Author Topic: Reader Case Study: Argentinean case, what would you do?  (Read 3528 times)

arielj

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Reader Case Study: Argentinean case, what would you do?
« on: December 15, 2014, 08:05:01 AM »
Hi Mr.Money Mustache and fellows mustachians,  greetings from Argentina !

My name is Ariel, Iīm 32 years old and, as most of your, Iīm also part of the IT world.
Iīm about to get my batchelor in few months (March estimated). Yeah, I know what you may be thinking... but university works different down here.
Most people work and study at the same time (9am to 6pm at the office, 7pm to 11pm at the university), meaning that a getting your batchelor takes you, on average, about 8-10 years.
Still, Iīm above the average since Iīve been at university for about 11 years so far. But thatīs because thereīs been few years were I could not take any course.
Regarding life... I live alone (renting a 1 bedroom appartemt) and I have a girlfriend (whoīs have two children aged 2 and 4 yrs).
Weīre planning to move in together next year, arround July, but in another two-bedroom appartement.

I had a terrible finance education from my parents. Thay are not doing well, and they never did.
Both of them need to rent (theyīre divorced) and each one has some amount of debt.
The philosophy at home was like most americans do (as you describe in your blog)... they always spend more than they earn and always having credit card debt.
I grew up with that in mind, and most part of my life I was not able to save, because I spent all I earned.


Luckly, few years ago I realized that that was a dead end, and that Iīll never be free going that way.
So I start saving and trying to control my expenses.
It wasn't (is not) easy, but I think I made great progress so far.
But, of course, thereīs still much to do and change.


These are my actual expenses/income:


Monthly expenses (in Argenteenean pesos):

Rent3300
Property Expenses540
City Tax100
Electricity20
Gas *20
Subtotal
3980

Supermarket (food, cleaning, etc)1700
Day-by-day cash ** 720
Subtotal
2420

Internet200
Vida Silvestre *** 70
Cell phone plan 115
University ****  1100
Gym   500
Subtotal
1985

Speartime with kids/girlfriend500
                             

TOTAL EXPENSES  8885


Total monthly income after tax: 15300 argenteenean pesos
So Iīm able to save $6415


 * Not car gasoline, but gas for cooker/oven
 ** This would be public transportation if needed and day-by-day needed money, like if I need to buy some stuff like lunch*1 or whatever needed.
     *1 I usually prepare lunch at home and take to the office, but few days Im not able to do that
 *** Local Nature-care ONG I support
**** University: montlhy expense. Itīs not a loan, you donīt pay interest on that. I just what you pay each month (like a gym o cell phone plan).



The Argenteenean situation:


Thereīs a particular situation in here.... and most of the time (the past 50 years) it was this way.
We earn in pesos, our currency... but... properties are valuated in US Dollars.
And here comes the next issue... oficial current exchange is 1 dollar = 8,5 pesos... BUT... thereīs also a parallel exchange rate, thatīs is arround 1 dollar = 13 pesos.

Due to Goverment restricctions, youīre only allow to exchange some estipulated amount of dollars per month. In my case itīs about 450u$s per moth, but in a exchange rate
of 10,2. Thatīs comes from the oficial exchange rate of 8,5, plus 20% retentions the goverment puts over that.
So, every month, Iīm able to buy 450 US Dollars for about  $4600 pesos (450 x 8,5 x 1,2 = $4590 pesos)

So... hereīs the thing... as I said, properties are valuated in US Dollars. For example, a 1 bedroom appartment is valuated arround 80.000u$s, and two bedroom appartment
is around 100.000u$s. Two bedroom houses and above, start at 120.000u$s

My girlfriend and I are targeting to buy a two bedroom appartment (1 bedroom to us, 1 bedroom for the kids), that would be arround 100.000u$s.

The other difficult issue here in Argentina, is that getting a mortage is pretty difficult.
Mortages cover (if youīre lucky) 75% of the total property value.
So, if you want to buy a 100.000u$s property, that means you have to have in cash, at least 25.000u$s.
And thatīs the best scenario, most mortages only cover 50% of the property total value.

So... you have it pretty difficult to get your own house, cause you need to exchange pesos to dollars, and also, you need to have like 40% of the property value in cash.

And finally... the other difficult thing... inflation.
"Oficial" infliation (what the goverment says) is around 20% annual... BUT... itīs not true.
They (Goberment) sistematicaly tweak statisticts (yeah, oficial statisticts) to match that rate... but the truth is that annual inflation if around 35%-40%.
So if you go to the supermarket every month, things that cost for example $10 pesos, next month would be at least $10,3 and so on, every month.
The sadly truth also, is that  prices increeses not only by 30 cents, but most likely they raise the price to $10,5.
So... nobody really knows the "real" inflation... but on average... is arround 35% annualy.

