Financial Planning for Expats in Germany

by Sarah Dudley

Investing and financial planning might not be the first things that come to mind if you only just moved to Germany. But make no mistake — even if you’re not sure how long you'll stay in Germany, talking to a financial advisor from the beginning can be crucial for your financial stability in your new home.

More and more people are relocating to Germany and decide to stay here long-term; they purchase property or start or expand their families. As an expat, these are all good reasons to think about saving for the future — whether it’s for your retirement, starting an education fund for your children, or saving for a house or a new car, it's worth it.

Horbach, our financial planning partner, can help you navigate the unfamiliar territory of investment and savings opportunities in Germany. These may be very different from those in your home country, so read through and find out how you can save for all of your future goals in Germany.

What Is Financial Planning and Why Get Help From an Advisor?

What most people think of as financial planning doesn't cover all of what an advisor can do for you. It's much more than managing a portfolio of highly valuable assets, or just getting the most out of your retirement savings plan, although of course, this is one of the core services that Horbach provides. Financial planning is all about defining priorities, setting short-, mid-, and long-term goals, and then having an expert help you get there. How you reach your financial goals can take so many forms that it would overwhelm the average person who isn't already an economist themselves. And a lot of people try things on their own, risking losses that could be avoided with some guidance. (Bitcoins, anyone?)

A financial planner can help you to avoid common investment mistakes, such as misreading trends, poor timing, focusing on short-term gains only, etc. They can also help you to understand the complex field of potential risk areas, such as liability insurance, income protection (hello, freelancers!), and private health insurance coverage.

Even just deciding what your investment goals are can be a challenge for anyone who hasn't given it much thought before. In the current climate of increasing inflation and unpredictable economic developments, an advisor can show you how to save money despite the inflation, and how to build up enough backup funds to bridge periods of lower income.

It all depends on your own needs, which you can discuss with your advisor in order to develop a plan.

  • For example, short-term savings goals could be simply to put enough aside to cover a few months' living costs.

  • Mid-term goals might be to save up for a downpayment on your first property.

  • Most people tend to seek the assistance of a financial planner for their long-term goals, such as a sound retirement savings plan. The average government pension payout in Germany is only around €950 per month, so we all need to be proactive in preparing for the future.

Even those on the lower side of the income spectrum can benefit from the help of an advisor. In fact, it's probably even more important to invest wisely when there's not a lot of disposable income available to cover surprise expenses. Of course, the more you can save, the better, but even small monthly contributions add up, and can also do double duty by being tax-deductible.

What Exactly Does a Financial Advisor Do?

Consulting with a financial planner is very much like making a trip to your favorite shop: You go in already knowing that you'll get something that you want, and you also come out of the store having discovered something great that you never knew you needed. A financial planner will not only help you to take care of the essentials, such as retirement savings but will also help you take advantage of a wealth of opportunities to save money that you never knew existed.

The two most common ways that financial advisors help the average person are long-term savings for retirement, and existential risk management (and avoidance).

  1. Retirement doesn’t only refer to the time, later in life, after a voluntary decision to stop working has been made. It can also refer to the time after which one is no longer able to work, often due to health issues or corporate restructuring. In either case, the sooner you begin to save, the better. For anyone who has already been working for a decade or two, but doesn’t have much (or any) retirement savings, it might be wise to have a consultation with a financial planner to maximize the savings potential for the remaining working years. Freelancers tend to fall into this category, and with the aging population prevalent in Western countries, the government pension won't be enough. A financial planner will help you get the most out of your money, often by taking advantage of tax breaks that most of us don't even know about, and that an accountant might not take into consideration.

  2. The other area where an advisor can help you both save and avoid unnecessary expenses, is what is called “existential risk management”. This refers to unexpected costs that can be high enough to jeopardize personal financial security, and that can be avoided by having the appropriate insurance. Not everyone sees the benefit of anything beyond the basic insurances (health, life, home contents) but there are other options that can save you from serious financial difficulty.

Germany is famous for its love of every kind of insurance under the sun. While it might seem to some like overkill, there are a number of smart options you can look into, like the following:

  • One type of insurance is so common in Germany that it's taken for granted that everyone has it: personal liability insurance. It's actually very cheap and can save you hundreds or thousands in case you cause damage to someone else's person or property. One, granted extreme, example is: A person caused an accident, as a result of which the victim was no longer able to work — permanently. The settlement was that the victim was to be compensated for their lost income for the rest of their lives. The person had no liability insurance and had to cover those costs on their own. This is, of course, a worst-case scenario, and personal liability insurance can also be useful for much less existential cases — such as replacing a phone or laptop damaged by a spilled drink in a café.

  • Another kind of insurance that may be of particular interest to freelancers, for example, is income protection insurance. Did you know that as a freelancer in Germany you only get sick pay (Krankengeld) six weeks after a doctor's note attests to your inability to work due to illness? And the current Krankengeld rate is only 70% of your most recent income, up to a maximum payout of €112.88 per day.

These are just a couple of examples that a planner can suggest in order to help you secure your financial future. Existential risks can be covered by other sources and investments as well; it comes down to how proactive you want to be. A financial planner can help you find your comfort zone, whether it is about preparing for a few, most critical situations, or minimizing as many potential risks as possible.

Perhaps the single most important thing that a financial advisor will do, is to tailor your plan to your own individual goals and needs. There's no “one-size-fits-all” package. You'll have a personal consultation with your planner who will help you define your goals and handpick the investments that will most successfully meet your needs. They'll factor in everything from your income level, interest (or not) in more speculative investments, to the desired time frame between investment and payout.

How These Services Are Important for Expats in Germany

Investing and future planning might not be the first things that come to mind after making such a big change as relocating to a new country. But don't let that put you off — even if you’re not sure if you’ll be in Germany for the long term, working with an advisor from the beginning can be crucial to finding your way through the unfamiliar financial landscape of your new home. Doing so will not only help you invest and save money, you'll be able to profit from tax breaks and the peace of mind that comes with having a nest egg to fall back on. If you decide to leave Germany, your Horbach advisor can also keep track of and manage your investments after you’ve moved to a different country.

A consultation with a financial planner can be particularly important for Americans wanting to make investments while living in Germany. The IRS heavily restricts what, where, and how US citizens may invest in foreign countries, and your advisor will be able to guide you through what's possible despite the regulations. It's the best way to get the most out of the available options. This can be particularly helpful for those still paying off student loans since international financial administration and money transfers can be expensive if not managed efficiently.

There are many more opportunities to invest and save for the future than most of us realize, and these can be maximized by discovering how to get the most out of what you put in. Even if you can only start small, it's still worth it to look into your options. The sooner you get started, the more you can benefit from the expertise of your financial advisor.

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