Personal Finance In Japan

Contents
So You Want To Be Financially Secure? ............................................................................................. 3

Understand Your Financial Situation .................................................................................................. 4

Live Within Your Means .......................................................................................................................... 5

Pay Off Debt .............................................................................................................................................. 6

Save Emergency Fund ............................................................................................................................. 7

Pay Your Pension ..................................................................................................................................... 8

Get The Right Insurance ......................................................................................................................... 9

Invest For The Future............................................................................................................................. 10

Choose The Right Accounts .................................................................................................................. 11

Stay The Course ...................................................................................................................................... 12

Plan For The Future ................................................................................................................................ 13

Finally ........................................................................................................................................................ 14

2
 Personal Finance In Japan

So you want to be financially secure?

Y
ou may be like me. I came to Japan in July 2000 to work for a couple of years.
Almost two decades later, I am still here. Along the way I have had a number
of jobs, gotten married, raised a family, and learned a lot about personal
finance.
Becoming even slightly better at managing your money will make your life better.
Acquiring basic competence is like having a superpower. If you work through the
steps in this guide I guarantee your life will be ten times easier than it is now, because
having your finances under control means you can put your time and energy into the
important things in life.
I started RetireJapan because I wanted to help people gain the same benefits I was
seeing in my life. Running the site has accelerated my own learning, and drawn a
community of people who share their experiences and help each other. I’m very
proud to be a part of it. I hope you will join us.
If you have any questions about the content of this guide, please come to the
RetireJapan site and ask. We’ll do our best to help you out.

3
 Personal Finance In Japan

Understand your financial situation

The first thing you should do is to make sure you understand your current financial
situation. How much do you earn? How much do you spend? What do you spend it
on? How much debt do you have? How much do you have in savings and
investments? This seems kind of obvious, but a lot of people can’t answer these
questions off the top of their head.
At this stage, get some paper or a spreadsheet, and list up the following information:
If you can do that off the top of your head, go straight to the next section. If not, take
as long as you need to work it out. Don’t worry about calculating everything down to
the last yen, a rough idea is fine too (to the nearest 10,000 yen or so).
Monthly/yearly earnings
Monthly/yearly spending
Total debts
Total assets

Looking at those numbers, how do you feel? Are you satisfied with where you are?
Any room for improvement?
I find most people could do with earning a bit more, spending a lot less, drastically
reducing their debt, and increasing their assets.
Work your way through the remaining nine sections, and not only will you have an
idea of how to do so in Japan, but you’ll also learn how to increase your (and your
family’s) financial security and resilience.

4
 Personal Finance In Japan

Live within your means

This is a timeless principle. Dickens may have put it best in David Copperfield:

"Annual income twenty pounds, annual expenditure nineteen [pounds]

nineteen [shillings] and six [pence], result happiness. Annual income twenty
pounds, annual expenditure twenty pounds ought and six, result misery.

There is also a great Steve Martin sketch on Youtube on this topic (Don’t Buy Stuff
You Can’t Afford).
Anyway, you get the idea.
The larger the gap between your income and your expenditure, the better (or worse)
your life will be. There are two ways to do this.
The first is to try to spend as little as possible, regardless of the consequences. This
will reduce your quality of life considerably. You will end up with more money but
less happiness.
The second is to spend as effectively as possible, spending money on things that
make you happy or improve your life and not spending money on things that don’t.
You will end up with more money and the same amount (or more) happiness.
I recommend the second method.

5
 Personal Finance In Japan

Pay off debt

This one is very simple. Pretty much all debt is negative, and should be eliminated as
quickly as possible. Some debt may be necessary in the short term, like a mortgage
or student loans, but even those debts should be paid off as soon as possible.
If you are in debt, particularly if you have high-interest debt like credit cards,
consumer loans, or car loans, you should consider prioritising paying the debt over
discretionary spending.
What that means in practice is that if you are in debt, you should pay off the debt
instead of going out to eat at a restaurant. You should pay off the debt instead of
buying a new computer. You should pay off the debt instead of going on a holiday to
Thailand.
This may seem extreme until you realise that debt is strangling your future.
You will be surprised at just how quickly you can get rid of your debt once you realise
it is an emergency.
Once you have dug yourself out from under your debt, it is time to put that discipline
and extra money to work for yourself.

6
 Personal Finance In Japan

Save emergency fund

Once you have your spending under control and have reduced or eliminated your
debt, you can start building a strong financial foundation.
Before you even think about investing, it is important that you have a suitable
emergency fund. An emergency fund is money set aside for emergencies. It should
be easily accessible and adequate to help you deal with problems.
How much emergency fund you need is going to depend on your specific situation.
The general rule of thumb seems to be 3-6 months’ worth of living expenses. Your
living expenses are how much money you need to survive. They include things like
rent, food, insurance, loan payments. They do not include discretionary spending like
going out, buying clothes, etc.
If you have a stable job or your partner also works in an unrelated field you may not
need as large an emergency fund.
If you are a freelancer or self-employed, if you have children or other dependents, if
you have family overseas that you might have to visit in an emergency you might
need a larger emergency fund.
At the end of the day you need to have enough cash on hand to be able to pay for
foreseeable emergencies.

