Open any expatriate publication or click on one of the veritable ton of web sites devoted to those who live and work overseas and you will be bombarded with ads for financial services and advice. But how to wade through that overload of information and advice, especially at a time when there are a thousand other moving day details to process?
“One of the largest problems facing the expat community is the level of complexity, the confusion, and sometimes downright incorrect advice that is floating around regarding expat taxes and finances,” says Jeremiah Archambault, Investment Advisor at RBC Investments in Canada and a former expat.
“At the same time, there is very little information that covers basic financial planning—the simple ‘common sense stuff’ that every expat should know,” says Archambault.
What are some of those key common sense rules?
Set Financial Goals and Budgets
Every financial guru extols the virtues of having financial goals for the assignment. The very first goal may be to set a budget that will work towards achieving those objectives, with the entire family on board and in the loop of the family’s big financial picture.
“Have a budget, but don’t expect to be able to stick to it,” says Archambault. “It’s kind of like the rule about building a house. Whatever you think the expenses will be, double them. Any expat on the road can attest to the high cost of maintaining an expat lifestyle,” he says, adding that if it’s possible, an employee may want to renegotiate salary and benefits prior to leaving home if possible.
Financial goals and budgets help a family save money. Many expats move abroad to travel the world but also to make money.
“Going abroad may be fun, challenging and exciting, but it’s even more rewarding when there is a nest egg in place for the eventual date you return home,” says Archambault.
“It can be a difficult thing to do when there are so many great things to buy and places to see, but a general rule of thumb is to try to pay yourself 15-20% of your earnings through forced savings.”
It’s recommended that the general population have at least three months savings in cash reserves for emergencies. “For the expat, however, that figure should roughly be doubled,” says Archambault recalling an expat client working for a technology company that promptly closed their doors one day.
“It was a difficult transition to move home without cash reserves set aside for such an emergency,” he said even though the client had stock investments. “Unfortunately, they were also in technology and the client was forced to cash in at a disastrous time in the market.”
Establish Good Relationships
Always establish and maintain a relationship first and foremost with a good banker before you leave home. This will be invaluable if you’re stuck in the middle of the jungle somewhere and need money wired to some remote place. While you’re at it, be sure you know your lawyer, accountant, and broken well enough to call during a time of stress.
To help reduce day to day living costs, it also is a good idea to make friends in the local community or a local expat group. “This is a great way to find out as soon as possible how to live as a ‘local’“ believes Archambault. “Giving up some of your favourite home country cuisine preferences and delving into local specialties can often reduce home expenses.”
Establish good lines of communication between all family members about finances, especially between the marriage partners.
“I have seen too many cases where a spouse is left in a terrible state of limbo while they loved one may be in hospital for an extended period or other unforseen situations,” says Archambault. “There is nothing more stressful that waking up one more morning to discover you don’t have the foggiest idea of how to pay a bill or access your on line bank account.”
Start Doing Your Finances On Line
If it’s possible from where you are living, on line banking offers convenience as well as the ability to keep you up to date.
“The computer age was made for expats,” says Archambault, “so they should use it to its full potential. But just make sure that if you are investing on line you are investing in things that you understand and have great comfort holding for the long term.”
It makes good sense to always be cautious about investment options at your disposal. Some many not apply to your country of home residence.
Archambault advises expats to get good independent financial counsel from someone that is experienced in dealing specifically with expats from your home country.
“Ask that counsel what their other clients have done with their money while abroad. This is critically important as what works for a UK resident, for instance, does not necessarily work for an American or a Canadian.”
Finally, having stressed the importance of savings and financial goals, most financial counselors, including Archambault, advise expats against spending their entire time abroad worrying about building a nest egg.
“Put a savings plan into place that is reasonable and achievable. But remember that you are abroad to enjoy the new country, culture and to have a wonderful experience as an expat. Don’t knock ‘fun’ from your bottom line.”
Six Steps Towards Establishing a Family Budget
Have a Plan: Without a plan or program designed to help you monitor your finances, your budget ideas may be as doomed as the many diets you have started only to abandon.
Gather all your Records into a Family Inventory: It’s a lot easier to develop and maintain a budget if you know how your family spends money so gather up all the records of current spending habits. Don’t ever say, “I think we spend.”Know from your own records what you are shelling out each month for food or housing or entertainment.
Incorporate your Goals: Budget gurus believe that family budgets will include both long and short term goals work the best. Begin with easy goals (cutting out something simple) and work your way up. Discussion with the entire family is important here.
Develop Your Budget: Don’t be like those who think a budget is somehow going to restrict spending. In fact, the opposite may occur. By keeping track of expenditures, families can concentrate on those items which bring the most pleasure both financially and personally.
Pay Down Your Debt: As a beginning, reduce your debt by paying down your credit cards.
Concentrate on Your Investments: Many expats move abroad precisely for the opportunity to save money and put away for the future like retirement or college education. While saving your money or tracking your spending, be sure to keep a close eye on your investments, especially as you are doing so from afar. It goes without saying that your investments are part of your grand budget plans.
Teach Your Expat Children Well
It’s hard to teach traveling children about money when foreign exchange seems like ‘funny’ money and everyone around them seems to be spending heaps of it. The expatriate lifestyle, especially the one fueled by corporate allowances, is often anything but restrained when it comes to spending habits. “I’ll take ten of those!” seems to be a popular rallying cry.
Many ‘third culture kids“ have no idea how to handle money”, according to author Ruth Van Reken, who co-wrote Third Culture Kids: The Experience of Growing up Among Worlds.
“They have generally grown up with a lavish lifestyle which includes many perqs such as paid plane fares and home leave shopping binges. Worse, they have an even stronger sense of entitlement than an affluent Western child who has never moved. Parents need to be aware that one day, their child will leave home and they won’t have the financial skills to handle life on their own if they don’t teach them.”
It can be hard to teach expat children how to handle money when they can’t find part time jobs overseas or even summer jobs at ‘home’ that pay enough. So what can parents do?
Van Reken suggests following the time-honoured way of teaching children about financial responsibility (and this has worked in my household too!): Give your children a monthly lump sum for everything they might need from clothing to pencils and after that, if they want more, they will have to figure out a way to earn it. Even expat kids can babysit for another family or tutor a younger child.
Of course, parents can always fall back on that old standby: setting a good example.