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Financial Planning for Expatriates
Pre-Departure Financial Planning: Your Contingency Account
The following might seem fairly obvious to most expats-to-be, but can also easily slip your mind when preparing for your big step abroad. In any case, no matter how well your expat assignment is going to be remunerated, your financial planning should begin with putting some money aside for a rainy day – every seasoned expat will tell you that no matter where you are, chances are there will be a number of those. The very reason that makes expat life so appealing can also be a big drawback: no amount of planning, financial or otherwise, will fully prepare you for all that might await you in your host country.
The list of scenarios you might find yourself in as an expatriate where you could need quick access to some extra financial flexibility is endless – just consider having to pay for flights back home in case a loved one falls sick. Whether you should be surprised by substantial bills (e.g. for medical expenses or flights) or damage and loss of property, or you should need to leave your host country behind on short notice (e.g. in case of natural disasters or political upheaval) having some fallback money always pays off. Ideally, the sum should be enough to cover your daily expenses and to get by on for several months.
Careful Planning is Key
While it is to be hoped that you won’t have to access your last line of financial defense during your time abroad, make sure it is easily and quickly available to you just in case. Consider opening a savings account with a bank that offers online and phone access. Preferably, look for large banks, as they might have experience helping expats with their financial planning, offer better and quicker service (e.g. for cross-border wires), and sometimes also better conversion rates. Cautious types might want to give a trusted family member or friend authority over their contingency account. If everything else fails, the most sensible means of financial planning is making sure to have enough cash in the local currency to be able to get by in case you do not have phone or internet service and banks are closed. Relying on your trusted “plastic money” may work out in developed countries, but not just anywhere on the globe.
There are a number of additional things to keep in mind when taking care of your fallback money:
- Even with large banks, the branches in your home country might be autonomous – get informed about all possible fees beforehand to avoid unwelcome surprises.
- Fees and unfavorable exchange rates can quickly add up – try not to move money to and from your contingency account too frequently.
- Your contingency account is not a substitute for your regular account in your home country, which should serve different financial purposes. Neither should you use the money for any kind of investment.
Our article on international banking offers an overview of all related topics and is recommended reading before you decide on where to keep your fallback money.
Your Nest Egg
While it is of course impossible to make all-encompassing statements about how well-off the expat community as a whole is – after all, there are myriad ways and reasons for expatriation – the “classical” expat has a job that allows for long-term financial planning, savings, and investment. A number of expats that have been sent abroad on an assignment for their company receive generous remuneration packages. It is not unheard of that regular financial burdens, for example for accommodation or international health insurance, are covered in entirety by an employer.
With that said, every expat looking to build a nest egg, no matter their particular situation, should try to keep in mind that the nomad lifestyle might render the management of savings and investments less straightforward than back home. There are a number of things to consider:
- After my initial assignment, am I going back home, staying in my host country, or moving on to another country?
- When and where am I going to need access to my savings, and why?
- What currency will my savings be in? How much will I stand to lose through conversion?
- Are there taxes to be paid?
Let us work our way through this list from the bottom up. While none of these considerations are exactly easy, taxation regulations in particular might turn out to be a blind spot in your financial planning. Our article on expat taxation will brief you on this issue, which probably has one of the biggest impacts on financial planning for expatriates. The third point on the list is one of the more pervasive headaches when it comes to expat finance management – our guide on currency exchange is a good starting point if you are looking for an overview of this topic.
What Will Your Future Bring?
The top two bullet points are, of course, closely related. If you are going to be an expat for a predetermined stretch of time and are certain you will return to your home country once your assignment comes to an end, your decision on where to save will largely be influenced by basic financial considerations. Where you stand to lose the least amount of money on fees and exchange rates and whether or not you will face larger expenses (e.g. for your children’s education) in the immediate future are two points that should come up during planning.
If your host country has enchanted you enough to make you want to remain an expat for a longer period of time, maybe even for the rest of your life, your decision will be straightforward. However, if there is no saying where the next few years of your life will take you, you should look into international savings plans, a type of offshore investment solution. This might also be a good idea when planning for retirement.