Wednesday, April 28, 2010

Protection and Prevention for redundancies

As an expat, there are simply so many things to spend money on. It's only too easy to live hand-to-mouth from month to month. As the wages come in, they quickly go out on holidays, outings, experiences, shopping.

But one thing you might have noticed during the GFC is how vulnerable the expat employee market is to an economic downturn. When things started getting nasty in the  financial markets, companies needed to cut costs in order to stay afloat. And not just small belt tightening, I'm talking about limb-removing cuts here. Entire departments losing 20% of staff, all foreign travel free fruit in the kitchen.

As expats, we can be a little more expensive than a local hire in many cases. We can demand housing allowances, children's education allowances, drivers, helpers (maid), blackberries, corporate credit card. The list of perks can go on...together with the incentive to sack expensive expats first during a crunch.

So what can we, as an expat, do to protect ourselves from this situation. Other than working hard, being innovative etc (which are covered off in a million other blogs), we should consider:

1. Emergency expense reserve
Set aside 3 - 6 months of expenses in cash or liquid assets (i.e. money market) for easy access should your source of income dry up. The cash reserve will allow you to pay your bills, while looking for a new job, and save you from having to liquidate your investments in order to eat.

2. Stand alone insurance policy
Your employer will, in many cases, provide you with some level of insurance cover. And in many cases, this insurance will cease when your last day at the company ticks over. This will leave you without insurance cover, and could be very stressful. Look into the costs of having a basic stand-alone insurance policy, so that you have emergency cover should you lose your job.

3. Stress test
Having a monthly budget is great while you have a job to keep track of expenses etc and exactly what you are spending. Now take this budget...and zero out your income. What impact does this have on your cashflow and long term financial goals? Use this opportunity to work out where you can make some savings in your budget to see you through. And use this to work out how long your savings will last in a worst-case scenario. Scared? Think you won't make it? Great - use that knowledge and fear to give you the kick you needed to start saving more!

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