The problem is that you donīt get salary raise according to the inflation. Maybe you get a 25% annual raise, but... still, thatīs under the real inflation.


Anyway... still, I manage to save about 40% of my salary, and tryig to but as many dollars as I can.
The problem is, Im not investing, theyīre just little workers on permanent vacation.
Althought... if you bought for example 100u$s in Juanuary, market value at that time was about 1 dollar = $10,5 pesos.
Now its about 1 dollar = 13,5 pesos... so... you are kinda investing, or at least, being ahead of inflation.


Up to now, with the $6415 pesos Iīm able to save each month, Iīm buying the 450u$s the goverment allows me each month at $10,2 exchange rate and with the rest
of the money Iīm not sure if should buy at the parallel exchange rate  or try to put that money in some kind of mutual fund... the thing is that
those mutual funds or bonds only gives you around 25% return... so youīll be loosing money over time because of the 35% inflation rate.


What would you do in my case?
Target: get at least 30.000u$s for being able to qualify for mortage and eventually... being mortage-free and financial independent in the shortest time possible.
Situation: So far, we got savings for 7500u$s


Two good things... I march im finishing university... that would mean around 13% salary increese and also means that I will stop spending $1000 monthly to pay for it.
That would mean that I would be able to save about $9400 pesos per month (instead of the actual $6415).


I forgot to say that I also bike every day to work.
Public transport is also available and cheap... but still... i rather use the bike and spend zero.



Thanks and keep the blog/forum going, itīs really usefull !


Ariel

Zummbot

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #1 on: December 15, 2014, 02:38:34 PM »
Ariel,

You're in a unique situation that many of us here on this board are unprepared to deal with as we are unfamiliar with the situation/laws/customs of Argentina. With that said, your primary goal should be to do everything in your power to escape the inflation of the argentine peso, because it's impossible to save under such conditions. That means finding a way to either exchange more of your pesos into other currencies, or earning a salary in a different currency altogether.

First, with an IT background you may be able to find a work visa in another country. Have you considered emigrating? This may not be possible with your girlfriend and 2 children, but I think you should consider it. This way you will be able to earn your salary and save in a foreign currency that does not have such crushing inflation. Not only would you escape the inflation of the peso, but the inflation of the peso actually increases your buying power in Argentina over time (since your new currency would not lose value as fast as the peso).

If emigrating is not an option, perhaps there are employment opportunities with foreign companies that do business in Argentina? You may be able to work out a situation where you are paid in a different currency this way. Especially with a background in IT, I imagine there would be some open doors for you here.

Also, what are the options for converting your pesos into currencies other than the USD? You've already mentioned that you're converting as many pesos to dollars as the government will allow per month. That is good, continue to do so. If possible you should be converting as many pesos to other currencies with low inflation rates as possible. Euro's, Pounds, etc. Just getting your little employees into the donut lounge would be a huge improvement from your current situation.

I'm sorry I'm unable to offer more advice. Perhaps there are other mustachians who have more knowledge of the Argentinian situation that could lend a hand.







mozar

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #2 on: December 15, 2014, 07:02:35 PM »
Make sure your money is really safe. Argentina has the highest robbery rate in the world, due to the fact that so many people are holding cash. Can you use a safety deposit box at the bank?
Housing seems like a pretty good place to put money.

arielj

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #3 on: December 16, 2014, 06:06:48 AM »
Thanks you guys for both replys.

First,let me answer to Zummbot.
Going to another country, as you said, is not an option, cause I wont be able to go with my girlfriend and kids... an I rather stay with them :D

The thing with foreign companies working here, is that they are forced to pay in pesos, and also... which company would like to pay in dollars if they have the chance to pay in much
more cheap pesos ?  thatīs why they come to outsource here, because itīs cheaper for them.
Although... I might be able to get some freelance work from some websites around the web, and (luckly) since I have a US bank account, I would be able to ask them to make the deposit there. Due to goberment regulations, you cant receive foreign money or in case you do, you have to pay a fee and also, theyīll pay you at the oficial exchange rate... so youīll be loosing money.
About converting to other currencies... itīs the same. The restriction applies to every currency.


I search for a way to invest in mutual funds in the US, but since I donīt have Social Security Number, they told me that Iīm not able to use their services (like Vanguard).
Do you know if thereīs any way for foreing people without SSN to invest in the US ?


Regarding to what mozar said... thatīs true... Most people donīt trust bank because in 2001 they stole all deposit from their clients.
That is... before 2001 we got 1 to 1 parity to dollar. 1 dollar = 1 peso (yeah, I know... that was totally crazy and irreal)... but the thing is... back to that time... everybody who put dollars
in their bank, after the 2001 financial crash they devaluated... so if you had deposit dollars... they would return to you... PESOS !!! and at a lower exchange rate.
That was a f. steal... really sad and made lot of people to go bank rupt.
So... you know... since then... nobody really trust banks, and nobody would deposit dollars at the bank.
Thatīs why itīs difficult (beside inflation) to put your savings to work.


