Volatile exchange rates and rampant inflation are making the economics of moving abroad hard to plan, especially for those on a fixed income.
Effective budgeting is essential. Locking in your exchange rate with a Regular Payment Plan (RPP) and Regular Payment Forward (RPF) can be a vital part of that.
There’s plenty to get sorted when moving abroad: residency, finding where to live, healthcare, removals… But just as important is organising your finances. Moving is wonderful, but a little stressful, and the last thing you want is to run out of money, even temporarily. As one of Smart’s customers mentioned to us last week about a utility provider: “In many countries, if you forget to pay they don’t muck about with lots of letters, you’re just cut off!”
So it is essential to budget effectively and accurately as possible. For those relying on an income from another country, such as a pension from the UK, or rental income from a property abroad, knowing how much you have to spend each month is impossible unless you lock in your exchange rate. Read more about that, and six other essential tips for budgeting when you move abroad.
Account for inflation
It won’t have escaped your notice that inflation is rampant all over the world. While the Bank of England is expecting it to peak at 13% within a year, in France it is currently nearly 7%, in the US at 8.5% and in Spain at a whopping 10.8%.
Of course, this is all a good reason to move your savings into bricks and mortar abroad. But although high inflation should be temporary, do allow for prices being 10% higher this time next year.
Work out how much you’ll need for living costs
Although we may airily talk about “the lower cost of living abroad”, it’s still good practice to put a number on that. Working out how much you’ll need for living costs abroad is actually very simple. Just write down what you spend in the UK, then decide what you can do without and what extras you’ll need to pay for.
There are plenty of websites showing you price comparisons – such as Property Guides’ – and then you can start to create a realistic budget.
If you simply have no idea of whether you’ll be paying more for air conditioning in Spain, say, than you did for heating in the UK, your estate agent is usually a mine of good information. There are also expat forums galore where you can ask the question.
Have a back-up plan
Burning his boats may have worked for William the Conqueror, but for many of us, keeping an asset back in the UK can make sense, just in case it doesn’t work out. For example, in a recent survey, one in eight Brits retiring to Spain said they would keep a property in the UK too. You can still use it to generate income, while also having it as a safety net if you return.
Equally, if you still have family living in Britain, you may find yourself sending money the other way – back to the UK. It’s just as crucial to protect your budget from changing exchange rates as when sending money to abroad. Again, planning ahead and using a forward contract to lock in the rate is one of the safest ways to transfer money.
Plan how to send your money
Some soon-to-be expats assume they’ll do this in the same way as changing money for their holiday. With large sums, however, that can be a costly and risky process. As one expat client, Jenny Adams told us, “I was completely naïve. I just assumed you sent cash through the bank. I didn’t expect such big fees.”
Jack Wiggs, senior trader at Smart Currency Exchange says he finds this a lot: “Jenny could have talked through her options before her transfers with one of our expert traders. That way, she would have been fully aware of how changing exchange rates can suddenly cause your sum to lose value – and how you can protect against that.”
Take control of exchange rates
So, what’s the issue with exchange rates? Essentially, they’re always moving. A sudden drop in the value of the pound while in the buying process can mean you’ll need to find thousands more.
You’ll likely also be making regular transfers: any rental or work income from the UK, money for rental or mortgage payments, pensions and so on. These will be affected by the same factors as one-off lump sums – if anything, even more so.
The solution’s quick and easy. Regular payment plans allow you to automate payments to reach you at a set exchange rate. That way, you’ll never find yourself losing money – and you can budget safely, knowing exactly how much to expect each month.
Smart Currency Exchange has two great options, a Regular Payment Plan (RPP) and a Regular Payment Forward (RPF) can help
Why use an RPP or an RPF?
If you are making regular international payments, an RRP or RPF allows you to manage them efficiently and automatically schedule transfers.
An RRP removes the hassle of making individual payments, monitoring the exchange rates and navigating the telephone system of your bank from abroad, which can all be very time-consuming. Using an RPP will also ensure that a payment isn’t missed – an easy thing to do when you’re attempting to juggle payments across borders.
You can also combine an RRP with a forward contract (A Regular Payment Forward), meaning that every transfer you make will be at a locked exchange rate for 12 months. Your scheduled payments will not be impacted by any currency fluctuations.
Equally, if you are receiving income from a different currency, such as a UK-based pension or investment income, an RRP will ensure that you never have to be concerned about the value of these payments due to fluctuating exchange rates.
Best of all, an RPP gives you peace of mind about your regular payments, making them stress-free and efficient. Knowing exactly how much you’re paying and receiving each month will mean that you can budget effectively and enjoy life in your new property.
How do I set up an RPP or RPF?
Simply give us a call on +44 (0)20 7898 0541 or fill in this short form.
We will set up your account with Smart, explain how an RPP works and discuss the regular payments you need to make and when. After this, we’ll set up a standing order for two business days prior to the dates you need to make the payments.