Tuesday, May 6, 2008

The cost of earning a living in London

Today we met with a few US expats who are currently working in London. Robert works at JPMorgan in the credit risk department where he is responsible for making trades to hedge certain risks that the JPM assumes on behalf of its corporate clients. The other expat, Simon, works at a US-based hedge fund called Davidson Kempner Partners, where he is responsible for managing a portfolio of assets using an investment strategy called “event arbitrage”.

Instead of writing about the investment strategies and career perspectives of these two individuals, I thought (since we will be learning this at Columbia anyway) it would be more interesting to discuss the true cost of working in London. In an earlier blog, we discussed the cost of visiting London, but that was just the beginning. If you plan to actually work in London, you’ll need an apartment (or flat) which is likely to run you between £300-400 per week (translation: $2,500 - 3,400 per month). Most expats receive some type of housing subsidy, which helps reduce the cost, but that’s still just one side of the equation.

You’ll also want to consider that your salary and/or bonus might be in USD (and much of the time it is). This will subject you to additional foreign exchange risk, which for the last several years anyway, has only shrunk the paychecks for most US expats. And if you’re expecting the company to feel sorry for you, and give you a step up in pay, do bet on it. That said, if you are into betting, you can hedge your forex risk by selling USD early in the year, and buying it back when you get your bonus. Assuming you then get the bonus you were expecting, you will have offset the exchange risk you experienced between those two periods of time.

Another major consideration is tax. If you’re a US citizen, you are required to pay US taxes—regardless of where in the world you earn your money. This means that you’ll have to pay tax not only to Uncle Sam, but also to the Queen of England (can we call her Aunt Lizzy?).

I’m sure we’ll have more ideas on this topic once we get to Dubai.

For more information about the CBS Pre-MBA World Tour, visit www.cbsworldtour.com.

1 comment:

de and kat said...

John, I've enjoyed reading your posts. Please, keep writing. I especially like to hear about your impressions of the city.