Hi. My husband has been offered the possibility of a position overseas. We are seriously considering it but we are a little unclear on the financial aspect. The contract looks healthy, but I am wondering about the 'hidden costs' of living and earning abroad. Friends have told us to be wary of issues such as local taxes abroad, pension schemes, exchange rates, saving accounts and so on. I feel out of my depth, confused and overwhelmed. Can you please offer some guidance*?
DB
Expat Women Girlfriend:
Dear DB,
You are very wise to be cautious and curious as to how an expatriate posting can affect your financial position. As you have intimated, there are plenty of factors you should take into consideration, both in your host destination and your home country, with regards to your finances. It would be prudent to do some homework and understand what exactly this could mean for you monetarily before making the move.
Sadly, many expatriates misinterpret their expat package, get caught up in the high life and/or overindulge with fine dining, exotic holidays and carefree spending whilst abroad. This does little to help you get financially ahead in the long-term. Some expats even return home to find themselves in financial difficulty as a result.
However, with some forward-thinking and informed planning, an international assignment can certainly be a positive (or in some cases, lucrative) experience.
Seek Advice
First and foremost I would suggest getting in contact with a financial advisor. Shop around for someone who specialises in expatriate assignments and if possible, someone who is experienced with the fiscal system in both your host country and your home country. (Alternatively, you may need a financial advisor in both locations.) Meet a few advisors to compare. Often first-time meetings are obligation-free and it can be valuable to hear the perspectives of different, reputable advisors to help you understand various implications.
A good advisor should be able to advise you on what is best for your current assets (bank accounts, stocks/shares, properties, loan repayments and the like) and how to manage these from abroad. They should also be able to make suggestions on how best to utilise your expatriate income, taking into consideration important aspects like taxes (at home and abroad), exchange rates and local policies with regards to moving and holding money. Some countries such as China have strict policies on moving money outside of the country, which is compounded by the non-convertible Chinese currency. Issues such as becoming a non-resident of your home country for tax purposes, setting up offshore bank accounts and offshore investment schemes may also be of interest to you.
Bear in mind that some advisors might recommend strategies for you to implement before you move abroad, so it is a good idea to seek advice as soon as possible (and perhaps meet up with a knowledgeable bank manager as well). Then, try to maintain regular contact once you have relocated (especially after you have a better idea of your true cost of living and disposable income abroad). Perhaps they might even have a representative in your new part of the world.
Make The Most Of Your Current Assets
Make sure that you consider how to best preserve/grow your existing assets while you are away. For example, if you are moving out of your own home to move overseas, you may want to consider the financial gains and expenses associated with renting versus selling your property. Be wise about what you do with the rental income and be aware of taxes and potential costs with both options.
What about your current savings accounts at home? If these will be inactive while you are away, have you considered putting a lump sum of cash into a fixed deposit or high interest account?
Also, be smart about managing currency risk. If possible, get in contact with a colleague who is working in your host country and find out what they do in terms of bank accounts and so forth.
Do you have a pension, 401K or superannuation scheme in place? Check with your company (if you are new with them) as they may have a corporate pension scheme, or once again, a financial advisor may suggest an offshore pension plan which can also make the most of exchange rates.
Get Street Smart
Think local. Think about where you will get paid, how you will get paid (it is not uncommon to be paid a percentage in local currency and the remainder in your home currency). Will you set up a local bank account? As a foreigner, are you allowed to? What is the best way for you to deal with the exchange rates? For example, some people need to consider and plan for being paid or renting a home in one currency, but having bills outstanding or mortgages to pay in a different currency.
What about your credit cards? Can you qualify for local ones? Where and in what currency will these be paid? What are the terms and conditions of local credit card cards and how does this differ from your home country?
Cover Yourself
If you have global assets (such as offshore bank accounts, property and/or income in two countries), it might be in your best interest to have a local Will drawn up. This is essential if you are moving to a Middle Eastern country, for example, where Sharia Law prevails. Check the laws in your host country and make sure you understand what will happen to your assets should anything happen to you as the main income earner. Will your family members be able to access bank accounts, credit cards, stay in the country, take the children, and/or leave the country in the event that something happens to the posted expatriate?
The same goes for medical insurance. Most companies will provide health insurance to expatriates on official assignments, but this is not guaranteed and it may not be a policy that covers enough for your family. Check your medical insurance coverage and excess costs carefully and if you need to find your own medical cover, ask around for reputable providers, request quotes (these are usually available easily online), then compare costs, policy coverage and the 'small print'. This is important because quality medical care in some locations (such as the United States) can be phenomenally expensive, so ensure you have adequate coverage (which potentially should include medical evacuation as well, if you are concerned about the medical facilities in your new location) and can sleep easy at night.
Smart expatriates also have a contingency bank account for easy access to money in case of emergency.
Hidden Costs
Many an expat is lured into a job overseas without realising all of the 'hidden costs' abroad and thus the full financial implications of an overseas relocation. In addition to the costs already outlined, some other hidden costs might include:
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Accommodation – Will the employer pay part or all of this? Will the employer component fluctuate? Will you have to pay for your own utilities or maintenance? Will you be given a choice in terms of your preferred property options and/or location? (Because if not, and you would like to live elsewhere, you may need to pay the difference.) Will your employer pay if you need to move homes during the assignment?
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Schools – What are the options and associated costs? How much will your employer pay? If your employer has a school fee threshold, is that negotiable? If your assignment ends abruptly, what help is given to transition your children to a new school elsewhere, or alternatively, to continue to pay the existing school fees until the end of the school year? (The latter can be a critical consideration for students in their senior years.)
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Transport and flights – Is a car provided? Does it include maintenance, petrol/gas and insurance? Is an annual flight home included for you and your family?
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Social costs – How much does it cost to join local social groups? How much will you spend socialising and dining out? Whilst these sound like luxuries, for a newcomer thrown into a foreign city, a budget for socialising is important if you are going to successfully set up new social networks and support systems in your new home.
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Many more!
Final Words
To me, you come across as a very educated expat-to-be and I believe you are absolutely doing the right thing financially by doing your homework before you agree to any potential assignment abroad. The general rule of thumb in areas that are new to you is "ask, ask, ask and research, research, research" – which is exactly what you are doing.
If you do go abroad, the same savings and investment principles apply as back home: be mindful of your income and your outgoings and try your best to achieve the financial goals that you set for yourself. Living the high life is fun in the short-term, but saving and investing will make you feel much better about yourself in the long-term, just like it does back home.
All the best!
Expat Women Girlfriend
January 2010
Our Expat Women Girlfriend is originally from New Zealand. She has been living abroad as an expatriate since 1996. She has an educational background in Human Resources and Cross Cultural Psychology and has worked with expatriate support issues at the private, corporate and non-profit level. In 2004, she saw a need and established an English speaking hotline in her expat location, offering free mental health support to the growing expatriate population. The hotline provides confidential and anonymous support and information via trained telephone volunteers and is funded through corporate sponsorship. Our Expat Women Girlfriend has always been an active member in the various expatriate communities she has lived in, providing cross-cultural awareness training and informal counseling sessions with a particular focus on the 'trailing spouse' and family.
*Disclaimer: This column is intended to be of general interest to ExpatWomen.com visitors. Its suggestions and/or inferences are generalizations and do not address the needs of individuals, nor should they be relied upon in any shape or form. Please seek professional advice/counseling/therapy if you genuinely need assistance to talk through issues in your life right now.
