Financial planning

Though life in Spain is considerably cheaper than living in many northern European countries, for the Balearic Islands and Mallorca in particular, this isn't necessarily so.


Considered the second most expensive autonomous community in Spain, The Balearic Islands, along with Madrid and the Basque Country, have the highest cost of living in Spain, therefor when coming to Mallorca it's highly recommended that your finances are well planned before you make the move

The financial essentials

Understanding your money management options as an expat living in Mallorca can be challenging. From opening a bank account to estate planning and pensions, it’s important you know which options are right for you to make your money go further.  Below, we have put together a guide for some of the basics.

What should focus on

Below are the key areas of financial planning you should be thinking about, just click on he links for more information

Banks in Spain

Our guide to setting up a bank account in Spain

Whilst having a Spanish bank account is not a legal requirement, it is incredibly useful and cost-effective to have one especially if you are making and receiving payments in Spain, especially if you are from outside of the EU

As in all countries, you will have a variety of local and international banks (bancos) and Cajas (building Societies).  In general, customers will experience little difference between the two with the exception of language, Bankos will generally have better English language support than Cajas

It is always worth doing your research when opening a bank account as the level of international language support, service charges and fees can vary significantly between banks so it's recommended to find one that meets your specific needs.

Banks are usually only open 9am–2pm Monday to Saturday. Many don’t have English-speaking staff; either book an appointment with an English speaker or bring a translator.

To open an account, you will generally require the following:

The list of main banks in Spain

Pensions

Whats needed to open an account in Spain

The current retirement age in Spain is 65, but this is expected to increase to 67 by 2027, to access a full state pension at this age a person is required to have paid 37 years of contributions for a full pension, or make a minimum of 15 years worth of contributions for 50% of the maximum

Spain operates a three-pillar pension system consisting of:

  • The state pension (first pillar) funded through compulsory contributions and available to all residents working in Spain, either employed or self-employed (autonomo) it also covers survivors’ pensions.

  • Company and employee pensions (second pillar) which depend on particular employee contributions

  • Private pensions (third pillar) are available to all but must be set up themselves.  For many ex-pats, this will be the main option.

For EU/EFTA nationals/residents, your state pension contributions in your home country or any EU countries you have worked in can be transferred to contribute to the Spanish state pension, your retirement age would be based on the Spanish system.  More information can be found here

For UK citizens, UK state pensions can be transferred via the Qualifying Recognised Overseas Pension Scheme (QROPS).

IN all cases, we recommend speaking to qualified pensions or financial planning professionals to better understand your requirements, rights and eligibility on state and private pensions as well as pension transfers.

Wills & estate planning

Ensure your final wishes are honored and family/spouse cared for

It is advisable for ex-pats to write and register their wills in Spain to ensure their assets, are disposed of according to their wishes, and in line with their own country’s laws.  If no valid, legal, will is in place, Spanish succession law comes into effect which may cause issues, especially if the deceased marriage or partnership is not registered or recognised in Spain.

The Spanish Inheritance law splits the deceased assets into 4 silos,

  • 50% of total asset value is reserved for the Spouse

  • A third of the remainder is split equally between all children

  • A third of the remainder is split between all children at deceased discretion

  • The final third of the remaining can be utilised as the deceased sees fit (charity, friends etc)

These rules apply to all residents of Spain automatically unless an international or Spanish will stipulates that the laws of the deceased home nationality apply, no aspects of Spanish inheritance law will apply to either Spanish or worldwide assets in that case.

Any beneficiaries of a will are expected to pay inheritance tax in Spain before any assets or money is handed over.  Beneficiaries can decide to reject their inheritance to avoid paying these taxes.

It is recommended to speak to a qualified lawyer to help draft your will and ensure your rights are held.

Savings & Investments

Ensure you are covered for emergencies and are prepared for big expenses in the future

Savings are important but not always easy to achieve, this is especially the case if you are self employed or do not have access to social security protection.  Its generally considered best practice to have at least three to six months worth of living expenses easily accessible in case of emergency but this should be separate to other savings such as for property, children's education, debt repayment of even a holoday.

When makings a savings plan, its always worth thinking fo the below things

  • Record your expenses: This is becoming easier due to online banking, but its critical to understand where your money is going (especially small cash purchases)

  • Set your Budget: Now you know what you are spending your money on, look at setting yourself a realistic budget for both savings and living expenses, aim for between 10-15% of your monthly income is possible.

  • Cut expenses: With your expenditure recorded, look at ways to reduce expenses, from fewer take-aways to changing your banking/utilities or even downsizing your property.  You can also look at ways to gain extra money if the opportunity arises.

  • Set your Savings Goals: The best way to start saving to to set goals for each specific thing you want to save for.  These should be split into long term (like children's education) and short term (emergency fund or holiday) goals.  The savings tools you use for these goals will differ depending on what they are for.  For short term goals, the focus is on secure and accessible savings accounts, you are unlikely to generate interest on your capital, but that is secondary to it being accessible at a moments notice.  Over the long term, the ability to grow your capital investment through interest will is more desireable and the ability to access it quickly becomes less important,  In these cases look at longer term investment vehicles and we recommend speaking to a qualified financial advisor to help you.

  • Prioritize:  Its tempting to do many things at once, but this can either leave you short of cash or demotivate you when you dilute your effort across many goals.  Your first priority should be your 3 month living expenses, after that focus on maximum one or two things at a time based on the importance and the amount you need to save.

Whilst it can be thought to start, once you see your savings growing, you become more motivated to save.  With any financial journey we strongly recommend getting professional advice and support to ensure you are as efficient as possible.

How can we help?

 
 
 
 
Financial Analyst
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At Mallorca Expats, we have vetted a number of financial and legal professionals that can advise, assist and manage both your estate planning and help you develop the best financial strategy to meet both your long and short term needs