Help with ideas on what to do with my salary?

[Viralriver]

Hi all, first post here. I'd like to give an overview of my situation in Japan, money-wise, and see if there's anything additional I should be doing to maximise my savings. Any help will be appreciated!

Age: 27
Nationality: UK
Japan: Been here for 4 years, don't plan to leave, but who knows.
Visa: HSP - considering PR
Marital status: Single, live alone.

Salary:
My company offers shares on a 4 year vesting period. Assuming a raise of 2.5% in salary each year, and no improvement in stock value (unlikely based on recent trends) my salary over the next 4 years is:

Year 1: 19.6m JPY (salary: 18.9m JPY, shares 720k JPY)
Year 2: 21.1m JPY (salary: 19m JPY, shares 2.1m JPY)
Year 3: 22.6m JPY (salary: 16.1m JPY, shares 6.5m JPY)
Year 4: 23m JPY (salary: 16.5m JPY, shares 6.5m JPY)
Year 5 onwards: 16.9m JPY (assuming no additional shares received)

Salary goes down after the 2nd year because of a weird sign on bonus schedule. There is no bonus structure at this company. Currently I take home pretty much exactly 70% of this with 30% going to the various taxes/welfare schemes.

DC Plan: Company offers 51k JPY per month, and I maximise this by putting in an additional 4k JPY. I have invested in high-risk areas, and am making around 5k per month here.

NISA: Interested, but not started yet. Deliberating between 5y and 20y account.

Stocks: None, but interested in investing.

Liabilities: 5m JPY in student loans (4.2m of this has a 1% interest rate, the remainder has a 7% interest rate) - UK loans. I am trying to pay off the 7% one ASAP (waiting on a good exchange rate) and then will pay the 1% in minimum payments, unless something better is advised?

Assets: 2.8m JPY in my bank account + 210k JPY in my DC plan.

Rent: 146k JPY

As you can see, my net worth is negative, though this should change within the next couple of months.

I won't bother listing my monthly expenditure on going out, groceries etc, but it varies greatly month-to-month. I'm more looking into whether apart from the NISA, if there are other schemes I should know about that may meet my needs. Any way I can invest/save more money would be great to look into! Also, if anyone has any suggestions on the NISA account, and stock brokers, I would be grateful.

Thank you!

[adamu]

These are going to be general comments that you could get on any investment forum, but it's fundamental stuff so I'll go ahead.

The main thing that comes to mind: Have you considered what sort of lifestyle you want to lead and how much of your net income you want to save? Considering your income and lack of dependents, you could probably put away the majority of your income if you wanted.

The second thing: What do want to invest in / how you want to assets to look? You need to decide your risk tolerance and asset allocation, how that translates into investments, and how active you want to be managing your portfolio.

Your savings rate and asset allocation are going to have a much bigger affect on your investments than which NISA or broker you choose. Once you've decided those, then you can start to shop around for specific products and brokers.

I have invested in high-risk areas

It's a bit worrying that you said you invested in high risk investments in your DC plan. It could also be worth investigating what the fees look like - anything over 1% and it's probably not a long-term choice. Is active investing a zero sum game? If your DC plan loses money, the tax benefits are wasted. Keep in mind that a large percentage of your net worth is likely to be your employer's stock, so keeping your other assets as diversified as possible is probably even more important than it would be normally.

I wonder if you would find one of RetireJapan's coaching sessions useful.

The standard advice would be: Invest almost everything in a global index fund, with perhaps a small percentage in government bonds.

If I were you - which I'm not, so :

• Make your savings rate 60-70% of your take home pay.
• Invest everything in the eMaxis Slim All Country global index fund, in a Tsumitate-NISA and also a regular taxable account.
• Sell your stock as it vests and convert it to a global fund. This will likely perform worse than the individual stock, especially if the stock is something like a major tech company, but it's much more diversified so is safer over the long run.

A final unrelated point: If you've not earned an income in Japan before, beware that monthly instalments for residence tax of ~10% of your income for the previous calendar year kick in in June every year. It can be quite a surprise the first time!

