When Kris was young, her family moved all of the time. Her father was in the Air Force, so they were rarely in one place for long. I, on the other hand, have always lived within the same 25-mile radius. For 41 years. More and more, I feel the itch to live somewhere new, if only for a little while. In fact, I wish I’d lived elsewhere when I was younger.
But moving (and living in adventurous locations) comes with a cost. In fact, A.M. wrote last month asking for advice on just this sort of situation. She has a chance to live in another country, but she’s worried about the financial implications. Here’s her story:
I’m planning what will be a big move — both literally, and financially — but the money side of things is giving me some concern. I’m 25, self-employed, debt-free aside from my student loans, and have built up around $15,000 in savings. Now a great career opportunity has presented itself, involving a move to a new country: I’d be moving from London to Los Angeles.
Because I’m freelance and would continue all my current contracts, it wouldn’t involve any drop in my income (only increase my potential for future earnings), but it would involve a lot of new costs; not just one-off immigration and relocation, but new monthly expenses. I would have to rent a room or apartment, and then run a car for the first time (I’d need it for work), and also pay for health insurance. My savings could cover all of these expenses, but I’m a little wary of draining that fund.
On the other hand, I’m young, this is an incredible opportunity, and my job means that just one new contract could easily restore those coffers… I’m excited by the new prospects — for my career, and also the adventure. Do you have any advice that could help me manage this big change, and keep the financial side from spiraling out of control?
I think the most important thing A.M. can do is pay attention to cash flow. Cash flow is what you earn minus what you spend. If you make more than you spend, you have positive cash flow. if you spend more than you earn, you have negative cash flow. Positive cash flow lets you build wealth (even if it’s slow progress), but negative cash flow depletes your savings, and eventually leads to debt.
A.M. know she’s going to have a lot of new expenses in the future. What I want to know is how these expenses compare to her future income. It may be that even with housing, transportation, and insurance, she’s still able to maintain a positive cash flow. If that’s the case, my advice is absolutely to seize this opportunity.
But if these expenses will be more than A.M.’s current income, that changes things. If she’s going to have a negative cash flow, she’ll need to consider her priorities. I think that a small negative cash flow shouldn’t be a big concern, but if she’s losing $1,000 or $2,000 a month (or more), she’ll need to decide how long she’s willing to stick this out. How much is this opportunity worth to her?
I also think that A.M. should do what she can to keep a close watch on her finances. She should track her spending regularly in order to make sure her cash flow stays where she wants it. By keeping a close watch, she’ll be able react quickly if she does spot trouble.
What advice can you offer to A.M.? Given what she’s told us, what can she do to keep costs low? Is the opportunity to travel worth depleting savings? Taking on debt? Should she look at this as an investment in her future? And what would you do to keep costs low so she can hold on to her money as long as possible?