Managing Your Money as an Expat — Three Fundamental Questions You Need to Answer
When living as an expatriate, it is important to not lose sight of your personal finances.
Too many times, I’ve seen fellow expats getting caught up in the excitement of living and working in a foreign country but forgetting some of the more mundane tasks of life.
If you are an expat and you’ve started thinking you need to get a handle on the financial aspects of life, I recommend starting with these three fundamental questions that will form the basis of your money management plan.
Question 1: Where do you come from?
Question 2: Where are you now?
Question 3: Where do you want to end up?
Where do you come from and where are you now?
There are endless answer combinations to the questions “Where do you come from?” and “Where are you now?” Did you come from a developed country or a developing country, an economically strong location, or a location that offered less stellar economic opportunities? Where did you end up? The questions might also be answered according to the nature of available opportunities or your field of expertise. For example, if you want to make it in a highly specialized field you’re more likely to move to a location where specialized companies or opportunities exist such as Silicon Valley if you’re an IT whiz or, if you’re an expert in mining, you might move to a country that has a lot of mines.
In my case, I come from a developing country (South Africa) and have spent my 15 odd years as an expat in both developing (Jamaica, Kenya) and developed (USA, Austria) countries. Financially speaking, my considerations when living and working in developing countries were different than when living and working in developed countries. In the former, I could live more cheaply but access to a stable currency and investment opportunities were less. In the latter, my living expenses were higher but I had access to the world’s stronger currencies and, arguably, more investment and economic opportunities. Also, in my case, South Africa (my origin country) continues to have restrictive exchange controls and, as a result, I have learnt to minimize moving funds between South Africa and wherever I currently live.
As the world becomes more globalized, some of these issues may become less important but you need to always consider your individual constellation and your answer to the question…
Where do you want to end up?
The question of where you plan to end up needs to be considered as well. For some, it is clear that they will one day return or retire to their country of origin but, and here I speak from experience, the longer you live and work abroad, the likelihood of this happening does reduce. Your connection to your country of origin may weaken over time as your ties to that country evolve. You may also develop new connections and ties to other places. As an expat, you may end up marrying someone from the country where you are working or you may meet and marry someone from a third country. As kids come into the picture, it can become quite complicated as your family, your partner’s family, your respective friends, and your kids’ friends are increasingly scattered. Places and countries where you have close emotional ties may be very different from where you lived before or live now. I have found in 15 years of being an expat that my connections to places have weakened relative to my connections to family, loved ones, and close friends.
The answers will change.
The answers to the three questions will change over time, and often quite significantly. As we change, develop and evolve as humans, and as we go through different life stages, it is important to reflect on these questions periodically to not lose sight of our savings, investments, and retirement planning and also to adapt how we manage these things. It would be ideal, in my personal opinion, to keep savings, investments, and retirement planning separate from the where from, where, and where to questions. The former, at best, in a strong, stable currency in a strong economy while the latter remains footloose and fancy-free. This is not always practically or legally possible and figuring out the best solution does depend in part on your answer to the where from, where, and where to questions.
Let me give an example from my case. When living and working in Kenya, I opened a bank account in Kenya but the Kenyan Shilling is quite a volatile currency. I therefore only kept money there for day-to-day expenses but it was important to maintain a bank account and credit card in South Africa which has a relatively more stable currency. The option of keeping a portion of money in a currency like USD or EUR was not available to me initially because European and American banks will ask for residency or tax residency information per KYC rules. I found out that my employer, which was primarily domiciled in the USA, assisted staff to open a bank account at the company’s US Bank and that I could have a portion of my salary paid in USD into that bank account. Many large employers will offer this kind of assistance to their staff and you should ask about this specifically.
Why does location matter?
Location matters because of taxes. When considering where you are from and where you are now, you need to consider your tax obligations in both places. Also, your future tax obligations in the location where you intend to retire. In my understanding, there are two main scenarios: The first scenario is that your tax obligation is established based on where you are now. Many countries have tax treaties with each other and, as long as you properly notify tax authorities along the way, you pay taxes based on where you earn your money. The second scenario is countries that have special rules. The most common example is the US which requires its citizens to file tax returns in the US regardless of whether they also have to file tax returns in the country where they are working. You must get specialist advice tailored to your individual situation on this topic. As the world population becomes ever more mobile and earning money becomes less location-dependent, tax laws are constantly evolving as governments want to ensure that they are collecting the taxes that they are due.
Location matters because of retirement. It is incredibly important for expatriates to take charge of their retirement planning. To best illustrate why I say this, I will use the example of Austria where I currently live. If I had been born in Austria, lived my whole life here, I would have contributed to the Austrian social insurance system from my first paycheck. At the time of retirement, my pension would all be in one place. As expats, this is not the case. We have come from, and now live in, a variety of countries that have a range of social insurance systems and different norms for how individuals secure a pension for their future retirement. You may also work for a variety of companies in your career who are domiciled in different countries that have different systems and norms. Over the course of a career where you have moved around (between countries and companies), your pension may be in a range of different places that you’ll have to figure out how to access all of these in the future. When you’re living the exciting expat life and spending a few years here or there, it is easy to lose perspective and overview. It gets complicated and I get afraid for fellow expats I’ve met along the way who hide their heads in the sand and simply hope for the best. In some ways I consider myself lucky because in South Africa there is no social insurance system and it is up to the individual to plan and save for retirement. I always knew I would need to save and plan for my own retirement and while I’ve been lucky to have employers who did have pension plans that I could participate in, I have continued to pay attention to my own savings and investments. I highly recommend you do too!
It is easy when we are at the beginning of our careers to think that retirement is a long way off but take time to understand what your employer offers, what your country of origin offers, what your current country of residence offers, all while keeping in mind where you ultimately may choose to retire. Also, as you change countries and/or employers, you must keep track of all the places you have made contributions to retirement accounts.
Don’t lose sight of your finances!
Keep your eye on the prize. The excitement of living and working in a variety of countries should not distract you from managing your money. The safety net of state, employer, and family will not protect you in the same way as it protects people who tend to stay in one country their whole lives. You should have an active interest in your financial situation and financial future.
Disclaimer
This article is meant to get you thinking about personal finances and your personal money management plan while you are living and working abroad as an expatriate. This article, including all examples and illustrations, is NOT intended as financial advice nor is it tailored to your specific circumstances. If you have any questions or concerns, seek out advice from a professional.
