You can find the list here). This means you will need to be a bit more proactive in planning for your future, though note that in order to collect benefits you only need to work a total of 10 years in the U.S./partner country, so you can easily return later on. If you are an American citizen you still need to file your taxes (this does not automatically enroll you in social security) while working abroad, though you likely won't need to actually pay any tax unless you earned more than ~$104,000. There are lots of situations that could affect the way you file taxes, but as long as you do so accurately you're basically in the clear as far as the U.S. goes. China is another matter, no experience there.

I also favor Give Directly for donations. For investing - most U.S. based retirement accounts are probably not accessible for you at the moment unless you make more than the $104,000 foreign earned income tax exclusion, but if you maintain a U.S. address and bank account you should be able to invest in index funds in Vanguard or Fidelity or the like. Otherwise, I've heard that the Charles Schwab One international account is friendly to expats.
posted by exutima at 6:25 PM on September 22, 2018

Speaking from experience your needs will quickly expand to consume the new income.

Don’t let them. Take all but a small portion of the new income and push it directly into savings. Don’t even think about it as if it exists.

For long term savings I prefer an S&P 500 mutual fund.
posted by Tell Me No Lies at 7:37 AM on September 23, 2018 [1 favorite]