Questions from a University Student

[mk.]

First post, hi all! Don't think I'm exactly the target demographic here, but I'm hoping that someone older and wiser can lend me an ear :)

So I'm currently a first year student (who recently turned 20, thankfully) in a four year degree program at a Japanese university. I'm looking for some advice as to what I should do with my money.

Part-time income: 140k~180k/mo (started this April, hoping to stay here for at least the next four years, slight potential for growth)
Scholarships: 48k/mo (one year term, will be applying for more during the next application cycle)
Expenses: 70k~90k/mo
Pension: Applied for exemption for students, exemption status pending, but my yearly stack of bills did arrive in the mail
Tax exemptions: Will try to apply for the 勤労学生控除, which means (as a gross oversimplification) I won't be paying any income or residence tax on yearly income up to 1.26 million yen. However, if I earn more than 1.26 million yen, I become ineligible for the exemption.

In terms of future goals, I don't know if I want to be in Japan for the rest of my life. It's definitely not a no, but it's not yet a comfortable yes either. I'll probably know by the time I graduate university.

As for post-graduation plans, I'm currently seriously considering the idea of going to a certain trade school in Japan for a very specific trade. It will be a three-year course in Tokyo that will probably cost 2 million yen per year in course fees alone. Assuming I successfully enter the school right after graduation, by the time I finish I would have been a resident of Japan for 7.5 years.

Also a big fan of compound interest and have a big appetite for risk (wink, wink).

Questions:
1) I'm pretty much definitely gonna end up going over 1.26 million yen in income, so to iDeCo or not to iDeCo? If I do open an iDeCo, I'd optimise it to the minimum amount to maximise the tax break.
2) Should I open a NISA and invest the rest of my money (whether or not I open an iDeCo) in that? Will probably chuck in ETFs.
3) Parents are willing to financially support me in my (further) education if necessary, but in general do I really need that much liquidity as a young person who doesn't really enjoy spending money?
4) My workplace says if I earn too much I will have to join 社会保険. Do I really? :(

P.S. I'm not American.

[TokyoWart]

At your age, your best investment is investing in yourself which usually means investing in your education. I would not put money in anything besides a glorified savings accound until you have enough set aside to ensure you can finish the schooling you're setting out to complete unless you have this already covered by your parents (which is great!). I have stock investments for my kids who are close to your age, but the only reason we take that risk is we also have cash equivalents available that will cover their education expenses. In today's world, finishing school without debt puts you ahead of most young adults in that country situated between Canada and Mexico. For what it's worth, here is what I would do with money you don't need to have available for your immediate schooling goals:

1) I'm pretty much definitely gonna end up going over 1.26 million yen in income, so to iDeCo or not to iDeCo? If I do open an iDeCo, I'd optimise it to the minimum amount to maximise the tax break.

If you are not sure you're going to be in Japan long-term, I probably would not do this. At your income level the tax break is small. Starting young for investing is a great idea but using a specific instrument in a country you don't live in but would need to collect on 40 years later is probably not a good move. Alternatively, if you were sure you are staying, this is one of the great ways to save long-term and it's always best to start young.

2) Should I open a NISA and invest the rest of my money (whether or not I open an iDeCo) in that? Will probably chuck in ETFs.

Unlike iDeCo this has the advantage of being more immediately accessible. Your dividends and capital gains would be tax-free but you also would not be able to take tax losses. If you are only going to be here for 4-5 years I would recommend against any equity investment that you would need to sell at the end of that period.

3) Parents are willing to financially support me in my (further) education if necessary, but in general do I really need that much liquidity as a young person who doesn't really enjoy spending money?

As above, this is the key point to confirm before investing. If the Bank of Mom&Dad are going to pay tuition you only need to make sure you have living expenses. If they are definitely paying school and living expenses then you only need that emergency fund of crazy money.

I don't know the answer to your question #4 for your situation; I only know that I have to pay it.

Just one general comment: most people should have a home country bias because their future liabilities will be due in their local currency. If you currently aren't sure where you'll end up, and don't come from a financial disaster like Venezuela, it's going to be easier for you to get good information about your home country's investment options. When I first came to Japan for 5 months in early 1990, I fell in love with the country including its stock market and unfortunately put all my Japan work savings in the stock market. I would have been better off just bringing all that money home and investing in my native US market index funds.

[mk.]

Hi TokyoWart, thanks for taking the time to reply.

If the Bank of Mom&Dad are going to pay tuition you only need to make sure you have living expenses. If they are definitely paying school and living expenses then you only need that emergency fund of crazy money.

I'm very fortunate to have the Bank of Mom&Dad guaranteeing my tuition and living expenses, with the added bonus of 1) going to a public university (yay affordable education!) and 2) being eligible for a waiver that practically guarantees 50%-100% off tuition every year. Mom&Dad have also said they'll gift me whatever remaining money in my tuition fund that doesn't end up being used, but I'm not planning on counting those chicks before they hatch.

If you currently aren't sure where you'll end up, and don't come from a financial disaster like Venezuela, it's going to be easier for you to get good information about your home country's investment options.

As far as I'm aware, my home country has decent investment options, but I'm slightly concerned about Japan's 20% dividend tax and the temperamental tides of FX which is why NISA seemed like quite an attractive option to me. Then again, I do see that the freedom of choice/less restrictive rules do weigh out NISA's cons.

So if I understand correctly, my priorities would be to, in this order:

1) Invest in myself (education, opportunities, networking, enjoying life in general, etc.)
2) Build an emergency fund of around 3-6 months expenses
3) Make sure I really do have enough to pay for all the schooling expenses
4) Make investments in my home country (by transferring my investment money from Japan to my home country?)

Does this sound about right? Again, thanks for taking the time to read/reply, I really do appreciate it.

[0x143]

I agree with TokyoWart. I also think that list of priorities is a good list.

If you planned on living in Japan forever then for sure use a Japanese broker. Otherwise you should repatriate the fruit of your labour so it work for you where you need it.