Should I convert my overseas savings into Indian Rupees or keep it in the currency that I earn in?
Something that is never an issue while working in India turns into an NRI rupee dilemma once you start working abroad as a professional.
What increases the complexity is that as an NRI professional you earn your salary in a currency that is constantly moving up or down against the Indian rupee on a daily basis.
So whether you are a financial professional or not, making a forecast on the future exchange rate of the Indian Rupee seems to become a part of your personal responsibility.
Should I Convert My Savings into Rupees?
Trying to answer this question in isolation could lead to an incorrect financial decision.
Imagine you are asked the below question:
Is Bangalore better than Jodhpur?
How easy is it to answer this question without knowing the broader context of the question?
You are now provided some additional information. The question is being asked by:
A) A young professional looking for a job in the tech sector.
B) A tourist with a strong interest in the architecture and history of Forts and Palaces.
Does the question suddenly become much easier to answer?
With this additional information you are no longer looking at the Bangalore Jodhpur question in standalone isolation. The context of the question makes it much easier to come up with a more appropriate answer.
Similarly the question about converting savings into rupees also needs to be viewed in the context of your financial wellness objective. Only then will you be able to give a more suitable answer to the question.
As a salaried working NRI, you need to answer this question as a subset of a broader financial plan.
NRI Rupee Dilemma Causes Mixed Feelings
This year has seen a major depreciation of the rupee against major foreign currencies. As an NRI professional this can result in mixed feelings.
On one hand any future remittances you make to India will mean that you will get more rupees for the same foreign currency amount compared to a few months ago.
On the other hand you may feel bad about any previous fixed deposits or investments you made in India. The value of those deposits is suddenly worth much less in foreign currency terms.
(To make things worse it is also likely that by now your better half has already chipped in with an expert comment – Maine to pehle hi kaha tha)
Talk about adding insult to injury!
So you find yourself just sitting there and kicking yourself about the money decision you made.
You are hoping that you don’t have to make this kind of decision ever again.
Here is the thing – There is bad news and some good news.
The bad news is that this is the kind of decision you will continue to face as an NRI on an ongoing basis. Things will keep changing within and outside your personal/professional life.
The good news is that you can do something about it to make better money decisions in the future.
The NRI Professional’s Savings
Any monthly savings you make as an NRI can be broadly be divided into 2 categories: The Committed and Uncommitted Savings.
The Committed Savings
These are the expenses that you need to cover in India on a regular basis.
This would include things like EMI’s for any loans you have taken in India (House/Car) or premiums for any insurance policies.
It would also include the monthly living/medical/education expenses of your parents or relatives back home if those are being covered by you.
These are pretty straight forward decisions – You will need money in rupees to cater for these requirements. So converting your savings into rupees is a foregone conclusion for these kind of financial commitments.
The Uncommitted Savings
This is the tricky part.
These are the things that you are saving for in the future.
This would include money for your children’s education, your own retirement or any other item that you have as your financial goal within your financial plan.
For these uncommitted savings you can apply the 50% rule.
The 50% Rule
The 50% rule says that 50% of your savings should be in the country/currency where you plan to stay for the long term.
The meaning of long term here is the country where you want to eventually live and retire in.
So if you eventually plan to return back to India then 50% of your savings can be moved into rupees.
These savings can be invested into mutual funds, deposits or whatever other investment avenue that you desire. The current exchange rate of the rupee should not matter for this.
The balance 50% of the savings can be kept in a non-home currency.
So if you are planning to eventually return to India then 50% of your savings could remain in a different currency (not rupees).
How This Rule Helps
By splitting your savings into two equal buckets you can (almost) get the best of both worlds no matter how the Indian rupee moves in the future.
India has very promising growth prospect for many years to come but no one can predict the future with 100% accuracy.
If 50% of your savings are in India then you too can take part in the fruits of the economic growth that India is set to experience.
However should things pan out differently you will still be able to reduce your risk by not placing all your eggs in the rupee basket.
Answering the question about converting your savings into rupees becomes much easier once you frame a broader context for it.
By applying the 50% rule you can take the unpredictable nature of currency exchange rate out of your savings decisions.
This NRI rupee dilemma is just one of many money dilemmas that NRI professionals face.
I will write about some other common money dilemmas that NRI’s face (with potential solutions) in future posts.
Dushyant Choudhary is the founder of dushyantnomics, an early retirement blog for professionals. Dushyant retired early from his 9-5 corporate life after a successful international career. He brings his knowledge and experience to his current role where he’s dedicated to helping professionals achieve a fulfilling retirement.