Expat Personal Finance 101

The DOW had its biggest one-day drop in history. Banks are being nationalized to prevent their outright failure. Worldwide economies are in tatters. What does it all mean?

Well… I have no idea. All I know is that when I sent money home to pay my student loan bills last week I sent 150,000 won more than usual and it still wasn’t enough to cover my minimum payments. To be honest, though, my personal finances in general need a serious makeover. Am I making intelligent decisions in regards to my debt? How do I save money as an Expat in Korea? Should I try investing?

I didn’t know where to even start on these questions, and I was sure that if I didn’t know, then there are probably a lot of other expats in Korea in a similar boat. Thankfully the blog Investing Won recently came on the scene and when I wrote Sungwon asking if he’d be interested in doing a joint posting project, he didn’t hesitate to take me up on it.

In the following segment, I will layout some details of my financial situation that are probably fairly common to a lot of people. I’ll mention some of the strategies I’ve taken up to date. I’m going to put it all out there, and then Sungwon’s going to pick it apart.

Student Loans

The foundation of my financial situation seems to be my $80,000 (total repayment sum) in student loan debt. All but $4,000 of these loans are government-backed loans so I try not to stress about them too much, but I do know that I really need to consolidate. It’s one of those things that I’ve intended to do all along but have always put it off. My repayment strategy has basically been simply minimizing my monthly payments. I heard Suze Orman say once that “Student loans are the cheapest money you’ll ever get, so don’t be in a hurry to pay them off.” Yet, I realize that I’m not on the best repayment plan (graduated repayment), and should really get on income-contingent instead.

I’m able to pay these bills by using the “Easy-One Remittance” bank account set up at KEB Bank. Any money that enters this account automatically gets transferred to my bank in the US that I registered the account with and it’s nearly instant. At KB, it was a hassle EVERY TIME I tried to send money back. I argued with them incessantly about writing in my passport and months and months went by before they volunteered the information that if I ‘register’ with the bank then they don’t have to stamp my passport. All I needed to do was bring in a form from my company verifying my salary because they want to make sure you’re not transferring more money than you actually make overseas (because it could mean you’re doing something illegal).

Most of my banking headaches have stemmed from dealing with Korean customer service (or lack thereof). Whereas I am used to a “the customer is always right” philosophy, I think customer service in Korea comes down to, “my boss is always right and I need to get customers out of here as fast as possible to make the boss happy.”

I have no choice but to use KB because my employer will only deposit my salary into this bank. However, for most other services I tend to use KEB, though I am far from 100% happy with the service at KEB as well.

Credit Cards

I’m lucky in the sense that my credit card debt isn’t bad at all. On my American cards I have all of $600 left to repay. Since my cards have all expired and I’ve never bothered trying to get them sent to me here in Korea, I recently got two Korean credit cards.

Most recently I got a Samsung credit card. The only purpose for getting this card was to use it at Costco and for the bus and subway. In fact, it doesn’t even have a Visa or Mastercard logo on it, so I don’t even know if it can be used normal places. This card was somewhat difficult to get as the first time I tried to get it I was told my company isn’t big enough. The second time I’m not even sure the person checked and it all went through fairly quickly. A rep even visited my office to go over things with me (with the help of a coworker since her English wasn’t that good). As with many things in Korea, a lot depends on who you ask and what their particular motivations are, rather than the actual policies or rules.

The other is the KEB Expat card. I kind of regret getting this card because after signing up for it and paying the monstrous $120 annual fee, I mentioned it to a friend of mine that said his KEB card had no annual fee plus it earned mileage on Asiana. The expat card mileage accrual was only for Korean Air, which I have never flown, so I chose the cash back option instead.

