General

First Generation Immigrant: Guide To Financial Independence

First Generation Immigrant: Guide To Financial Independence

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Journey to Financial Independence

Financial independence is predicated on the simple formula of money in vs. money out. If you have more money in (salary, passive income, gifts, investments etc.) than money out (bills), you have discretionary income. With discretionary income, you may save, invest or spend. When you invest and save, you are moving forward on your journey to financial independence. Spending most or all of your discretionary income hinders your march toward financial independence. In the first generation money guide to financial independence, whether you have expenses in home country or new country, move forward on your financial journey by ensuring that your financials are secured.

Challenges

For first generation immigrants, the journey to financial independence can be daunting. When a family immigrates to another country, they typically do not have the family or community support they had in their home country. This exposes first generation immigrants to a number of new financial challenges. These financial challenges include financially supporting family members both in new country and home country.

Lack Of Community Support

For most first generation immigrants, with regard to childcare, there is no grandparents, sisters or brothers to help. Natives also encounter this issue, however, to a lesser extent. Natives have family in country, whereas immigrants may not. On the financial front, for immigrants there is no or very little inherited land, business or assets in new country. Immigrants, especially those who are the first to enter a new country, have to build wealth from scratch. 

Immigrant Money: Remittance

A more challenging issue is remittance. Many first generation immigrants have or feel obligated to send money back home to support family members. It could be to support studies or general home life. Remittance represents a large transfer of funds each year. For example, according to The World Bank, in 2017, individuals sent over $689 billion to their home country. 

Immigrant Money: Hyper Savers

To financially support multiple households (new country and home country), immigrants tend to be hyper savers. As such, although in the aggregate, immigrants may have a lower amount of money in (salary) than most natives, many immigrants are hyper savers and have a higher savings rate than natives. This does not mean that immigrants have more saved. As noted above, immigrant salaries tend to be lower than natives and immigrants may have more financial responsibilities as compared to natives. This hyper saving tendency may result at least in part on circumstances and necessity. However, because of financial constrains, in most cases, hyper saving does not lead to financial independence for many immigrants.

The Journey To Financial Independence

To move forward on the journey to financial independence, one must save and invest. While we are not advocating that one should not support family in home country, cutting back on the amount sent must be considered. It is important to ensure that your financial situation is secure before aiding others, yes, including family. Think back to the safety instructions given before a plane takes off.  In an emergency, put on your oxygen mask before your child’s.

If your financial situation is not secure at home, your family’s (home country and new country) financial situation will also not be secure. 

Consider the following: 

  • (1) you save very little while supporting your family in home country and loose your job. In this situation, not only will you be in a bad situation, but so will your family in home country. 
  • (2) you cut back on the amount of support you provide to family in home country and save a small sum in your emergency fund. If you loose your job, both you and your family in home country have a bit more runway to deal with issues that appear. This is the same principle that should be applied if you have adult children. First, address your financial situation and where there is addition or left over funds, aid your adult child.

Conclusion

In the first generation immigrant money guide to financial independence, whether you have expenses in home country or new country, move forward on your financial journey by ensuring that your financials are secured.

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Video Summary

Keeping Up With The Jones Your Goals

Keeping Up With The Jones Your Goals

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To achieve financial independence, you must be comfortable with yourself and not be concerned with others. You must be focused on your financial situation, and your goals. Forget about keeping up with the Jones.

A Wealthy Display

I was in high school when I began noticing a few trends with regard to wealth. Have you ever noticed that the wealthiest among us wears the most basic of shoes, clothing, and drives an average car. In high school, the students with the regular but quality shoe happened to be from wealthy households. Here, I am using regular to mean “not flashy”. These are the friends who lived in the best neighborhoods with parents who were executives and/or held secure positions. These friends did not care to draw attention based on what they could afford.

On the other hand, friends with flashy high priced shoes, book bags, and hairstyles tended to have parents who were less well off.  These friends wanted to show everyone that they had the most expensive you name it. These friends were not secure financially.

The wealthiest among us does not care what others think, and their children do not either. When you are financially secure, you care a lot less what others think. You also have a bit more confidence because you are secure and you are less dependent on others for your well-being.

Stop keeping up with the jones - keep up with your goals

Group I /Group II

Think about this now in adult life. Think of your friends in two basic groups, Group I and Group II. The below (Group I/Group II expenditures) are only a generalization and does not include additional costs such as food, entertainment, student loan payments and other monthly costs. The below serves as a simplified example.

Group I

Keeping up with the Jones - cars JoToFI.com
  • Group I
    • Leases their vehicle. Typically a luxury car: Mercedes, Porsche, BMW or a Tesla;
    • Lives in a McMansion/junior McMansion;
    • Takes lavish vacations;
    • Post their activities frequently on social media; and
    • Sends children to private school

On average, Group I are high earners, but are they wealthy? If Group I loses their jobs, could they survive? For how long?  By leasing a car, Group I will carry car payments for the foreseeable future. However, as a benefit, Group I will always have the newest model car. 

The junior McMansion’s mortgage is typically above average and comes with the associated expenses for heating and cooling such a large home, landscaping, and the inevitable general up keep and repairs. This adds up very fast.

Private school can cost tens of thousands of dollars and in some cases hundreds of thousands of dollars, per child.

Let’s face it; Group I’s monthly expenditure is very high. Any lost of income can have a dramatic effect on the well being of Group I.  From this basic analysis, it becomes very clear why so many families earning six figure incomes are living paycheck to pay check. High earners losing their jobs played out for all to see during the last financial crisis. Stories were abound of those with household incomes of close to $500,000, who had large debts, and following the lost of a job eventually lost their homes. 

