Relocating Overseas? These 6 Tips Will Help Keep Your Financial Affairs and Goals on Track
With the rise of the international education sector, greater numbers of educators are packing their bags and moving overseas for assignments. While teaching overseas can be fairly lucrative with ancillary benefits such as airfare allowances and housing stipends, poor financial management of affairs back home or a lack of knowledge of host country regulations can set individuals back substantially in their long-term financial planning and management. Over a period of 10 years, I have lived overseas in countries such as Colombia, Guatemala, and Nigeria and have found these simple yet effective strategies helpful in maintaining financial discipline and health.
Find Credit Cards and Bank Accounts with Reduced or No Fees
Although most expat employees will likely be paid some percentage of their salary in local currency, there will likely be times where you’ll need to access some of your money from back home, perhaps for a large purchase, cover local expenses, or while traveling. If your bank or credit card company charges foreign transaction fees, these charges can really add up over time to the point where they become a significant expense. Be prepared for your move overseas by having a few cards that explicitly state that there are no foreign transaction fees so that you don’t find yourself paying exorbitant fees when you’re in a bind for cash.
On the other side of the coin, many international schools pay a percentage of a teacher’s base salary in dollars, normally effectuated in the form a monthly wire transfer. Be sure that before you head overseas that you choose a bank with minimal or no incoming wire transfer fees. If you choose a bank that charges for incoming wires, these fees can range anywhere from 30 to 40 dollars per transaction. Over a two year period, we’re talking about almost $1000 in wire transfer fees that would otherwise be in your pocket.
Monitor the Exchange Rate
When living overseas, I always recommend paying attention to the local exchange rate. By having a general idea of the ebbs and flows of the exchange rate, you’ll be able to understand when to use your American or Euro-based cards to expend locally, or the most opportune times to convert your local currency back into dollars or Euros. Emerging markets such as Turkey, Brazil, Colombia, and Argentina are particularly prone to currency risk, so I always recommend maintaining a minimal amount of local currency and regularly converting any surplus into the currency of your home country. This is where some good financial planning can really be helpful; by making a budget and planning vacations ahead, you can really get a good idea of how much in local currency you will need, and will therefore be able to have confidence in the amount you convert back into dollars or Euros.
Be Aware of Your Tax Situation
As an American citizen, I have to declare and file my yearly tax return even if I live overseas. Additionally, as a resident of a foreign country, I also have to pay and report my taxes as well. Failure to properly report taxes or understand regulations from both your home and foreign country can lead to overpaying of taxes you really don’t need to pay, or worse yet, penalties. If you take the time to understand the rules of each country, or hire an accountant who does, you might be eligible for a number of exceptions and tax breaks. As an example, American citizens who live overseas are exempted from over $100,000 USD in taxes if they meet certain residency requirements, and taxes paid in one country can be used to offset certain tax burdens back home as to not pay double taxes.
Investigate Local Cost of Living
Different countries and cities in the world have very different costs of living. It’s important to conduct your research to understand how much of your salary you’ll need to live in the host country and how much you’ll be able to save. Although each person has different lifestyle choices, you’ll find good information in cost of living calculators that are readily available on the internet. Another good source of information is to ask to be connected to current teachers at the school. They’ll typically be able to give you a good sense of daily life, savings potential, and cost of living factors to consider.
Read Your Contract Carefully
Teachers often get a dose of euphoria when they get a job offer from an international school. The feeling of adventure and excitement about starting at both a new school and country can sometimes detract from the important task of reviewing your contract carefully. Make sure that you read all of the fine print and understand how often you will be paid and in what currency. You should also fully understand what benefits you will receive that may include a housing stipend, airfare allowance, and medical insurance for you and/or your dependents. Small details such as whether you will receive the money from the housing stipend to spend at your discretion, if airfare is purchased directly or reimbursed, and if the medical insurance is valid outside of the host country (and to what degree) are important points that should be clarified prior to accepting a job offer.
Invest in a Retirement Plan Back Home
Einstein once claimed that compound interest is the most powerful force in the universe. Expats who work in their home countries typically have jobs that pay into some kind of social security net or retirement plan, but that is typically not the case when they move abroad. Despite the fact that employment contracts can appear quite lucrative on paper, the fact of the matter is that retirement contributions are usually not part of the package. So, unless you’re planning on living in the same overseas country until retirement, consider making voluntary contributions to a retirement account such as a Roth IRA and get that compound interest working in your favor. You may not see the immediate benefit or be able to use the money for some time, but you’ll be thankful later when you have a nice nest egg waiting for you when you’re ready to come home.
The decision to move abroad can be an exciting venture that opens doors both professionally and personally. However, it’s important to have your finances in order so that you are able to still fulfill your long-term financial commitments and goals while truly immersing yourself and enjoying the experience of living abroad. By following some simple financial discipline and staying informed, you can ensure that you keep your focus on your teaching and getting to know your new community.
This article is available and can be accessed in Spanish here.