Managing your finances while living abroad can be challenging. Overseas workers often find their personal wealth suspended across borders, with bank accounts in different countries and income in different currencies. Taxes, transaction fees, currency conversions, and restrictions around opening a bank account are common headaches an overseas worker will likely encounter. As a result, expats working overseas need slightly different money management strategies than the average employee.
Living and working abroad can lead to better opportunities, more income, and the chance to experience new culture. Navigating wealth management comes with a whole new set of considerations. Here are some ways workers living overseas can manage and protect their money for better long-term financial health.
Open a local bank account
A local bank account can help you save money on extensive ATM fees. It’s also a good thing to have for making deposits each time you get paid. When you use a foreign card at an ATM, you’ll not only be charged by your bank but also by the local bank. That can add up quickly: some ATMs charge up to $10 each time you make a withdrawal. A local bank account is a good way to take some of the stress out of managing your cash flow while also saving on fees.
Pay attention to exchange rates
Exchange rates can impact an overseas worker’s take home salary over time. It can also play a role in how an overseas worker budgets for living expenses.
There are two key ways in which a currency exchange rate impacts an overseas worker’s salary. The first way applies more to the employer: it’s how the exchange rate affects the final cost to the employer for an overseas assignment. The second way is the amount of money an overseas worker receives relative to their home currency and the location where they’re spending on living expenses.
When an employee is earning an income in one currency, especially over a long-term assignment, the currency conversion can actually mean they’re earning significantly less (or more!) than they would back home. For example, an American working in South Africa earning and will face currency fluctuations when the rand value decreases or the dollar gets stronger. This means they will not have the same financial security than if they were making USD. To mitigate this risk, negotiate your salary such that the employer takes on the financial burden of changes in exchange rate (up or down), or set your salary based on your home currency.
Find a way to transfer money with low international fees
Whether you’re transferring money to family, trying to allocate funds to multiple bank accounts, paying overseas bills, or simply sending money occasionally, international fees can take a good chunk out of your income. Get the mid-market exchange rate – the midpoint between the buy and sell prices of two currencies – when you send money abroad. Avoid hidden fees, such as the exchange rate fee, that many banks add to an international transaction. And, most importantly, protect your money and accounts by only working with compliant, safe transaction providers. There are international regulations and standards against money laundering that your bank or transfer agent should adhere to each time you need to make a transaction.
Keep your credit score high
Often, moving to a foreign country means losing your credit history. Credit histories are not portable across countries: each time a worker relocates, they will have to re-establish a credit track record. This can have a long term impact on your ability to get a mortgage, a car loan, and even get a cell phone plan.
Establishing a credit score requires historical debt repayment information. As a result, make sure to keep open a credit card from your home country and use it a few times each year. By simply ordering a few things from Amazon or another online retailer, and then paying your bills on time, you can manage to keep your credit strong while working overseas.
Budget for taxes
Taxes get even more complicated as soon as you begin working abroad. Depending on the country and the type of visa you have, you may be responsible for taxes at home and in your working country. The US is one such country where citizens are responsible for filing and paying income tax, even when they live outside the borders. For UK residents, if your business or property is situated in the UK, you will still be responsible for some UK taxes. It’s also important to know what local tax regulations require: in Argentina, for example, joint filing income tax is not an option.
You may be eligible to apply for a foreign tax credit, which can reduce your double-taxation requirements. Check if you qualify for a tax credit before you leave your home country. It also might be worthwhile to work with a local CPA or accountant to make sure you’re filing your overseas tax return accurately and taking full advantage of possible credits and deductions to save money.
Don’t forget to plan for retirement
Between managing living expenses, sending money home, and paying your taxes, the last thing many overseas workers think about is managing their retirement fund. This can be a big mistake down the road.
Before you leave to work abroad, make sure you’re aware of how your time overseas will impact your eligibility for retirement plans both in your host country and home country. “If employment status doesn’t allow for either, it’s sometimes possible to take advantage of tax-deferred retirement opportunities without the employer,” advises one expert. If you’re unsure where you will eventually retire, at the very least, start building an emergency or rainy day fund. This fund can grow over time and eventually become your retirement nest egg. Ask a financial advisor in your home country if there are alternate retirement funds available to overseas workers. For example, British expats could consider a QROPS scheme.