How to manage your income when currencies are unstable

Many yachties face the problem of receiving salaries and tips in a currency different to their home currency.  When your ‘work’ and ‘home’ currencies are stable, this doesn’t present many issues, aside from bank exchange fees.  Stable exchange rates make it easy to plan both savings and investments. However, when one or both currencies are unstable things become more challenging.

How does an unstable currency impact your earnings?

Post-Brexit, we have seen the value of the pound fall considerably which is fantastic for those earning in euros but with mortgages in the UK.  It is, however, worth remembering that unstable currency means you are at the mercy of the market.  Currency value fluctuates as exchange rates go both up and down and when your ‘paid’ currency weakens, or your ‘expenses’ currency strengthens:

• You can lose value on transfers
• It can impact how much you ‘take home’ each month
• Your mortgage can become more expensive in real terms
• Planning a savings schedule can be tough
• The actual costs of core purchases increase

So what can you do?

Because currency is unstable, you will want to counterbalance this with as much stability as possible.  This means taking control of as many key factors impacting the value of your money as you can.

Get the right bank account

This is the most critical step.
Make sure you have a bank account where your salary is credited in the same currency. This means you then have control over when you exchange and transfer your money, rather than being at the mercy of the market on the day your salary drops in.
Getting a Standard Bank Account will help you manage your money. An alternative to the Standard Bank Account is the Lloyds International Bank Account, but this has higher fees.
The Seafarers Account is offered in most major currencies and also has one of the lowest deposits required.

Lock in an Exchange rate tariff

You can buy a bulk sum of currency at a specific rate. If you are going to be regularly saving in one currency, perhaps you have property or a business investment; you can lock in a good rate. This can be a fixed sum and, the larger the amount you agree to transfer, the better the rate. Providers like Infinity FX offer this service.

Minimise Transfer fees

You don’t have to pay the fees your bank dictates.  There are multiple online services, like IIFX, which consistently beat the banks for both fees and exchange rates.  You can use your bank to provide the services they’re good at while using another provider that specialises in currency transfers.

Invest in commodities

Another option is to stay away from currencies and exchange rates.  If you are paid in € or $, you could invest directly in commodities.  When you invest in commodities, you avoid market instability around currency fluctuations.  When you want to sell, you can then decide on your preferred currency based on the market at the time.

Watch the rate

It is really easy to lose track of what is high, low and average when there is a constant fluctuation. The rand, for instance, has been fluctuating and you can see from the graph below that it has strengthened against the euro towards the end of the year. So if you were getting paid in euros and getting this put directly into your South African bank account, you would have been paid less in December:

If you were putting your euro salary into a UK bank account, you would see the opposite.  As the euro strengthens against the pound, you are effectively getting a pay increase, as long as the difference isn’t eaten up by poor bank rates and transfer costs!

Xe.com lets you select your currencies and track their performance. This is great when you are deciding to make a significant transfer or want to lock in an exchange rate with a provider.  They even have a handy app, available for IOS, Android, Blackberry, and Windows devices.

Alternatively, you can sign up with IFX and let them watch the market for you: 

The best way forward
Take control of your money!
This may be your opportunity to open a Standard Bank account and take a closer look at your long-term financial objectives.
To establish your priorities, ask yourself these key questions:

• Do you need flexible access to your cash?
• Do you favour long-term growth on your investment?
• Where are your investments based? Is this the best location for you?
• Do you plan to move country? When is this likely to be?
• What currency do you spend in most of the time?

Answering these questions will help you make decisions about what suits your needs best and, if you have any questions or concerns, our Marine Team are always happy to help you.