Expats have a lot on their plates when moving: housing, schooling for children, visas and permits… the list goes on. It’s no wonder many expats fail to make proper financial arrangements before relocating—a costly (and thoroughly avoidable) mistake. Below we’ve identified the 5 essential steps for effectively managing your finances abroad.
1. Open two bank accounts. You’ll want one bank account in your host country and one at home. Even as an expat you may continue to have financial obligations in both countries. Fund each account with enough to cover 3-6 months worth of expenses. The last thing you want is to have to border-hop to exchange currencies. Use big, reputable banks for both accounts. Larger banks usually offer better exchange rates, higher quality services (such as faster wire transfers) and more robust websites.
2. Establish two credit cards. This goes hand-in-hand with Step 1 above. Having credit cards denominated in two currencies will protect you from large fluctuations in exchange rates, as well as foreign transaction fees.
3. Find a qualified international financial advisor. Managing currency risk, an investment portfolio and tax considerations is a time-consuming, complicated process. You’ll want a financial advisor specializing in clients leading international lifestyles. Watch out for anyone working on commission—these people are usually more concerned with their pay than your best interests. Limit yourself to “fee-only” advisors.
4. Consult a tax advisor. Tax concerns can be a headache, particularly where capital gains are concerned. Taxation and tax planning are just the beginning, however. Other, less-obvious issues include:
• Optimal location of investment accounts
• Estate planning
• Real estate ownership and investment
5. Determine where you want to locate your investments. A number of factors will influence the best location for your investment account(s):
- Taxation – The tax reporting requirements of both your home and host country, and the compliance of your investment companies are all issues.
- Financial Goals – Are you investing for something such as education, vacation or retirement? If investing for retirement, for example, you want to make sure your investments are denominated in the currency of your eventual destination. If you remain undecided on your retirement location, you’ll want a diversified portfolio of holdings in multiple currencies.
- Security – You want to invest in a country with a stable economy, with a firm that offers account protection and insurance on your assets. Best is to go with an investment company offering a wide variety of investment vehicles.
Final Thoughts… Your advisors will be able to help you with the decision about where to invest, and should also be able to recommend a solid investment firm (see why it’s so important to find people you can trust?)
We urge you to consider a large, discount brokerage accessible online or over the phone. If you are investing in your home country you should open your account before you leave. Many companies will not open accounts for clients with foreign addresses. Also, beware of any government-imposed restrictions on the movement of funds between countries. Follow these steps and you’ll be well on your way to sound finances and a healthy portfolio of investments.
About the author
Jeannie Pederson is a Senior Portfolio Manager at Maxim Global Wealth Advisors, a premier wealth advisor for American expatriates and expatriates in the US. https://www.maximadvisors.com