Now, signing up for the card was not as easy as I had imagined when I first heard about it. First I had to deal with the ignorance of the teller who told me, “I’m sorry. No credit card for foreigners.”
To this I responded, “That’s wrong. I know KEB has a card specifically for foreigners living in Korea.”
“Oh, the Expat Card. But not for English teachers.”
“I’m not an English teacher.”
[silence]

It was fairly easy after that, as KEB actually had several tellers with decent English ability (and one with really good English actually). They had to check and see if my company was big enough and some stuff like that but in the end it took about a week. I will not be paying the annual fee again next year for the Expat Card as it’s not worth it and deceptively makes people think it’s the only card you’re eligible for. It’s also worth pointing out that although the card seems designed for travelers (benefits include free companion plane tickets to Jeju, [edit: Just got a notice in the mail saying they no longer offer this] a Skypass card for airport lounges, etc), that doesn’t stop them from charging an extra fee for actually using the card abroad. I didn’t find this out until after I got back from spending the long Chuseok weekend in Las Vegas…

The Korean credit card system seems to work on a completely different system. Though at face value it seems designed to help protect consumers from having protracted payments and getting into too much debt, the fact that if you have three different purchases on your card, you may very well have three different interest rates depending on the repayment period you selected at the time of purchase (one month, three months, and six months are the usual increments), makes it very difficult to wrap your head around. It is highly advisable to bring someone to the bank with you that you can trust for accurate translations step-by-step through the process rather than trying to ‘help’ you by making it all as easy as possible.

The problem is that when I purchased my Vegas plane ticket using my Expat card from a foreign website, there was no option to split the payment. This means I have to physically travel to the bank and talk to them every time I want to space out my payments. Inconvenient, but doable, this isn’t a major obstacle. If anything, I’ve chosen to think about it as another disincentive to making big credit card purchases.

Because I want to pay off said plane ticket as soon as possible the next two months for me are extremely financially tight, but I’d rather get it over with than space it out for months and months.

Savings and Investing

With the help of my girlfriend I’ve recently signed up for a MetLife annuity. I don’t know all the right vocabulary to talk about it, but basically I’m investing in MetLife, which has their own financial experts manage the investments and use the fund for other investments. There’s a bit of risk involved, but they seem fairly well diversified across a number of industries and the big thing is they’re a global organization. They said if I move to another country, such as back to the U.S., I can just transfer my account over there without losing anything. Oh yeah, I also get extra insurance out of this, which was weighing heavily on my mind in the wake of the unfortunate death of Bill Kapoun.

In talking about annuities with a friend that knows more about investing, he said you usually don’t make as much with annuities as you can with other programs. Still, I am trying hard not to over-think this because it’s at least something and I really need to get started. The MetLife annuity seems like as good a basic investment as any other I’d seen. At the very least, it was the first one that made an effort to do business with me after a solid year of looking for opportunities.

Secondly, I signed up for a savings and investing account with HSBC Direct. After signing up on the website, a representative came to my office to explain how it works and verify I am who I said I am. You can set it up to automatically take money from your account right after pay day, and from the online interface they have a large menu of funds and investments you can put your savings into. I’m excited about getting involved with this one, however, I have yet to actually use the account. The first reason is the security certificate you have to install on your computer. It’s just one of those hassles that are easy to put off. The second reason is actually the Las Vegas trip. Starting in December January I plan to start putting a meager $200 into my HSBC account every month, automatically taken from my bank account. From there I hope to gradually increase the monthly amount.

Moving Forward

As soon as I get my credit cards all paid off, the next step is that I need to start a regular old savings account in which I can try to save up some emergency cash. I’ve seen people recommend to have at least six months of living expenses saved up, but I’m going to start with a lower threshold of two or three months.

Also, I need to get off my butt and get my student loans consolidated, especially now that interest rates in the US have been slashed twice just as an emergency measure in the last couple weeks.

What about you?

That wraps up the first in this three-part series on taking control of your finances as an expat. I know that in the west we don’t like to talk about money, but in these dark economic days I think it’s good to try and help each other out. What kinds of strategies have you used to get started investing as an expat? What has been your greatest challenge to saving and investing? What do you think is the best bank in Korea for expats?

Another question I’m curious about: What do you guys do with your contract severance bonuses?

Parts 2 and 3 will be appearing over on Investing Won over the next couple of days. I’ll also update the links here. While you’re waiting, check out IW’s several How To’s and Guides dealing with finance and investing.

UPDATE

Part 2 is online at Investing Won now.