7
 Personal Finance In Japan

Pay your pension

Hopefully you are already paying into the Japanese national pension (kosei nenkin or
kokumin nenkin). Under new rules you will now become eligible to receive a pension
in old age (vest) after you have paid in for 120 months. You can see your progress and
projected payouts on the pension report (年金定期便) that is sent out by post around
your birthday. You can also check it online by making an account at Nenkin Net
(confusingly, nenkin.go.jp).
If you are not paying into the Japanese national pension, you should be aware that it
is a legal requirement for residents of Japan, and the government is going after non-
payers. It’s also a terrible idea not to have a pension, so if there is any chance of you
staying in Japan for the long term it is in your best interests to get your eligibility.
You may also have a private pension through your company (a DB or DC pension), or
a pension or pensions abroad (UK citizens can sometimes pay into the UK state
pension on a voluntary basis, something that is currently an excellent deal -for more
information search on the RetireJapan blog).
National pensions are valuable because they are a form of income that is guaranteed
by the government, that you will receive for the rest of your life. You can then build
on them through investing to create a better standard of living for yourself in
retirement, but the pensions will provide a foundation.

8
 Personal Finance In Japan

Get the right insurance

Japan has a problem with insurance. It is everywhere. People around you probably
sell it as a part-time job. Others will buy too much of it. People in Japan use insurance
not just as insurance, but to invest and save for the future. Often this is not in their best
interest.
It is important to understand what insurance is for. Insurance should protect you from
catastrophic damage, from things that you would not otherwise be able to survive.
For example, if you drive, it probably makes sense to have unlimited third party
coverage for injuries, death, and damage. The worst case scenario if you have a crash
that hurts others could be tens of millions of yen. Compared that that, your monthly
premiums are a reasonable hedge.
On the other hand, insuring your new TV might not make as much sense. If you choose
not to spend the money on insurance and in the unlikely event that your TV is
damaged, you could choose not to watch TV for a while or pay to replace it. Losing
your TV is not a catastrophic result like crashing into a minivan full of pensioners could
be.
I would also recommend you not mix insurance with investment products. In Japan it
is common for people to try to sell you life insurance including an investment
element. This is usually much worse value than buying cheap, simple, term life
insurance and investing the difference.

9
 Personal Finance In Japan

Invest for the future

Once you have paid off your debts, started paying into a pension, and saved up an
emergency fund, you can start doing the real work of improving your financial
situation.
Investing is using money to make more money. There are many ways to do it, but the
easiest for the amateur investor is probably to invest in the stock market using index
funds.
By investing in huge numbers of companies all over the world you can reduce the risk
of one company doing badly. By investing for the long term you can reduce the risk
of temporary stock market falls or crashes. And by paying in money regularly you can
take advantage of dollar cost averaging, which can increase your returns over time.
This is easy to do in Japan, unless you are a US citizen. If you are a US citizen the best
option might be to invest in the US using existing accounts or open a new account
with Interactive Brokers. Search the RetireJapan blog for more information.

10
 Personal Finance In Japan

Choose the right accounts

In Japan there are a number of options for people who want to start investing. You
can use your local bank, a full-service broker, or an online broker.
For pretty much everyone, the online brokers (Rakuten, Monex, SBI, and others) are
by far the best option. Online brokers have lower fees, a wider selection of products,
and don’t call you up to try and sell you things.
Once you have chosen a broker, you will have a choice of accounts. Here are some
of the more useful ones:
iDeCo is a tax-advantaged retirement account similar to a US 401k. Using one can
reduce your income taxes and allow you to invest tax-free. Your money is tied up until
you reach the age of sixty.
NISA is a tax-advantaged account similar to a UK ISA. Using one allows you to invest
without paying capital gains or dividend taxes. You can access your money at any
time.
Tax-reporting accounts (with end of year forms) calculate and pay your taxes for you.
For most investors they are a great option to minimize paperwork related to your
investments.
For more information on these accounts, check out the RetireJapan site.

11
 Personal Finance In Japan

Stay the course

Doing the right thing financially can be pretty boring. Once all your accounts are set
up, all that is left is to pay into them every month and carry out your plan.
There is very little excitment, no buying and selling, no sudden riches, and no
adrenaline.
Month after month you carry on with your life and your accounts get healthier and
healthier. At some point in the future you will look at your account balance and be
surprised at how healthy it looks.
Successful investing is about as interesting as watching paint dry.
The good news is that this will leave you lots of time to get on with enjoying your life.

12
 Personal Finance In Japan

Plan for the future

Once you are doing okay financially you might want to think about what would
happen in the event of your death. I know it seems kind of morbid, but a little bit of
preparation will make things much easier for the people around you.
This is particularly important if you have dependants.
At the very minimum you should prepare a ‘death file’ with all your financial
information (where you have accounts and how much is in them), your wishes
regarding funeral/burial arrangements, and a simple will.
If you are non-Japanese, your estate will be handled according to the law of your
‘home country’, not that of Japan. That makes it especially important that you make
your wishes clear as to what you want to happen after your death.

13
 Personal Finance In Japan

Finally
RetireJapan exists mainly to help people learn about personal finance and improve
their lives. It is a community and I’m really proud of how everyone is so positive and
supportive.
If you need more help, you can go to the RetireJapan site, read through the blog, get
some of the suggested reading books, ask questions in the forum, buy a RetireJapan
Guide, book a coaching session, and hopefully make your life better.
Good luck and I look forward to hearing from you in the forum, blog comments, or
even by email at info@retirejapan.info

14