Thank you so much guys for your replies !





Zamboni

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #4 on: December 16, 2014, 06:51:09 AM »
Wow, this is really interesting.  I am learning quite a bit from reading your posts. 

It sounds like putting your money in a bank account is very risky there, which is too bad.  But, a safe deposit box is not an account.  It is literally a metal box that is locked with a private key that is then also locked in a special room of such numbered boxes inside the bank's safe.  Many people use them for important papers and in your case you could put cash in the box.  Usually there is a fee for having such a box which depends upon how big it is.  My fee was $50/year for a box about the size of an older laptop carrying bag with a shoulder strap.  Do you have that available there?

Also, does your girlfriend exchange her maximum monthly allowed amount into dollars?  What about children: are they allow to make monetary exchanges?  How are these exchanges tracked?

I know these are simple minded question, so please forgive my ignorance.  I wish I could tell you about investing from Argentina with Vanguard or some other service.  I do have a friend from Argentina who lives in the US now; I will ask him next time I see him to see if he knows anything about this.

Zummbot

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #5 on: December 16, 2014, 07:30:46 AM »
Wow, I did not realize that happened in 2001. That is a horrible, toxic environment where you cannot trust government or financial institutions. I'm unable to offer further advice, but if I were in your situation I'd marry the girlfriend and do everything in my power to get a work visa in another country. Then they can go with you. From what you've described I can't imagine it's possible to effectively build savings in Argentina.

Thanks you guys for both replys.

First,let me answer to Zummbot.
Going to another country, as you said, is not an option, cause I wont be able to go with my girlfriend and kids... an I rather stay with them :D

The thing with foreign companies working here, is that they are forced to pay in pesos, and also... which company would like to pay in dollars if they have the chance to pay in much
more cheap pesos ?  thatīs why they come to outsource here, because itīs cheaper for them.
Although... I might be able to get some freelance work from some websites around the web, and (luckly) since I have a US bank account, I would be able to ask them to make the deposit there. Due to goberment regulations, you cant receive foreign money or in case you do, you have to pay a fee and also, theyīll pay you at the oficial exchange rate... so youīll be loosing money.
About converting to other currencies... itīs the same. The restriction applies to every currency.


I search for a way to invest in mutual funds in the US, but since I donīt have Social Security Number, they told me that Iīm not able to use their services (like Vanguard).
Do you know if thereīs any way for foreing people without SSN to invest in the US ?


Regarding to what mozar said... thatīs true... Most people donīt trust bank because in 2001 they stole all deposit from their clients.
That is... before 2001 we got 1 to 1 parity to dollar. 1 dollar = 1 peso (yeah, I know... that was totally crazy and irreal)... but the thing is... back to that time... everybody who put dollars
in their bank, after the 2001 financial crash they devaluated... so if you had deposit dollars... they would return to you... PESOS !!! and at a lower exchange rate.
That was a f. steal... really sad and made lot of people to go bank rupt.
So... you know... since then... nobody really trust banks, and nobody would deposit dollars at the bank.
Thatīs why itīs difficult (beside inflation) to put your savings to work.


Thank you so much guys for your replies !

Gimesalot

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #6 on: December 16, 2014, 07:31:37 AM »
I can totally understand your situation as most of my extended family, lives in CF or provincia.  Right now, I suggest that you try to exchange as much money as possible.  In addition to the government limit, I suggest you find a place that will exchange without your DNI (national identity document).  I have found that most jewelery stores will trade at close to the blue rate without documents.  This will at least help protect you from inflation.

Second, you said you have a US bank account.  You need to figure out if there is any way to deposit your american dollars there.  Do you have a trusted friend that goes back and forth that you can ask?  Remember, you can always get your dollars out by going to Montevideo and using the ATM, then exchanging at the same jewelery shop for pesos.  As another option, I have heard of "services" that will get money out of the country, no questions asked.  It will show up in a bank account in Euros or Dollars bypassing official rules.

As I am sure you know, all of the suggestions above are illegal.  Please keep that in mind if you choose to do any of the above.

Lastly, the only reason my family is doing okay, is because they work a lot and some are very educated.  I know it takes a long time, my aunt's masters degree took 15 years.  Learn or improve your English, get part time work.  Get your girlfriend to work.  Try to work and learn as much as possible, because the government can and will change.  The economy will collapse again, they can and will take your money, but they can't take your education. 

Edit:  I understand why you don't want to leave.  My husband and I are planning on moving to BA in a few years.  We think about it everyday.  It really is a special beautiful place once you get past all of the crap!
« Last Edit: December 16, 2014, 08:16:40 AM by Gimesalot »

arielj

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #7 on: December 16, 2014, 11:44:01 AM »
Thanks again guys for the replies.


