15 financial tips for returning Indians
Neo thinks of himself as “penny foolish and pound wise”. Mrs. Neo’s opinions on Neo’s financial wisdom are mostly unprintable – not because Neo is afraid to print swear words, but because this is Neo’s blog! Neo is not obliged to print anything critical of Neo. Mrs. Neo can start her own blog if she wants!
But onward we go. Having a well-organized financial life after your return to India is critical because you will be too busy enjoying great food, warm weather and (if you are single) the company of some very attractive people of your favorite sex. You don’t want to have to ponder about Roth IRAs and the Dollar-Rupee exchange rate on Friday nights.
So here are a few tips to get you started.
(Because Neo is a US citizen, many of these only apply to US citizens living in India. And, though Neo is flattered with your trust, do consult a financial advisor before doing anything mentioned here.)
- Keep money in the currency where it is most likely to be used – Neo Jr.’s college fund is in the US, Neo’s drinking-money retirement fund will soon be moved to India. You get the picture. Neo would rather waste his money gambling in Las Vegas than in speculating on which currency will be relatively stronger in 10 years.
- Do not invest in any Indian mutual funds – Firstly, when Neo heard a salesman tell him about the 8% expense ratio on the Indian mutual fund he was selling, Neo choked on a perfectly delicious vegetable puff. Secondly, there are huge tax issues for US citizens (or even non-citizen US residents) who invest in Indian mutual funds (yes – every US resident you know who invests in India is mistaken.)
- Consider a IRA to Roth IRA conversion strategy – The Foreign Earned Income Exclusion will reduce the amount of taxable income on your US tax return. Its worthwhile to explore a Roth IRA conversion strategy. Neo’s strategy has the potential to give him access to his IRA money 5 years after the conversion, rather than when he is senile 59 1/2 years old.
- Get good tax consultants – Vanilla or H&R block tax guys have as much experience with international tax issues as Neo has in sky diving. You need an Indian-expat friendly tax guy in the US, and a tax guy in India who doesn’t stare at you stupidly when you ask him if you qualify for RNOR.
- Maintain a 12 month expenses fund – Neo is paranoid. He likes to keep 12 months of his expenses in fully liquid i.e. checking/savings accounts. Having access to cash is not a financial issue in India – its a safety issue.
- Have separate bank accounts in India for regular expenses vs large balances – Banks in India (and also in the US) are notorious for errors. So Neo follows a simple rule – the higher the balance in the account, the lower the number of transactions he makes – so it becomes easier to monitor. Having 200 transactions per month in a high-balance account makes it harder to monitor for errors.
- Scan important documents and keep them on a CD/USB stick – Use encryption to ensure that your documents cannot be read by someone who doesn’t have the password. Keep the stick with your in-laws or a sibling.
- Communicate clearly with your spouse – Returning Indians tend to have complex finances and accounts in two countries – Neo makes sure he keeps Mrs. Neo informed – although she sleeps through many of Neo’s detailed presentations on the topic.
- Make everything a joint account – Duh. You or your spouse do not want to have to go to an Indian court to prove inheritance. Making everything a joint account is a no-brainer.
- Help your parents – Take some time to talk about and help organize your parents finances. Neo recently saved his in-laws from a “sure investment that will double in 2 years”.
- Automated alerts are your friend – Most good banks in India allow you to set configurable email and SMS alerts. Use those wisely and look for suspicious activity. Neo thinks credit card fraud and identity theft is going to zoom in India during this recession.
- Get a safe deposit locker – Don’t keep original documents like passports in there, in case you need them when the bank is closed. Instead, keep copies and anything else you might need in case of an emergency.
- Get healthy – Medical costs in India are surprisingly high – prevention is cheaper (and healthier) than cure. Neo works out like a maniac. When he is tired, he imagines writing out huge checks to the hospital. And then he can work out for another 30 minutes – easy. Yes, ladies – Neo has a hot bod. But he’s married.
- Get an education – Yes, Neo knows you are not money-minded and have a “simplify” opinion when it comes to finance and investments. But you need to have a working intuitive understanding of things like inflation, currency, reserve banking, interest rates, purchasing power parity and the various financial instruments available to you (in the US and in India). Otherwise you are just sheep waiting patiently for the kill.
- Other checklists – r2i club has this financial checklist for returning Indians.
Did Neo leave anything critical out ? Leave a comment below and let him know!