Have you ever heard of anyone outside of the yachting industry being able to save more than 80% of their salary? It’s practically impossible unless you’ve managed to somehow wangle free accommodation and live like an eternal hermit. But for anyone with a normal life and regular costs it simply isn’t possible.
Let’s put this into perspective. Take Joe Bloggs, he earns the average UK salary of £27,000.
If we work off the best case scenario that Joe is younger than 65, not married and pays no pension deductions, childcare vouchers or student loan repayments then he would net a grand total of £21,527 for the year based on the 2016/17 rates. This equates to £1,793 for the month.
Now let's do a quick rundown of Joe’s monthly costs; we'll assume Joe works in London due to it having the greatest availability of work.
Rent: £700 (all bills included)
The average rent for a one bed ﬂat in London is now an eye-watering £1250. So the ﬁgure above assumes Joe is renting a bedroom in a house, this cost is still very generous.
The latest government stats suggest that the average weekly shop for a single person living in the UK is between £40 - £90. Yes, it could be said that if you lived off rice and beans you could make this signiﬁcantly less, but we’ll assume Joe isn’t interested in dying from malnutrition.
This is for zones 1-4 on the tube. Yet again this ﬁgure is still generous as it assumes that Joe paid for the annual pass in advance to avoid the higher monthly costs.
Phone contract: £27
This average cost was from a study of 25,000 people in 2014, it could be argued that the ﬁgure would be much higher now.
Tallying up these costs alone brings us to £1,120, leaving Joe with £673 per month. Now we’ve assumed a lot of best case scenarios for Joe here and haven’t taken into account any drinking, eating out or miscellaneous costs. Therefore it’s safe to assume that by the end of the month Joe would be lucky to have saved a penny, considering a basic night out or meal in London would cost an absolute minimum of £50. This scenario is seen across the UK, if an average person puts away £5,000 or more a year they are doing well.
Now compare this with an entry level position onboard a superyacht. A deckhand or stewardess could expect to earn around €2,400 a month. With today’s exchange rate this works out to be roughly £2,122 or £25,464 a year. If you’re wise you’ll also pay no tax but we’ll come onto that later.
Now let’s go through the costs of living onboard a superyacht. You can start by discarding every cost above besides the phone contract. So we’re already up £1093 a month when compared with Joe. The main costs you need to account for when living on a superyacht are drinking and eating out, that’s pretty much it, you even get your toiletries paid for. Other costs include the likes of trips away and activities on days off, we didn’t even mention these costs in Joe’s ﬁgures but it’s fair to assume he would also do these things.
Essentially, whether you are aware of it or not, despite earning less than the average UK salary at an entry level position you have an amazing ﬁnancial opportunity. Putting away between €1,800-2,000 a month should be no issue. If you are lucky enough to be on a charter yacht you can live off your tips and save your entire wage.
But despite this opportunity the amount of people that squander it is unbelievable. It’s not unheard of to see people leave the industry after five years without a bean to their name, don't get me wrong it’s difﬁcult, but possible. You’re in the presence of people who can afford to spend your yearly wage on lunch, don’t pretend you can do the same.
One of the main issues with yachties is they often become very complacent with cash, it’s easy come easy go. This scenario is worsened when people have gone straight into the yachting industry from school – money management doesn’t even enter into the equation. The funny thing is effective money management could mean you’ll retire 10 years earlier! Why don’t we go through a few key points that could put you in a much better ﬁnancial position:
Have a budget
Your costs are so limited in the yachting industry that many can afford to go without a budget, but it’s your ﬁrst line of defence against depleting your entire wage and one that is extremely easy to set up. Most people who live and work in the UK can’t afford to live month to month unless they stick to a budget.
With you having close to no costs, a yachtie's budget could be something as simple as putting 50% of your wage straight into a savings account. Set it and forget it, consider your wage £1061 a month. If you wanted to get more detailed you could just allocate a limit to each cost you believe you have. For example: £150 for drinking, £100 for eating out, £200 for trips and £100 for miscellaneous items.
Get your foreign exchange sorted
The amount of people that still transfer their euros/dollars into their UK account through their bank amazes me. You should avoid transferring your money through your bank at all costs, there are some European banks that are fair with their FX rates, but generally you can almost guarantee that your bank is adding a markup to their rates that you often don’t even see.
Hopefully you are aware of the likes of Transferwise, an innovative ﬁntech company based out of London, who are aiming to take over the FX world with their system. In short, you only ever receive the mid-market rate from Transferwise, the one you see on google. This means that they can be up to eight times cheaper than your bank. This can be the difference between an entire month’s salary over the course of the year, this is a huge money saver and one that you should deﬁnitely take advantage of.
It’s also worth mentioning Revolut, if you’ve already got an offshore account setup then you may well be happy sending your money there every month. If not, you should 100% look at Revolut’s offering. You can setup multi currency accounts in minutes, they offer great exchange rates and a very intuitive app and platform.
