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What Currency Should OFWs Save In

Mar 19, 2024
personal finance OFWs Filipino Philippines overseas investments financial advisor

Today, there are a lot of opportunities that are opening up to make a healthy income. And as we grab these opportunities, Filipinos find themselves earning not just in Philippine pesos but also in various currencies across the globe.

Imagine a couple living in the UAE, where the wife is earning dirhams (AED) through her corporate work while the partner is earning US dollars (USD) through his work online. Then, they are sending money to their loved ones back in the Philippines.

We live in a very interconnected economy and this prompts many OFWs to wonder and ask: “What currency should I save in?”

And in our latest article, we’ll be exploring two practical guidelines to address this common question. So, let’s start!

#1: Save in the currency that you’ll probably spend in.

Start by defining the future purpose of your savings. To do this, ask yourself the simple question of what the money's for.

Is it for the kids’ tuition or for your emergency funds? Is it for travel? Or are you saving up to buy a house? Or do you want to prepare for your retirement? Whichever it is will determine what currency you should save in.

For example, you’re earning Singapore dollars (SGD) and the rest of your family in the Philippines is spending Philippine pesos (PHP). If the emergency fund you’re planning to save for is for yourself, then save in SGD. But if it’s for your loved ones in the Philippines, then save in PHP. This also applies if you’re saving up for a trip to the Philippines or if you’ve been wanting to provide your family with their own house. Choose the currency in which you’ll be spending it.

On the other hand, I know that there are situations where you don’t know yet where you’ll be spending the money. Let’s say you’re not yet sure if you’ll go back to the Philippines and retire there. Or maybe, for your kids’ college, you want them to have the freedom to choose where they’ll take it once they’re all grown up. So since you’re unsure about these, what you can do is ask yourself, “Where would it be if I had to decide now?” Whatever the answer is, then save in that currency for the meantime.

Now, when it comes to this, one common concern I usually encounter is about the exchange rates. And what we should keep in mind is that there will always be a currency risk. This is because exchange rates are unpredictable due to the global economy, as no single government controls them. For instance, what happens in Taiwan can affect the US dollar to Philippine peso conversion rate. As currencies are connected to each other, no one can predict whether exchange rates will go up or down. And to negate this, let’s now go to our second guideline.

#2 Offset currency risk by diversifying over time.

Here's how it works: Every month, you’ll send a fixed amount, regardless of the exchange rate. Any savings or additional expenses you get due to rate changes should be set aside as a buffer.

For instance, if you’ll send PHP 37,000 on a monthly basis and the conversion rate is exactly PHP 54 to 1 USD, then you need to send 685 USD. If next month the rate rises to PHP 56, then you’ll only have to send 661 USD, which means you saved 24 USD. This saving is what will help you offset the changes in the exchange rates, so don’t spend it.

Let’s say in the third month, the rate dropped to PHP 53 for 1 USD. Then you’ll need 698 USD to send PHP 37,000, which is 13 USD more than the budget of 685 USD. This is where you’ll use your savings of 24 USD.

To illustrate,

  • 1st month:
    • If PHP 54 = 1 USD, then PHP 37,000 = 685 USD.
  • 2nd month:
    • If PHP 56 = 1 USD, then PHP 37,000 = 661 USD.
    • 685 USD - 661 USD = 24 USD less than the initial amount.
  • 3rd month:
    • If PHP 53 = 1 USD, then PHP 37,000 = 698 USD.
    • 698 USD - 685 USD = 13 USD more than the initial amount.

So over time, when done over several months or years, this will help offset currency risks, regardless of rate fluctuations.

And these are our 2 guidelines when it comes to saving in different currencies, which are (1) save in the currency that you’ll probably spend in, and (2) offset currency risk by diversifying over time.

But let me just clarify that there’s an exemption. These are only applicable to average OFWs who regularly send and save money every month as part of their routines. But if you’re dealing with larger amounts that range from hundreds of thousands to millions of pesos, then here’s what you have to remember.

A Reminder for High Net Worth OFWs

It’s time to think like an investor. It’s not just following these 2 guidelines anymore. It’s now more important to follow the opportunities that are aligned with your long term investment objectives.

Let’s say you’re living in the US, but you know more about investing in the Philippine stock market. Now while it's 'easier' to invest in the Philippines because of familiarity, studying the wider global market investments can prove to be fruitful over the long term. This way you have more investment options instead of limiting yourself only to what's familiar.

With this said, I hope these guidelines will help you navigate the differences in currencies, whether you’re saving for your family's future, your retirement, or your own financial security.

And if you want to speed up your familiarity with the global markets and quickly find out where to invest, I do offer financial consultations calls here.

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