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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