26th Aug 2021
Preparing for life after yachting
It’s well-known that yachting’s golden handcuffs can make it difficult for crew to transition from life onboard to life onshore. And the longer you’ve worked in the industry, the tighter those handcuffs are. As Superyacht crew, you have higher disposable income and lower expenses. However, back onshore you need to cover those expenses yourself. This is where many crew members get caught out and why they find themselves struggling to fund their life after yachting.
Always have a plan in place
We often hear that the key reason why transitions back onshore don’t always run smoothly is because of a lack of money and/or lack of preparation.
Keep in mind that the move isn’t just a physical transition; it’s also psychological and emotional, so being prepared is fundamentally important.
The length of time you’ve been in the Superyacht industry will inevitably impact your transition. For example, if you have worked onboard for only 12 months, the process is likely to be quicker and relatively pain-free as you know what to expect.
If on the other hand yachting is the only career you’ve known, and you’ve been doing it for 10+ years, transitioning can be more challenging. This includes finding a job as well as having to incur all the expenses that come with living on land and not at sea.
Regardless of when you’re planning to exit yachting, there are important factors to consider. In this post, we take you through the key steps in planning a smooth transition and cover the following:
- building an emergency fund
- investing in property ahead of your move
- considerations for new business ventures
- how much you will need back onshore
- retirement planning.
Building an emergency fund
An emergency fund is a readily available source of assets to help you navigate financial dilemmas or a change in circumstances, such as losing your job, falling ill or exiting the industry.
First and foremost, having an emergency fund gives you peace of mind knowing you have a large cash cushion to fall back on. This is especially important when you are leaving your onboard role and job-hunting. If your new job doesn’t work out or it takes much longer than you hoped, you will be thankful for having a financial safety net.
How much should I have in my emergency fund?
It really depends on the type of person you are, but our general rule of thumb is:
- When you are employed onboard, have 3–6 months’ worth of salary (on average) in your emergency fund.
- When transitioning ashore, have a minimum of 6 months’ worth of salary to support your job search and setting up your new life.
The exact amount you need will also depend on where you’re moving in the world and what level of financial commitments you have, so also take those factors into account.
In which currency should I save my emergency fund?
Don’t make the rash decision to move all your emergency fund savings into the currency you will be using when you are back onshore. Foreign exchange services can advise on the best time to transfer your money as opposed to moving it between banks. If you are clear about your final onshore location you can move the fund over to that currency when rates are favourable or do this on a regular basis using a service like Revoult.
If you are using your Standard Bank account for your emergency fund, it won’t be earning much interest. After all, it’s not a savings or investment account.
Therefore, if you have surplus cash in your emergency fund, which is stagnating at 0%, you may wish to do something with it to earn more interest.
For example, if you have €20,000 in a Standard Bank account with a 0% return, you risk up to a €600 reduction in the value of your money per year (based on the current rate of inflation in Europe).
If you move that €20,000 into a savings account with a 1.5% interest, you could be rewarded with €300 interest per year. The amount of interest you will be able to earn from a savings account will depend on availability based on your nationality and tax status.
However, keep in mind that you will need liquidity to help your transition. That is immediate access to cash to pay upfront for day-to-day expenses and make withdrawals.
Investing in property
Investing in property is a broad subject but property purchases fall into two main categories: buying for personal use and buying as an investment.
Buying property for personal use
This is more common amongst crew moving onshore who need somewhere to live. You just need to be aware of the hidden costs.
Let’s take the following example: you purchase a property for €100,000 and, after 30 years, it’s worth €300,000. You may not necessarily live in it for the next 30 years, but the timeframe is representative of the duration of your loan.
On the surface, €200,000 profit looks good. But let’s look more closely at the figures:
- Your original mortgage = €100,000
- Mortgage interest you’ve paid at 5% over 30 years = €92,422.95
- 30 years of tax and insurance at €2000 a year = €60,000
- Maintenance, repairs and upgrades average roughly 1% of the purchase price per year (€1,000 per year for 30 years) = €30,000
- Total investment = €282,422.95
- Profit = €17,577.05
When you take inflation into account, which has been 1%–2% over recent years, you start to see very little profit from your investment.
The upside, however, is that you have somewhere to live, you’ve saved by not having to pay rent to someone else and, once your mortgage is fully repaid, you now have an asset.
Buying property as an investment
Using the same example as above, let’s look at the figures for renting based on paying a deposit of €20,000 with plans to finance the remaining cost over 30 years.
