Year-end is a great time to change up your financial habits. Gordon Franks reports.
In the run up to Christmas, many of us are reviewing our income and spending for the last year, and also looking at plans for 2015. December is the perfect time to re-evaluate your financial situation and tidy up your bank accounts, budgeting, debts and investments.
One thing many people take for granted is their personal banking set up, particularly if they have accounts and expenses in several countries. It could be prudent, then, to look at your own personal arrangements before we move into the New Year.
Take stock of your accounts
We all know that bank accounts are essential. Living in Hong Kong, many of us juggle two – one for savings and the other for salary receipts – plus a credit account.
We use our Hong Kong accounts as a convenience facility, allowing us to manage our personal finances when it comes to receiving our salary/ other income, and paying bills (including setting up regular standing orders, so we don’t forget them). These accounts make cash available for us at ATM machines, so we can replenish our pockets and have resources available for everyday expenses.
In our increasingly international community, most of us likely also have bank accounts overseas.
It is rare for expats to completely cut ties with their home country, which means many of us have an account there too. Such accounts are useful, allowing us to receive local income without having to bear heavy international bank charges, or have cash converted to Hong Kong dollars when exchange rates are not favourable.
The same principle applies to offshore locations, where we often form some sort of financial connection. By keeping money offshore, in tax havens, we can preserve its value with an added choice of currencies. This allows us, for example, to feed any offshore investment vehicles.
Review your overseas banking
Having bank accounts in various locations and in a number of currencies is, therefore, often considered essential. It affords convenience and relatively easy financial management. But there is a potential downside. Have you considered the costs you may be incurring to maintain your accounts, and then the costs of transferring currencies around? These costs can appear small but actually turn out to be very high indeed, when you add them all up.
We are spoilt for choice when it comes to personal banking facilities here in Hong Kong but we need to be aware that this is not always the case elsewhere in Asia. There are restrictions on non-residents opening accounts in many South East Asian countries, whether they are looking to do so for business purposes or to finance investment homes. If you have an account in South East Asia, or you are looking to open an account, be sure to check the inherent costs associated with transferring, holding and withdrawing funds.
When tidying up your personal banking, consider too, that if you have worked in other countries before Hong Kong, there may be an account there which you have forgotten to close. If you have left a small balance in the account, you could find that the balance is below the minimum for ‘free’ banking, and that you are gradually incurring debt.
Have you also weighed up the risk of having accounts open with certain banks, in certain countries? There were a number of investors who held accounts with Icelandic banks in 2008, in the Isle of Man and Jersey, because they paid a little more interest than their competitors. These banks collapsed during the financial crisis as Iceland was very badly affected, leaving depositors with significant losses to bear. There was also the famous Lehman Brothers’ debacle in 2008, which drove home the point that this can happen to any bank.
Consider a British expatriate living in Hong Kong with a number of bank accounts in various locations. He owns property in Australia, the UK and Hong Kong and so maintains accounts there to receive rent and pay his associated local bills in a like currency.
He also banks in the Isle of Man because he has investments there and keeps reserves in US dollars, British pounds and Euros. He is aware that if he held accounts in Europe, the UK and the US, internet banking would allow him to transfer money around the world, but unless it is all held with the same bank, and at a certain level, there could be more costs associated.
Dust off your financial statements
Bearing all this in mind, it is important to review your banking arrangements as carefully and regularly as you review your asset management. If you haven’t taken stock for a while, you may be shocked at the costs you are paying, whether explicitly or inexplicitly.
As an example, some banks charge you to move funds from country to country; others then charge you to take money out in different countries, and will then also charge you a foreign-exchange fee. This means you could end up being charged three times for withdrawing money, from an account you seldom use.
By completing a banking review and closing accounts which are not required, as well as getting yourself organised to know precisely which cards to use and how to manage cash with each bank, you’ll reap the benefits. You’ll ensure that charges are kept to a minimum, and that you have a relationship with your bank, rather than the bank having the relationship with you.
Do you regularly review your banking arrangements? Do you have accounts which are dormant and cost you fees and charges? Are you managing your cash at the bank in such a way that you are getting the best value for money from your accounts? If not, it’s time to assess your situation and ensure you are doing right by yourself.
Gordon Franks is managing director of Platinum Financial Services Ltd, an independent Hong Kong-based investment and financial advisory firm catering to professional expatriates across Asia. Email Gordon at [email protected].