The end of a season means crew may finally get a well-deserved break. It’s also a chance to figure out what to do with your hard-earned cash tips you’ve received during the season. Those crew on charter yachts will often get tips in cash, whereas those working on private yachts may simply have it transferred to their bank accounts. Cash tips provide some issues outright as crew need to determine what to do with it.
Some crew may say you should simply take your tips and not declare them because that’s how it’s always been done. But with modern Common Reporting Standards and the Fair and Accurate Credit Transactions Act (FACTA), there is a very little chance of truly being a “non-resident” somewhere, says Peter Brooke, a financial adviser with the Spectrum IFA Group. If you are a resident somewhere, then you must report all income and wealth — including tips — to that jurisdiction, and probably pay tax on it.
While some crew will keep the cash and spend it throughout the season, saving or investing your tips allows you to enjoy some financial freedom in the long run, says Oliver Maher, director at United Advisers Marine. Plus, the risk of carrying large sums of cash is high because only a certain percentage would be covered by insurance if lost or stolen, and it will lose value over the season, approximately two percent depending on the inflation rate. Keeping the cash on hand can also lead to increased spending and loss due to currency exchange.
Transferring your tips via Western Union, or similar companies, allows some peace of mind as it eliminates the need to carry a large amount of cash, but it requires being on shore to transfer and carries a fee. It may also be possible to get a banker’s draft from another bank for a cost and send it to your bank through the mail.
Traveling home with cash (if flying, be sure to review the airlines maximum cash carry-on amount) and depositing it in an account there is an option, but keep in mind that most countries will ask you to declare cash over certain amounts as you enter the country. If it’s a significant amount, doing this could cause problems just entering the country, Brooke notes. Plus, due to strict anti-money laundering legislation, the investment or saving of cash is difficult to administrate. “You have to prove where you got the cash from, but many banks are now reluctant to accept a large deposit in this manner,” Brooke says. However, keeping it in a standard bank account also generates zero interest.
The first step is deciding the level of risk that you’re comfortable with and considering what is important to you when it comes to your money. You could reward yourself after a hard season — Maher recommends spending some of your earnings on an item you’ve wanted. As for the rest, research the returns you’d get if you invested the money as opposed to spending it as cash during the next season. The 80/20 rule, or Pareto Principle, is good to follow in most cases — if you saved 80 percent and enjoyed 20, you should be satisfied both in the present and in the future.
When investing or regularly saving, management fees may be involved so be sure to understand them. If you don’t, make sure to question your adviser. Things to look out for include exchange rates, transfer fees, and investment charges. “However, it is likely that you will not miss fifty percent of your tips, but you will appreciate the growth if you decide to move back on shore and buy a house, for example,” Maher says. As difficult as it is to put cash into a bank account nowadays, investing it is even harder, Brooke maintains. So investing from your bank account is the easier way.
But if your goal is to live in the present and travel as much as possible while you can, then you will want to spend a higher percentage of your income. However, it’s always better to save a little — even it’s just 10 percent — than not at all.
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