The money you receive from renting the property pays for the mortgage repayments as well as annual taxes, insurance, repairs and upgrades.
To protect your investment over the term, you increase rents annually in line with inflation and tax increases. After 30 years, your property is worth €300,000. In this instance, that represents an annual return of 9.4% on your original €20,000 deposit.
Let’s assume you always have tenants and because your tenants pay you more each month than it costs to own the home, your income versus expenditure nets you a modest income of around €150 a month, providing you with an additional €54,000.
Considerations for new business ventures
An increasing number of Superyacht crew are interested in starting a business once back onshore. As with any new endeavour, there are key considerations to keep in mind:
- Cash flow management – most start-ups fail for many reasons, principally a lack of cash flow. Therefore, you need to know where your money will ultimately go. To have good cash flow, you will need to have saved a lot of money while you’ve been working onboard because your business will need significant cash flow until your business turns a profit.
- Tracking and monitoring all your spending – if you’ve been in yachting for some time, you haven’t had expenses thrown at you from all directions. This happens, however, when you run a business. You need to track and manage all your expenses, right from the start, especially if you are starting a business on your own and don’t have an accountant or bookkeeper to help you.
- Limit your fixed expenses – it’s very easy when you start a business to buy a lot of new things. It’s exciting to consider a brand-new office or the latest technological gadgets. However, don’t get carried away. Instead, funnel those costs into acquiring clients.
- Prepare for the worst – even if you’re an optimist, you need to be realistic and preparation is key. If you can, consider staying in your current job until you can prove that your new business venture will replace your current salary. Having an additional income when starting a business will provide an extra layer of security. If you can’t do that, save as much as possible and have separate cash reserves for the business and for your personal commitments.
- Time is money – this may sound cheesy and obvious, but every minute of your time has a monetary value. When you leave the organisational structure of life onboard it can be difficult to manage your own time. Schedule it effectively.
- Pay yourself – this doesn’t mean you need to pay yourself handsomely from the start, but of course, pay yourself enough to cover your living costs. If you’re able to eliminate personal financial stress, you can stay focused on driving your business forward.
- Set financial goals – rather than saying you’d like to build a multi-million-dollar company right from the start, break your goals down into annual, quarterly, monthly, weekly and even daily goals. Just ensure they are specific and measurable. The more often you can achieve small, regular goals, the more you will feel confident to continue down your path and ultimately meet your larger goals.
How much will you need to move back onshore?
This is always difficult to answer because everyone is different. How much you need for your life after yachting depends on your circumstances – your age, where you’re moving to, your financial commitments and whether or not you have dependents.
However, one thing for sure is that your cost of living will increase. You will need to pay for housing, whether it’s a mortgage or rent, and for things like food, taxes and health care.
It is going to be important to list out all the expenses you anticipate with your onshore move. Don’t forget to include insurances and healthcare provision as this can be sizeable depending on where you move to. Given that yachting is such a close-knit community it is also worth reaching out to those who have made the move to the same location to get an idea of the average costs of property or rent.
Planning for retirement
We know from speaking with crew that many of you are not going to receive a large pension when you leave yachting.
This anecdotal evidence is backed up by findings from our Superyacht Crew Financial Wellbeing Survey, in which only 6% of respondents receive employer contributions to their personal pensions.
We also know that, depending on your nationality, you may not contribute to a state pension. As a result, saving for your retirement is solely in your hands. The sooner you can start contributing to a retirement plan, the better it will be for you in the long term.
Regardless of your age and the stage of your yachting career, these tips apply to you:
- The best time to start is now! There will always be a reason not to save. We often hear ‘I will save for a house first, then start saving for retirement’ or ‘I’ll do my courses first, then save’, or even ‘I’ll wait until I move to the next boat before thinking about saving for retirement’. Drop the excuses and start saving now.
- Saving something is better than saving nothing. Start with a small amount, build your savings habits and then increase the amount you can save.
- Depending on your nationality, you may be able to make tax-efficient contributions to state pension schemes. Alternatively, use an onshore pension with personally invested schemes.
- Diversify your savings and investments for your sense of security.
- A larger retirement fund gives you more choice in the future!
We always say the stronger start you have in yachting, the more likely you are to have a strong departure from the industry.
That is why we work specifically with Superyacht crew to help them build a strong financial foundation from shore to ship and back again.