Are you in your 20s or 30s and wondering how to build wealth while working in France ? We recognize that during these formative years, your priorities often revolve around securing a stable job (getting that CDI!), or embarking on that dream trip you’ve always wanted but couldn’t afford, plus navigating the exciting yet daunting world of adulthood. Amidst these pursuits, managing your personal finances can feel confusing and overwhelming—so where do you even begin?
Based from our experience, and now that we are in our 40’s, we want to share some ideas we wish we had when we first started our careers in France. Of course, you are not meant to follow exactly our ideas as we all have different context, ambitions, risk tolerance, but our insights aim to help you make informed financial decisions and set a solid foundation for your future. Let’s start…
Table of Contents
First things first!
The first step in building a solid financial foundation is to prioritize paying back your debts. Start by tackling any high-interest debt you may have, such as a car loan. Paying off these debts should be your first order of business, as the interest on these loans can quickly accumulate and hinder your financial progress.
Once you’ve addressed your high-interest debt, focus on creating an emergency fund. This fund will serve as a safety net for unexpected expenses, providing you with peace of mind and financial stability. Avoid the temptation to jump straight into more volatile investments like cryptocurrency without first securing your financial base to build longtime wealth.
Master your budget
Implementing effective budget management rules is crucial for maintaining control over your finances. Start by creating specific “buckets” (or dedicated savings accounts) for special expenses, such as travel, taxes, or car replacements. This method allows you to allocate funds for these anticipated costs, ensuring that you’re prepared when they arise.
Additionally, keep a close eye on your discretionary expenses—those non-essential purchases that can add up quickly. By being mindful of your spending habits, you can free up more resources for savings and investments. See our tip below.
Mastering your budget is essential to enhance your saving rate, which is fundamental to build wealth as a young adult living in France. As a general point of reference, you should be saving at least 20% of your income. Reducing costs and increasing your net income would be the ideal combination.
Keep an eye on your living cost inflation. As humans, we tend to spend more as long as our income increases. Some may be thinking that it is the ‘life I deserve’ after so much hard work. This is a common pitfall to avoid.
Finally, consider automating your investments as well; by paying yourself first and setting up automatic transfers to your savings or investment accounts, you can make saving a seamless part of your financial routine and you will not be tempted to spend your money in emotional expenses.
myFrenchMoney tip: Stop tracking expenses in excel!
Are you one of those having trouble to keep your discretionary expenses under control and you do not want to spend your life registering a 4€ ice cream in an excel file? Create a dedicated current account for your discretionary expenses (we use online bank Revolut). You just need to deposit at the beginning of the month the total amount you plan to spend. By using this method, you can simplify your financial management while still enjoying the little pleasures in life. It allows you to set boundaries on your spending without the need for constant record-keeping. Plus, with the convenience of online banking, you can easily track your balance on your mobile and see how much you have left to spend throughout the month. This approach not only helps you maintain control over your finances but also gives you the freedom to indulge in your discretionary spending without the burden of detailed tracking.
Buy or rent?
When it comes to housing, you may find yourself weighing the pros and cons of buying a home versus renting. While purchasing a home can be a significant investment and sign of social success, it’s essential to evaluate your financial situation and long-term goals.
Investing in a home can provide stability and potential appreciation, but it also comes with responsibilities and unexpected costs that renting does not. If you’re considering investing in real estate in France, think about whether you want to buy a home for yourself or invest in rental properties. Each option has its advantages and challenges, so choose the path that aligns best with your financial strategy and lifestyle.
myFrenchMoney tip: Investing in real estate
If you're considering purchasing your own home, it's important to avoid maxing out your credit limit—ideally, you should aim to keep your mortgage payments to about one-third of your income. While it's natural to want a comfortable and beautiful home, remember that it won't generate any income for you. To maintain financial flexibility, ensure you leave some borrowing capacity available for future investments, such as rental properties. If you choose to invest in rental properties, the same principle applies: start small! Consider beginning with a parking space or a studio apartment. These options can serve as a manageable entry point into real estate investing, allowing you to familiarize yourself with the process while minimizing risk. By taking these steps, you can build a solid foundation for your investment portfolio without overextending yourself financially.
Start simple in the stock market
As you start to explore the stock market, keep it simple. Many young people find themselves overwhelmed by the complexities of investing in the stock market (how to do it, what to buy, …) becoming a barrier for them to start. Instead, you may consider investing in exchange-traded funds (ETFs)*, which offer a low-cost diversification, simplicity and most of the time, etc. Of course, if you are a finance geek like us, then you may go for stock picking.
ETFs can be a great way to start building your investment portfolio without the stress of choosing individual stocks. Remember, investing is a long-term game, so focus on gradual growth rather than quick wins.
Some others, with a more dynamic profile, will try to speculate in the stock market (buying a trendy value, trying to predict low/high…). It has been proven that most of individual investors will lost money following this strategy. So try not be one of them please.
*Remember this is NOT a financial advice. Investing in the stock market (including ETF) carry multiple risks and it may not be fit for you.
myFrenchMoney tip: Open a PEA
Open a PEA (Plan d'Epargne Actions) if you are planning to invest in the stock market while being a french resident. Read our blog dedicated for this tax-efficient wrapper.
Even if you are not planning to start investing important amounts, it is important to open an account ASAP (with 50€) to start the 5 years block period.
Talk about money with your partner
Lastly, when it comes to your personal life, be mindful of the financial implications of your relationships. Choosing a partner with a compatible financial vision is crucial, as differing views on money can lead to significant challenges down the road. Divorce and financial disagreements can be costly, both emotionally and financially. By ensuring that you and your partner share similar financial goals and values, you can build a stronger foundation for your future together.
Agree on things like low/mid/long term financial objectives, budget management, proportional split of expenses, saving buckets, How do you imagine having an abundant life together? What amount of money will you need to make it happen?
By following these guidelines, young foreigners living in France can take charge of their personal finances, paving the way for a secure and prosperous future. Remember, financial management is a journey, and starting with these foundational steps can lead to greater confidence and success in your financial endeavors.
Conclusion and final thoughts
Looking backwards, If we could start anew, we would:
1) Leverage the ‘Livret A‘ as our ‘Emergency fund’ envelop. Liquid, simple, protected, tax free, and nice interest rate.
2) Open a tax-efficient PEA account and regularly invest in an MSCI World ETF. It has steadily increased 521% since 2009! (not a financial advice). Let compounding interest do its magic, and wait.
3) Establish an ‘Assurance Vie‘ wrapper to include SCPI assets and diversify our portfolio by adding commercial real estate (without the hassle), while securing our kid heritage.
4) Get full match from our company’s savings plan PEE, while paying less income tax.
5) Finally, if we want to add some little spice and hussle: Invest in a small studio in the suburbs of Paris for rental purposes (furnished under the LMNP scheme), to secure our retirement without an important monthly saving effort, tax efficient and increasing our wealth with the bank’s money (leverage effect).
We have several regrets regarding some of our investment choices, but our biggest regret is not having educated ourselves about personal finance earlier in our professional lives. This is the main reason why we have created this blog and published our guidebook. We want to help others securing their future financial health by efficiently building wealth overtime.
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Please remember that we are not financial advisors. We are just sharing our best understanding based in our own experience. This blog is for educational purposes only. Do not make investment decisions solely based on what you read in this blog. What works for us, may not for you. Do your own research and look for professional service if required. Read our full disclaimer in the ‘about’ page.s
