Most of us find ourselves thinking about saving for retirement at some point. We are unsure about the future and do not quite trust the government to take care of us, but at the same time do not know what we should be doing to prepare ourselves financially. Often this results in people putting the matter off. Other times it spurs them to take action, but without a basic level of investing knowledge, action can result in losing money.
This can be compounded by living in Japan. Local frameworks and tax regimes are slightly different, and it is further complicated by the language barrier (even native speakers of Japanese can wilt when confronted with financial terminology). So in this article I hope to set out a very simple investment plan that anyone can follow.
Step 1: Financial snapshot
If you do not know where you are, even the best map is not going to help you. Perhaps you already know the answers to the following questions, but if not, I suggest taking an hour or two to write them down:
- How much do you own? (savings and investments, don’t include your home or vehicles, etc.)
- Do you have any debts (including mortgages)?
- How much do you spend per month/per year?
- What do you spend your money on?
- How long do you expect to work for?
The best book I know of to help with this step is Your Money or Your Life by Vicki Robin and Joe Dominguez (2008). It opened my eyes to the possibilities offered by understanding money.
Step 2: Action
Regardless of how old or young you are, thinking about your financial habits and trying to reduce expenses is always lucrative. Do you have any unnecessary expenses? Take a particularly hard look at recurring expenses like subscriptions. Are they really making your life better? Then figure out how much you can save per month. Lower the number slightly and then take it out of your bank account the day you get paid and put it somewhere else. If you plan to save at the end of the month you will probably find that all the money has mysteriously disappeared.
The best resource for this step is the writings of Mr. Money Mustache, which can be found at the blog of the same name. It has a unique writing style, but it is rare to find this much valuable information in one place for free.
Step 3: Investing
Steps one and two will probably solve most of your financial problems. Step three will make it easier for you to meet your future financial goals.
In investing, the most important things are having a good plan and sticking to it, regardless of what happens in the news or the markets. So what is a good plan? Basically it is the one with the lowest possible costs and taxes, so you get to keep as much of the profit as possible. In Japan, cheap online brokers such as SBI or Rakuten Securities offer a wide range of shares, bonds, exchange-traded funds, and mutual funds at low cost. Japanese Nippon Individual Savings Accounts (NISA) currently provide 5 years of tax-free investing. The relatively unknown J401k account also provides a fantastic option to investors who are here for the long-term.
The best thing to read for this section is The Millionaire Teacher by Andrew Hallam (2011). It explains pretty much everything you need to know, and is written by a teacher at an international school in Singapore. Practical advice on setting up accounts and designing a portfolio is beyond the scope of this article, but can be found online at retirejapan.info or the Bogleheads forum.
Step 4: Further learning
Completing any of the steps above will provide huge benefits to your economic outlook, but if you manage to do all three you will probably want to continue learning. The reading list below is a great place to start.
References and further reading (in recommended order)
- Hallam, A. (2011). Millionaire teacher:The nine rules of wealth you should have learned in school. Hoboken, NJ: John Wiley and Sons.
- Robin, V., & Dominguez, J. (2008). Your money or your life. New York: Penguin.
- Larimore, T., Lindauer, M., LeBoeuf, M. (2007). The Bogleheads’ guide to investing Hoboken, NJ: John Wiley & Sons.
- Malkiel, B. (2007). A random walk down Wall Street. New York, W. W. Norton.
- Housel, M. (2011). Everyone believes it, most will be wrong. Kindle edition. Motley Fool, LLC.
Ben Shearon is an English teacher in Sendai, Japan. He started thinking about money, investing, and the future a few years ago after the 2011 earthquake in Sendai. He now runs a website at <retirejapan.info> to share information about saving and investing for residents of Japan. The small but growing community there is happy to answer questions and share experiences.