[kansaifolk]

All depends on what are your priorities, but if I were you, I would do the following:
-Attempt to save 60% + of your salary
-Divide that savings into different accounts for different purposes:
1)1st Stock account for retirement purposes, with purchases going into the NISA (regular) part for the first 1200000 (allowable amount), and remaining in non-NISA purchased stocks. Buy blue-chip stocks (banks, tech, pharmaceuticals, consumer goods) and ETFs.
2) 2nd stock account for future housing purposes (eg. saving up for downpayment for future property purchase in Japan or home country) - Only buy ETFs or funds (no individual stocks). Or make this account just a bank account with cash holdings, and send money to your home country regularly, for future needs (housing or otherwise).
3) Travel money bank account - both for yearly trips, but also for future "big" trips.
4) Emergency money bank account
The main idea is that I would be purposeful with my savings, not just put it all in one account, and not in one savings scheme (eg. not all stocks).
You are young, so you can take risks in your stock account and buy all stocks and ETFs. But in the other accounts, I would be more cautious, with low-risk (probably low-return) investments, or just cash.
Good luck!

[TokyoWart]

I would second adamu’s advice in those three bullet points. The only thing I might add is that I would pay all the debt (even the low interest debt) because there’s a lot of uncertainty in financial markets and paying off debt is a guaranteed, tax-free return.

I also get paid partly in company stock and my experience is it’s very hard for the company to project how much those payments work out to be accounting for the vesting schedule and the taxes you need to pay for that income so build a little margin in your budget for the possible taxes.

[Viralriver]

Thank you everyone for the replies, and sorry for my late response.

I need to take a deeper look into how much I am saving at the moment, as I am definitely spending more than I should (but also helping out family back home as C19 hasn't been kind to them).

I do want to save for a downpayment on a house as well, so with this in mind, would you still suggest putting all my savings into low-risk index funds? When it comes to actually needing to use the money, how easy is it to sell and withdraw (I'd assume this isn't recommended in the first place..). Is there a better place than my bank account to put the money for savings like this, if not investing in an index fund?

Thanks!

[RetireJapan]

You probably shouldn't invest money that you will need in the short-medium term (say up to 5 years from now or so?). If you are planning to buy a home before then, just saving up for the downpayment in cash might be the best option.

[Viralriver]

Thanks! Being optimistic I don't see me buying a house within the next 5 years, but 10 years more likely. But thanks for the advice nonetheless!

I'm more looking into better options than keeping my free cash sitting in a bank account doing nothing - since I'd at the very least be losing some due to inflation etc. In the UK I have various choices but not sure what they would be here... any advice appreciated! Thanks

[Moneymatters]

Thanks! Being optimistic I don't see me buying a house within the next 5 years, but 10 years more likely. But thanks for the advice nonetheless!

I'm more looking into better options than keeping my free cash sitting in a bank account doing nothing - since I'd at the very least be losing some due to inflation etc. In the UK I have various choices but not sure what they would be here... any advice appreciated! Thanks

If you are looking to buy this place in Japan you probably won't be losing out much to inflation.

Whilst you might not know specifics, consider the approx total value of the place you plan to buy/build.
On your salary people will be pushing you towards very expensive houses but let's say you only want to spend 60 mil.

I'd suggest you really only need to save 10 mil for a deposit then take a 50 mil mortgage on a low fixed rate and the generous income tax reductions it offers for 13 years (on 40 mil of the outstanding balance at least.)

So now you can split your saving into short term and long term.

10 mil in 5 years at 1% is less than 170,000 per month. (I was on very similar money when single at a similar age and was able to save 500K per month and all my bonuses.)

Therefore anything above that 170,000 you can move into long term, higher risk investments with a view toward retirement planning or school/college fees for those feckless kids you spawn, who attend schools that don't even permit part time jobs because god forbid they might learn the value of that new iphone they just dropped in the street and, frankly, retirement is for wimps anyway!
Whoa! That took an oddly personal twist for a moment back there. Apologies.

Anyway. With the above approach, if your riskier investments are performing well at the time you look to buy a place you can choose to move more towards a deposit. You might find it easier to keep saving each month with the above strategy as there is less fear of missing out.

Of course the above approach isn't without risk. Maybe mortgage rates leap up and you'd have been better with a much higher deposit. So please don't take it at face value. (Except the stuff about the kids!)

Oh. If you haven't decided. Go with a Std NISA to get more money invested quicker even though it's a lower cap.