Avoid the taxman
Everyone knows that working offshore can mean you’ll avoid tax, what most people don’t realise is that doing a tax return is the safest and most effective way to do this. You may well have heard of seafarers earning deduction (SED), if not it’s something you need to take advantage of, it just so happens I’ve wrote an article on what it is and the criteria you need to meet to here. Essentially, if you meet the criteria for SED you can avoid paying any tax on your income while being fully compliant with HMRC.
HMRC have stepped up their efforts to track exactly what we’re doing with our cash offshore, from January last year HMRC got access to new ﬁnancial information from more than 100 jurisdictions. Overseas ﬁnancial institutions will now be obligated to provide details about overseas accounts, structures, trusts and investments. You are taking an unnecessary risk from not declaring your income to HMRC, especially considering you can avoid paying any tax through SED. Having a footprint with HMRC also makes your life inﬁnitely easier if you do plan on buying property in the UK, or taking advantage of any form of credit for that matter.
So what should you do with all this money you’re saving?
Please note that I’m not a financial advisor and by no means I am telling you where to put your money, but if you’ve taken anything from this article you’ve probably realised I’m out to save you money, not lose it. So if you're an avid gambler I can safely say you won't be finding any poker tips below.
As of 2017, the average interest rate in a UK savings account is a pitiful 1%. Inflation has averaged 5.4% from 1950 to 2016, and as of January 2018 inflation is currently sat at 3% This means your savings are losing value every minute they are sat in that account. There is absolutely no reward without some form of risk, so yes if you’re extremely risk averse and would prefer to see inflation eat up your savings then by all means stop reading here, but for most, I believe they’d rather see their money grow. So what are the few ways this can be done?
One year in the yachting industry could be all that is needed to afford a down payment on a house, this fact is absolutely ridiculous and one that should not be squandered. Property is no doubt one of the safer investment vehicles, despite 2008 leaving a nasty taste in most peoples mouths. With having such disposable income and hopefully a good ‘budget’, meeting monthly repayments should be no issue. There are a thousand and one options when it comes to property but unless you have time in the UK then property development is more than likely out of the picture. However, building a buy-to-let portfolio is an option.
The more money you can save, the more down payments you can afford; the tighter your budget, the more repayments you can make. This all leads to a larger portfolio and guess what, a lovely passive income when it finally comes to leaving the yachting industry. Hopefully, you are now starting to see why saving can make a huge difference to your financial future.
If you look at the stock market since 1900 you’ll soon begin to realise that market crashes are an absolute unavoidable fact, they’re going to happen. For some reason people think that 2008 was an anomaly, far from it, it was more than likely just the first crash that happened in your lifetime, or should I say the first one that had a notable impact on your life.
However, what you can’t let 2008 do is discourage you from the opportunity the market presents. The safest way to invest is for long-term growth. I’m not going to go into different asset classes and what I believe to be the best index funds for long-term growth, as that is a whole different conversation altogether. However, what I am going to show you is the effect compound interest can have on your savings.
The S&P 500 is one of the most well known indexes and commonly used as the benchmark for the stock market. Whenever you hear an investor saying they beat the market they are generally referring to the S&P 500. If we take the S&P as an example, the average annualised returns over the past 90 years have been 9.8%.
Based on this if we take a conservative estimate that you could potentially earn 5% from your portfolio on an annual basis over a 40 year period, this is how your returns could look if you reinvested profits. This is also starting with zero initial investment. The graph shows a basic comparison of saving with no investment plan (put into savings account returning a generous 1.5%) and saving with an investment plan returning a conservative 5% annually.
Row 1 - Saved £350 a month, put into savings account returning 1.5% annually.
Row 2 - Saved £700 a month, put into savings account returning 1.5% annually.
Row 3 - Saved £350 a month and earned 5% annually.
Row 4 - Saved £700 a month and earned 5% annually.
As you can see due to compound interest the difference can be huge. I put a 40 year time frame on this but if you went for 50 or 60 years, the increase is parabolic. If you don’t believe me take a look at the wealth graph of someone like Warren Buffett, the biggest advocate of compound interest there is.
To sum up, hopefully this article has given you an insight into how much potential you have in the yachting industry. Just be conscious of what you are doing with your money. If you want to make a career out of this industry you need to realise there is no pension waiting for once you’ve served your time, you have to secure a nest egg yourself. Make sure you always seek professional advice before making any investment decisions.
About the Author:
After he left the yachting industry, Marcus paired up with his Co-founder Bradley to found Flovio. They have used their backgrounds in tech and customer service to build a simple and secure platform that enables members to process their tax returns in record time, while also gaining access to a range of financial services required by yacht crew.
Photo credits: Foreign currency, epSos.de, Wikimedia Commons; Wall Street, Wikimedia Commons, Alex Proimos, CC 2.0.