Zamboni... yes, safe boxes in the bank are available. But of course, it wont get me any interest by placing the money there. Iīm trying to figure out how to save money and also
make it work, but taking in consideration the inflation rate.


So far... I think the best solution is to:

1) Exchange as many dollars as Iīm allowed every month
2) Invest the rest of the montlhy savings (in pesos) in some kind of fund. I found that there are some funds (in pesos) that this year they got a ROI of 40%+ ... that seems a lot, but considering an inflation rate around 35%... itīs not, but I least it still be over inflation and Iīll be preserving money value.


The negative side of that is that it would take long time to achieve the FI goal... so... i need to figure out some other ways.


Gimesalot, yes... those suggestions are illigal... so... I rather wait more time to be FI than taking the risk of doing something outside the law.
Both my girlfriend and I have jobs, and in particular, my job is a good one cause I donīt have to pay taxes as private companies emploees do and also itīs a 6 hours-day job, but with
the same salary as a 8 hours-day job. So thatīs seems to be ok so far.

My girlfriend works from home while also taking care of the kids.
Going to work to some office would mean a higher salary, but... then we'll have to pay some other person to take care of the kids, so it would be kinda the same. And we preffer that
she would be able to stay at home and take care of the kids.

We canīt move to some other country, the kids stay some days with us, and some days with their father.
We canīt just go to another country or even another city.



Thanks !



Macohughes

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #8 on: February 05, 2020, 04:11:04 AM »
Hi Ariel! I’m from Argentina also and can totally relate to what you are explaining. Back in 2014 I was also in IT university and didn’t even think about saving any money. I think very few people consider saving money in our country, so that’s very advanced of you.
I’m really interested in hearing how things have gone since then. Have you been able to save & invest? Where you able to buy the apartment?

Good luck!
« Last Edit: February 05, 2020, 04:13:10 AM by Macohughes »

elysianfields

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #9 on: February 05, 2020, 07:52:10 AM »
@Macohughes , looking at @arielj 's profile, he hasn't logged on in about 4 years, so you probably won't get a response, unless my paging him with the @ sign leaves a message in an active email account for him.

I'm in the US Foreign Service and my family and I lived in Bs.As. for two years, loved it!  I hope the economy finally starts heading in the right direction for Argentina, but am admittedly not very optimistic.

Macohughes

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #10 on: February 05, 2020, 03:58:06 PM »
Thanks elysianfields for the tip! I'm a total newbie and I just registered ping ariel and another argentinian mustachian.
@arielj I'm from argentina too! I replied to your message earlier today...

Thanks for the good wishes elysianfields. Who was president when you lived in bs as? things have picked up quite a bit after 2001, but the past couple of years, not so much. looks like another crisis is due any moment now.

arielj

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #11 on: February 06, 2020, 06:19:12 AM »
Hi Ariel! I’m from Argentina also and can totally relate to what you are explaining. Back in 2014 I was also in IT university and didn’t even think about saving any money. I think very few people consider saving money in our country, so that’s very advanced of you.
I’m really interested in hearing how things have gone since then. Have you been able to save & invest? Where you able to buy the apartment?

Good luck!

Hi!
I complety forgot about this post that I have made.

I'm happy to say that I was able to save, invest and take a mortage for buying an apartment.
First, I had to save enoguh money for the downpayment, mortage cover 75% of the cost of the apartment. So I needed to save that 25% in cash.

I was lucky back in 2015 to invest in local stocks, and that year was the best in the past 15 years at least.
I almost doble what I had invested, but still was not able to have the minimun amount needed for the downpaymente.
But, I was lucky to have some friends that lent me some money, and I was able to take the mortage.
I was also lucky, back in 2016 to be able to take a mortage, because that's not always posible in Argentina, because of Goberment politics.
Now in 2020, it`s almost IMPOSIBLE to take a mortage. That's because the hiper high rates and inflation.

I was also able to return that money my friends lent me in 10 months.
So, I do have now a mortage to pay, but the montlhy payment is the same or even lower than a rent. And I`m plannig to pay it in full in about 5 years (mortage is 20 years long).

It's not easy, and it a difficult country to live in, regarding savings and economy... but... you can still do it.




Macohughes

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #12 on: February 06, 2020, 02:22:50 PM »
Nice!!! Awesome man, good for you! Goes to show that in our country hard working people can also get ahead. Well, congratulations.
And are you pursuing FI? What’s your investing strategy here in Argentina?
Are you still working in IT?
I’m on IT too, as a software developer, and have started having some hope since I was able to get into Toptal, but I’m still 5 to 10 years away.

mozar

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Re: Reader Case Study: Argentinean case, what would you do?
« Reply #13 on: February 06, 2020, 06:29:17 PM »
Awesome update!