A List of Financial Terms for Every Expat (Manama)
The more globalized the world has become, the more important it is for expatriates to have a basic understanding of international financial issues. The special considerations expats should take into account can help expatriates avoid scams, lose money, or avoid excessive costs. Regardless of whether you are planning on moving abroad, you will be moving abroad, or even if you are living abroad, you should know certain basic terms and financial options. Making good planning decisions (and not skipping the planning portion) can help you reach your financial goals, as well as, keep you safe while traveling.
Goals: These are pinpointed aspirations which include a number of personal and professional wants and plans. Where and when will you be retiring? What opportunities and values are important for your family? What opportunities are important for your profession and what work accomplishments do you expect to achieve? The answers to these questions are often times some of your goals.
HMRC: Her Majesty’s Revenue and Customs is a department of the United Kingdom Government that is responsible for taxes, monetary forms of state support (such as the allocation of child benefits and the Child Trust Fund), and administration of regulatory business and labor laws.
British Bankers’ Association: The BBA is a large trading association that is representative of a wide range of banking and financial services. The BBA frequently lobbies for its members. Additionally, it offers its analyses of the regulatory and legislative systems for banking in the United Kingdom.
Taxes: It is vital that expats file their taxes correctly. When expatriates don’t file taxes properly, they run the risk of being in trouble with two countries. Taxes for expats vary largely depending on the situation and circumstance of each. Just a few of the things to consider and read up about include: your country of origin, your country of origin’s tax system, your destination or location and residence-plus its tax law, your familial status, and of course, your personal finances.
Tax Traps: These are the sneaky pitfalls that could cost you. If you aren’t careful about your retirement and employment accounts, you could fall prey to a tax trap. Make sure to read the fine print regarding your accounts, and speak to a qualified professional. Tax traps can include things such as penalty breaks, the length of time you have to legally move money in and out of accounts, the types of pensions you have, the names of beneficiaries and contingent beneficiaries, and even the timing of your retirement.
Tax Deductions: These are expenses subtracted or reduced from the gross amount of income you can be taxed on. Double check your status and situation in your current country and home country to make sure you aren’t missing out on additional tax deductions you may qualify for.
Investments: Investing is the process of contributing or supplying money in order to make a profit or see some type of material result. Investments are a beneficial way to solidify your financial stability. The most common types of investments include: stocks, bonds, cash, or other types of securities.
Reserves: This is the amount of money you have saved that could pay for fixed expenses (which includes housing and basic utilities, food, and health care). A general rule of thumb is to make sure you have access to at least six months’ worth for emergencies.
Benefits: These are the opportunities you have from employment benefits and retirement benefits. Make sure to double check what you could be eligible for, as well as, what decisions you have to make during any transitions in employment or location. Also, check and see what country specific benefits you could qualify for.
Interest: This is the additional money paid, often in regards to debt repayment. Interest rates are quite fluid. They change often and differ significantly in each country. Make sure to keep up to date on any interest rate changes in your country.
Local Banking: While it is always important to keep a bank account in your home country (you know, in case you are returning or still have property there), it is just as important to open a bank account where you move abroad. Local banking can make it easier for you to access money. Instead of having to worry about whether or not you have access to an ATM, the worm hole that is never knowing when and where your card will work, or paying the ridiculous foreign fees to use an ATM, jump the bureaucratic hurdles before leave, open an account, and plan ahead.
Offshore Banking: This is the option to open a bank account in an alternative nation, which may or may not have more favorable tax laws. One of the advantages of offshore banking is tax efficiency. Offshore banking can also be a smart way to make sure your money is secure. Often times, offshore banks are located in politically and financially stable countries.
Offshore Pensions: These are other types of investments that can help you make a return. The following are examples of offshore pensions: defined benefit, defined contribution scheme, personal pension, self-invested personal pension, and qualifying recognised overseas pension schemes (or QROPS). More and more expats have been transferring their pensions to qrops in recent years. Check out here and here to learn more about the upcoming changes to defined benefits (which has been noted by HRMC) and the benefits of moving to a qrops.
Cost of Living: The cost of living is the relative rate of the expenses needed to sustain a certain level of living standards. Cost of living includes housing and utilities, food and water, taxes, and healthcare. It is important for expatriates to know how much the cost of living is, wherever they are going. This can help you to better plan financial success in the long term.
Exchange Rate: An exchange rate is the value of one currency in correlation to another. Exchange rates change often. Understanding the differences in price is important to make sure your experience abroad goes smoothly.
Remittance: A remittance is the gifting or transfer of money by a foreign employee to their home country. Often times, remittances are sent through the mail and received by the foreign worker’s family.
This list is nowhere near covering every single financial concept that expatriates should know about. It merely is a general list aimed at getting expatriates looking in the right direction. Living abroad is amazing, but it is important that expats take their finances seriously in order to protect themselves and their lifestyle. For more financial information, let's get in touch.