Consider the following, if you lost your job but had $100,000 in savings, a $600 per month car payment, a $5000 mortgage, and $4000 monthly tuition for one child. How long could you keep up? Not long at all. Your savings would be depleted fairly quickly.  The depletion of savings would be further accelerated by the payments associated with any outstanding credit card debt or student loan payments.

Group II

Keeping up with the Jones - homes JoToFI.com
  • Group II 
    • Owns their vehicle. Typically a an average car: Toyota, Honda, or Nissan;
    • Lives in an average sized home;
    • Takes vacation on a budget, use AirBnB;
    • Does not frequently disclose their activities on social media; and
    • Sends children to good public school/dabbles in private school.

Group II include high earners, but also those who earn an average salary. Unlike Group I, because the monthly expenditures are lower, interruptions in income will not be as dramatic. Group II tend to have more of a buffer.

Group II are the millionaires next door and typically do not care what others think. These folks do not know the proverbial Jones and if Group II did, Group II do not want to keep up with them because Group II are preoccupied with building wealth.

It is highly likely that Group II earns more than Group I, but simply lives below their means. Group II could be earning six figures and multiples thereof but will stay in the same home, drive the same car for 10 years and take advantage of good public schools. Even if Group II loses their jobs, because their expenses, on average, are lower than that of Group I, Group II are able to whether such a change in better shape than Group I.

The Unknowns

We all know folks who live in the largest homes and drive the newest cars. What you do not know is their financial situation. You do not know if they are in debt. Do you know if they have an inheritance? You do not know if they are behind on car payments or mortgage payments. What about credit card debt, or student loans. You just do not know.

With all the unknowns, focus on what you know. You know your situation, your goals, and your financials (savings, expenditures, investments). Instead of keeping up with the Jones, keep up with your goals.

Who would you rather be? Group I or Group II? In the end, the choice is yours.

Which door will you walk through?

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Video Summary

Keep up with your goals
Income and expenses

Understanding Income and Expenses

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On a basic level, financial independence requires an understanding of your income and expenses. Without a full understanding of what you are taking home and what you are spending, you will remain financially lost.

Asking The Questions

If you are thinking about financial independence, you have asked certain questions and have come to certain realizations. When did you realize that you may have to work the rest of your life? When did you realize that there are families who could relax and not lift a finger and their wealth would continue to grow? Upon the realization of the first thought, you will almost certainly think of the second.

Was it in school? Were you visiting a friend? Did you overhear a conversation? Were you on vacation? Was it after viewing a facebook picture? Was it following the purchase of a big-ticket item (home or vehicle)?  Were you checking your account balance, reviewing a bank statement, or looking at your paycheck? Were you paying a bill or a portion thereof? Was a purchase declined?

The Calculation

At one point or another, we all do the calculation. If my salary/yearly income after taxes is $X, and my expenses are $Y, $X-$Y = working forever.

At this point, one has a choice: (1) continue down the same path or (2) make a change. You are reading this because you want to/have made a change.

On a basic level, to change the above in your favor requires an increase in $X and/or a decrease in $Y. While this is a basic concept understood by all, the above is easier said than done.

Increasing Income

With regard to increasing $X, you may:

  • Save
  • Request a raise at work, 
  • Start your own business, 
  • Invest,
  • Begin one or more side hustles, 
  • Go back to school, or
  • Change jobs. 

Decreasing Expenses

With regard to decreasing $Y, you may:

  • Give up coffee and avocados (or whatever your daily morning pleasure may be),
  • Downsize your life (reduce the size of your home, or vehicle)
  • Bring your lunch to work, 
  • Cut back on purchases (shoe, clothing), 
  • Move closer to work, 
  • Change modes of transportation (buy a bicycle, take public transportation), 
  • Change living conditions (get a roommate, move in with mom), 
  • Paying down debt, or
  • Decrease the number of vacations/ stay at an air bnb rather than at a five star hotel.

Taking action to improve your financial situation is harder said than done, especially if your financials are impacted by your education level, children, health or student loans. The combination of any two of these will significantly impact your saving rate, and thus your retirement plans. However, the fact that you are thinking about your financial future means that you are ahead of the crowd. Continue on your journey to financial independence by understanding and tracking your income and expenses.

Conclusion

Financial independence requires an understanding of your income and expenses. Without a full understanding of what you are taking home and what you are spending, you will remain financially lost. We will tackle paths to financial independence here at JoToFI.com. Journey to early retirement and financial independence.

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Video Summary

Financial Independence: Income and Expenses
Financial Independence

Your Financial Independence

Money Maroon

Welcome to JoToFI.com. May our insight and opinions on the financial world aid your journey to financial independence. Break free from the 9-5 and journey to a life well live. Ask yourself this simple question, do you want to retire when you are in your 60s or are you willing to put in the work to retire early? By retiring early, we are not talking about siting at home and doing nothing as the world passes you by. Intsead, we are talking about taking your life back and living as you choose because you can financially afford to do so.

Start Living Your Life Today

According to Wikipedia, financial independence is the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others. In other words, financial independence is the freedom to live without the need to earn an income. Because you do not need to earn an income does not mean that you will not. If you look around the internet or here at JoToFI.com, you will find many examples of people who have retired and are earning more than they did while working a stereotypical job. Are you ready to take the next step?

Financial Independence Can Be A Reality

While financial freedom may seem impossible, it is not. Financial independence can be achieved by modifying your attitude toward money and implementing your financial plan consistently over time. Save, invest, pay down debt, live below your means and repeat. The journey may be long, and the pace of financial growth will begin slow, however, the destination is worth it.

All journeys begin with a first step. Take your first step to financial freedom today and reap the rewards tomorrow. The journey to financial independence begins now.

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