Personal Finance in Spain
Your 7 Step Guide to Re-Position your Personal Finances for a Life in Spain
Where do I start in deciding what sort of financial advice I need for a life in Spain?
The rules for effective personal finance are rather different in Spain. What worked well 'back home' may not be so useful to you from a Spanish perspective.
Some re-positioning may be required certainly. But is it just local financial advice you need, more comprehensive financial planning for a life in Spain or a holistic wealth management overhaul that is required?
Here is a 7 Step guide to help you re-position your personal finances for a life in Spain.
Step One: Knowing What You Want from your Life in Spain
The most appropriate sort of financial advice, rather oddly, it is not based upon the money after all!It's rather more about your life, the way it is now, and how you would like it to be in Spain. If you haven't set out the objectives: how is the money going to know what it is supposed to do for you?
You may wish to educate the children in an International School. Are you retiring or on a work contract? Whatever, you will want to be financially secure whilst living in Spain, perhaps for the duration. Learning Spanish makes life much easier, the Euro factor, and cross-border social security considerations are all important. So, start with the end in mind. Have clear objectives for your life in Spain.
Step Two: Create a Sense of Order for Spain
Your finances may be in generally good order right now. However, in Spain are they quite so effective? You locally tax free investment may be harshly taxed here. Spain does not recognise Trusts. Is your life assurance still valid? It is time to create a new sense of order; to consider everything as a collective whole perhaps for the very first time.
No longer should your financial affairs be a disparate collection of unrelated statements, policy documents and ownership contracts. They are all connected and order has been established. All done? OK, you may now move forward with confidence to the Financial Planning bit.
Step Three: Financial Planning in Spain
Having reconciled the past, ordered the present, you may now begin to plan the future. Money in verses money out, assets verses liabilities, this pension asset and that mortgage liability. A maturing policy here now ties in with the deposit on the Spanish Villa over there. You will know when financial planning has been accomplished when you, at the very least, can see where you finances should be in 3, 5 or 10 years time to support your life in Spain.Running out of funds later on is not supposed to be part of the equation.
Step Four: Obtain Local Financial Advice in Spain
Now you can really begin to take some concrete steps to support your future life in Spain. Getting a Spanish Tax ID number (NIE), seeking a Residence Document and setting up a bank account in Spain. They all demand local knowledge. Does you adviser actually speak your language and Spanish besides! It may be helpful if they do don't you think? It is unlikely that your high street bank back home will know about these things. Spain has its own little idiosyncrasies. It's called local charm or character. (Some other adjectives may come to mind for those of you already here.)
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Step Five: Ongoing Reviews in Spain
OK, you have your finances in order, all the local necessaries for Spain are in place, and an effective plan has been established. But, just leaving things as they are and trusting to good planning alone is risking all the good work so far. It is like placing your personal finances on 'autopilot'. Small, sometimes major, adjustments will be required over time to help keep everything 'on-track'. Spanish tax rates change, inflation looms, currencies fluctuate as do markets. What worked five years ago has now been eclipsed by external events. Keep on top of it all with regular support.
Step Six: Wealth management for Spain
Now your assets are sustainable and working for you, your priorities will shift from 'getting there' to 'keeping it there', or even taking it to the next level. This process is called 'Wealth Management'. It is NOT about second guessing markets, anticipating the yet unknown changes to tax law, inflation and interest rates. These can be anticipated although not always known. It is more about:
- Exercising control over the things you can influence; a measured response rather than knee-jerk reaction.
- Knowing just where your appetite for growth and tolerance to loss lies.
- Making sure risk profile of your investments is entirely in harmony with this.
- Working at making sure your investments are invested efficiently.
- Keeping costs low as a function of enabling growth helps.
- Being tax efficient for Spain is essential, (without the tax tail wagging the investment dog of course)
- Establishing a schedule of constant and ongoing review helps to identify where minor or more major changes are demanded.
And whilst Wealth Management is global in nature, your Spanish residence has an influential say.
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Step Seven: Succession Planning
You have assets sufficient to keep you in the Spanish lifestyle to which you are accustomed. However, succession plans in Spain are based upon residence - the residence status of your assets, you and your beneficiaries. Unlike some countries, the Spanish Succession taxes tax the beneficiary and not the estate. It is a regional tax so doesn't apply everywhere in Spain. Spain possesses dual taxation agreements with, somewhat surprisingly, only Greece, France and Sweden.If you wish to not pass on the fruits of your personal finance stewardship on to others that are important to you, some sensible contingency planning including the writing of Wills, including a Spanish one are vital.
Note: this article is for information purposes only and does not constitute advice. Spainwide itself does not offer advice relating to personal finance although we do understand many of the issues you may face and are connected to a panel of professionals who, themselves, are suitably qualified to advise you.
The author, Marius Hampden is a Madrid based financial consultant for those already living in Spain, or for those considering a move there from the UK where he also consults. He may be contacted at email@example.com