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Financial Peace of Mind Abroad
Stacie Nevadomski Berdan
Planning a move to another country is filled with excitement, yet also the daunting realization that you must deal with many administrative details as you enter the global workforce. Practically speaking, you need to stay organized to stay on track. Whether you are sent to a foreign country as a transferred employee or you decide to move yourself, managing your finances can be complicated. It is important that you take the necessary steps to get it right.
In my experience, I have found that financial preparedness is one of the most frequently overlooked steps you can take for your international success. To that end, I recommend that globetrotters take the following financial steps prior to moving to enhance their financial preparedness and strength:
1. Devise A Budget Based On The Local Cost Of Living
Living costs for international workers are affected by inflation, availability of goods and currency exchange rates, all of which have a significant impact on one's personal finances. Costs associated with housing, transport, food, entertainment, health care, schooling/childcare and taxes may vary significantly from your home market. You will need to compare and devise a budget based on your income.
Cost of living surveys are a helpful place to start and many are conducted annually by several institutions, such as Economist Intelligence Unit, ECA International and Mercer Consulting. Use the year-on-year comparative data with caution, however, as it incorporates currency fluctuations and price inflation. In other words, the comparative data that highlights which city or country is more expensive to live in then the next only pertains to a person spending or earning American dollars. It does not address the costs relative to what a person typically earns in that city. And in the past year, currency fluctuation has played a major role in cost of living ranking movements, complemented by falling inflation in many countries and the collapse of record-high petroleum prices.
If you are a company-transferred expatriate, it is likely your organization's HR team will use cost-of-living software to compare and then calculate salaries and adjustments, relocation bonuses and tax equalization, if appropriate. You will want to understand this big-picture comparison to better assess your overall remuneration package, as well as use it to develop a personalized budget for daily living expenses. If you are , you will need to do the numbers before moving so that you minimize financial surprises. Moreover, if you move without a job, make sure you have the financial reserves available to meet local cost of living expenses for up to six months, in case it takes a while to land an assignment.
With respect to currency, make sure you are paid in a safe, convertible currency, preferably pegged to the U.S. dollar, Euro or British Pound.
2. Ensure Your Banking Needs Can Be Met With A Truly Global Bank
Gone are the days of juggling multiple bank accounts and credit cards for the globetrotting professional. Although there are banks that offer international services free of geographic and bureaucratic limitations, they are few and far between. My search for alternatives led me to HSBC Premier, which meets my three requirements for international services and support: a global personal relationship manager, the ability to transfer money instantly overseas and an international credit card that does not charge foreign transaction fees. |
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Personal Relationship Manager
Setting up your finances as you set out on a globetrotting adventure will prove to be one of the most important steps you can take to ensure financial peace of mind. A specialized personal relationship manager can help you get started and then serve as a single point of reference no matter where you are in the world, providing services such as transferring money from different accounts, supplying essential guidance during emergency situations, securing a mortgage overseas and advising on your international portfolio needs. In addition, this relationship manager can connect you to local, on-the-ground experts who speak your language, know the local culture and should be able to help effectively resolve any and all financial matters. |
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Transfer Funds When And Where You Need Them
As any global citizen will tell you, the ability to instantly transfer money from one country to another is critical. Whether you face a business travel emergency that calls for instant cash or you simply decide to go on a shopping spree while on a personal vacation, you want to be able to have cash available immediately. Many people mistake an ATM card for a constant source of cash while traveling. In fact, there are frequently great limitations, including high transaction fees and currency conversions fees. |
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International Credit Cards
Surcharge and exchange fees associated with international charges vary widely with most credit card companies having adopted fees for purchases made in foreign countries (usually 1-3% per transaction). But there are exceptions. To avoid unpleasant statement shock, make sure your credit card allows for the following: |
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No foreign transaction fees on purchases made in a foreign currency.
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Transfer of credit histories between countries, and ideally,
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A rewards program that offers discount dining, shopping and entertainment deals with merchants in different countries. |
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3. Research Your Tax Responsibilities At Home And Abroad
Taxes are paid in most countries, and it is wise for you to find out exactly what you are liable for in your host and home countries. If you are not careful, a tax situation can make or break your budget. Learn about your host country's tax system, including taxes on: |
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Income: Find out if there are municipal, provincial or national taxes, and if there is a flat tax or a variance. Do you know if there is a tax treaty with your home country to obviate you paying any or a lesser tax. Will your income be tax equalized by your company (whereby you will pay no more or less tax in your new home)? Find out if non-salaried components of your remuneration, such as housing subsidies or car and driver services, are considered income and, if so, at what rate are they taxed. |
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Estate Taxes: Find out if there are applicable estate taxes in your new home and if they apply to temporary residents. The potential complexity involved in a cross-border estate filing could leave your heirs with severe headaches and money loss. Make sure you take care of these details prior to leaving home. |
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Personal Property: These taxes vary dramatically from country to country as they may include real estate, cars and luxury goods. Know what liabilities you are incurring before you move and before you buy.
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Financial Investments: Depending on your host country, you may be able to move all or part of your financial holdings. Or you may be eligible to participate in a national pension plan that requires you to invest locally. Each country is different and so you must consider the tax implications and compliance requirements, as well as your financial goals to minimize risk both in the short- and long-term.
Plan to hire an international accountant to help you prepare and submit your returns in a timely manner. |
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4. Expand Your International Investment Portfolio
Working internationally offers many professional benefits and, for the savvy investor, it opens up a world of possibilities to expand your investment portfolio. As you grow more comfortable with the global marketplace, you should consider broadening your investment portfolio to reflect global diversification of your asset allocation. To do so, though, takes careful consideration and expert advice. Find an investment adviser with access to a global network of professionals to steer you through the various financial regulation when it comes to trading on foreign exchanges, keeping tabs on the best international funds or managing that retirement fund in Switzerland or Singapore.
Unless you just plain luck out, the reward and satisfaction of global living will be enhanced in direct proportion to your level of financial preparedness. So think ahead, plan for smart finances – and enjoy your time abroad! |
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