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Money & Capital vs Income for your New Life in France
If you’re planning a new life in France, you’re sure to have done lots of research and will be facing many decisions, but one really important aspect of this adventure is often ignored until it’s too late. That aspect is how long you can, should and expect to live off your capital? This is not a problem that most of come across very often in our lives, because we have a tendency to work for a living, use the income from that work to live; and have our capital either squirrelled away for a rainy day or locked up in bricks and mortar in the shape of our houses. However, when people make the decision to move to France, they often decide to sell up everything, put the money in the bank and head off on their adventure.
This is all perfectly sensible and can be a great way of starting your new life, but you do need to be well prepared to make sure your finances stay in good shape over the years to come. Just to be clear, when we talk about capital, we mean a pot of cash or accessible savings that you can dip into when and if you need to. When we talk about income, we’re referring to both earned (eg. from a job/a business or some other paid activity) and unearned (eg. pension, rental income, interest or dividends).
It is not uncommon for people, when they sell up everything in the UK to start their new life to have a very large pot of capital. In many instances, it’s the first time in their lives that they’ve had such a large pot of ‘cash’ (or other accessible savings) within their reach. It’s a natural response for these people to feel quite ‘rich’ at this point in their move and this is not only understandable, it’s completely normal. The good news is that in most instances it’s not at this point where things might go wrong. Normally it’s further down the road. Why do things go wrong? Because the unfortunate thing about pots of capital is that they don’t last forever any more.
To illustrate this point, think back just over 20 years ago (if you’re old enough). At that point in time, savings interest rates were in double figures, which meant that if you had a good sized pot of cash it generated a good income for you. What’s more, life in France was pre-euro and pretty cheap compared to the UK. How things have changed! Now, in 2014 we celebrate if we can get more than 2% interest on our savings; France is part of the euro and inflation has caused prices to rise significantly over the past 10 years or so.
In a nutshell, 20 years ago you could pick up a cheap house for renovation in France, hold on to the majority of your capital and live off the interest, maybe only dipping into your capital ‘pot’ for emergencies. Agreed, this strategy was still quite brave back in the 1990’s but today can be simply prove to be madness.
So what’s the solution? The solution is simple in theory and often not so simple in practice. What you need to do is establish how you are going to make income in your new life in France, well before you run out of capital. It may well be that you plan to invest in a property with a view to converting part of it into a gite or bed and breakfast; you may be one of the lucky people and be able to retain your salaried position and work from a distance; or you might be planning to set up a business.
Either way, you need to be realistic and if at all possible, pessimistic about how long you can really afford to live off your capital and at what point you need to start earning income. What’s more, you also need to be realistic about how much income you’ll need to survive and how achievable that may be. This is tough if it is the first time in your life that you have been 100% responsible for finding a way of making income and making it work.
While this is important for retired people, it’s often less essential because it’s possible that their pensions may well be sufficient to cater for their needs. However it is essential for young families venturing out on a new life in France.
For these people it is of paramount importance to make sure they don’t spend too long relying on capital to fund their day-to-day life. Our advice for such people would be to have a clear and realistic business idea, know how you’re going to make it work and be knowledgeable about the taxes and general charges associated with running any business in France before you start dipping into your pot of capital, you don't want to be running out of euros. If you’re thinking of making the move across the channel, why not get in touch?