“Always remember to pay yourself first”
The vast majority of individuals have the personal-finance mindset of “spend the money as it comes in, and save what is left over”. The downside to this is that there is often little left over, no matter what level of monthly income they may have. Expensive hobbies, having a family, or just living in a big city…all have a way of draining us of any potential savings. We at Tyton have often seen even individuals with 6-figure incomes still living month-to-month.
Consequently, we occasionally run into individuals who are very good at saving; the few that instead see the world as “save what I want to, and spend what is left over”. These individuals also find themselves in trouble, however, as they often find their only option here in Japan are savings accounts with 0.01% interest…
An effective solution to both of the above examples would be setting up an internationally-based automated regular savings plan. This would give structure to the former individual helping them to save, and would fit smoothly with the latter example’s savings habits, only this time they have the ability to get a little more growth on their savings.
Ultimately the risk/return of your actual savings are something you can decide, and we at Tyton can help advise on. However, more important is whether or not the savings structure even exists.
That 850 USD saved each month at 10% growth each year would give you 1 Million USD in 25 years…?
That Japanese bank deposit insurance is capped in the event of the bank becoming insolvent/bankrupt…?
Sometimes our savings aren’t quite so long-term. For example, maybe we have a big trip coming up in 6 months, or will be making a down purchase on a home in one year. In the case of an investment period of a couple years or less, it simply does not make good sense to invest in capital markets. But at the same time, leaving cash in a current account or the Japan Post Office bank is not the best idea either…
If you know for certain specific cash outgoings in the short term, for example a 6 or 12 months, fixed term deposits are a great way to get some small but guaranteed growth.
It is worth noting, however, that many times in the past we have seen individuals be lured in by overseas currency fixed term deposits with very high promised rates. It is not rare for an individual to get their promised 5, 7, or even 10%, but then lose out as much as 30-50% of the value of their savings when exchanging back their foreign currency.
How historically inflation has doubled prices every 25 years…?
How Japanese interest rates are outpaced by the effects on inflation on your home currency meaning a loss upon conversion…?
That Japanese Bank Accounts have one of the lowest interest rate yields on the planet…?
That the deposit options offered by your Japanese retail bank account for approximately 2% of those actually available commercially…?
Nearly every individual who has lived and worked overseas has at some point experienced the difficulties of dealing internationally with their own banking system from back home. In addition, we often meet individuals who find the Japanese banking system to be archaic and cumbersome, rarely providing assistance in English, and an overall lack of options. Add to this lacking the ability to easily access their money once leaving Japan.
For these reasons, it may make good sense for you to centralize your holdings in an international account, often designed specifically for individuals living and working outside of their home country. Such accounts provide international portability and access to your savings, and often provide access to investment options you wouldn’t normally have access to.
Japanese law regarding holding a bank account when you leave Japan…?
The cost of transferring/withdrawing your money from Japan whilst overseas…?
The currency risk associated with overexposure to any single currency…?
The tax-planning vehicles available to you internationally…?
One of the great conveniences of the modern banking system is the ease with which we can exchange our home currency for that of another country halfway around the world.
In the manner of savings, this allows us to reduce risk by diversifying our investments across a range of different currencies. Or, an individual could also use the foreign currency market to take on substantial risk in the hopes of abnormal returns.
Both of the above can be achieved by either holding foreign currencies directly, or investing in any number of capital market securities which are denominated in a foreign currency.
Contact your Tyton advisor today if you would like to learn more about using currency exchange markets to suit your specific needs.
The currency risk associated with overexposure to one currency…?
The effect of recent changes to Japanese monetary policy regarding inflation and base-rates on your salary and savings…?
The extensive cost of exchanging currencies with your bank…?
The more cost efficient ways to change and remit currency internationally…?
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