Whether you're moving overseas for a new job or to retire, you need to keep your financial situation in check. Too often, expats excitedly plan everything for living in a new country but fall short when it comes to getting their finances sorted.
We want to help you avoid falling victim to being ill-prepared financially when you move abroad. Our guest writer, Matthew Woodley, tackles the seven biggest financial mistakes you can make when relocating overseas – and how to avoid them.
1. Not Establishing a Reasonable Budget
In your excitement in relocating abroad, you may find yourself caught up in extravagant spending. Before you make your big move, you need to establish a reasonable budget.
While you're getting settled, you may have more expenses than usual such as:
- Lawyer fees
- Transportation costs
Evaluate your unique situation and determine what expenses you will have during the first few weeks in your new country. Well before your relocation, you should establish an emergency fund in addition to your regular budget. This way, you can plan for unpredictable circumstances and minimize any financial stress.
According to Acorns, you should have anywhere between 3 and 6 months' worth of expenses saved up before moving abroad.
2. Failing to Factor in Exchange Rates
Depending on your country of origin and final destination, your new cost of living may increase or decrease. Either way, the value of your money will change for better or for worse.
When you're carrying out step one, be sure to factor in exchange rates. You can accomplish this by using a dedicated money transfer service, you can compare different options for sending money overseas. This type of service is ideal for transferring money internationally. You don't need to go through your bank to get your funds to where you want them to be.
Specialist money transfer services do all of the work for you. They ensure their rates are competitive and let you receive the most beneficial exchange rates.
When searching for the right specialist money transfer service, you should research the company and ensure they deliver adequate:
- Transfer speed
- User experience
3. Only Filing Taxes in Your New Country
One downside to moving abroad is the increased complexity of filing taxes. Whether it be out of evasion or ignorance, expats often make the mistake of only filing taxes in their new country.
You must abide by the tax regulations of your new country and former residence. We recommend seeking the advice of a trusted tax expert. This way, you can avoid incurring costly penalties. Plus, a tax expert can help you determine where you qualify for tax breaks.
In addition to filing all of your income, you also need to report foreign and domestic bank accounts and investments. A qualified tax expert can help you do so cost-effectively and legally.
4. Closing All of Your Credit Card Accounts at Once Before Moving
You should have plenty of notice before relocating, which gives you more than enough time to get your financial affairs in order. Sometimes, a big job promotion or other life event makes it difficult to leave room for adequate planning.
Closing the necessary credit card accounts is an essential part of relocating. If you have a sufficient amount of time before your big move, we recommend closing your credit card accounts over a long period. Do not close them all at once. Doing so will damage your credit score and make it very difficult to repair.
For the credit cards that you do keep open, give your credit card issuer a heads up. This way, they won't consider it suspicious activity and suspend your card temporarily, which can hinder your spending once you establish yourself in your new location.
Even if you plan on moving and not returning, you shouldn't close all of your accounts. In fact, closing a credit card that is in good standing can damage your credit. Consider keeping one or two open in your home country. If you ever decide to return, you'll have credit already established.
5. Not Planning How to Handle Your Retirement Pensions
If you're retired and planning on moving to a foreign country, you will only be able to enjoy your experience with your financial situation squared away. Because you won't be earning income in the traditional sense, you will likely be relying on retirement pensions.
Most people have two types of retirement pensions: an employer (or private) pension and a state pension. You don't want to lose access to these retirement pensions when you move abroad.
Make sure to understand how moving abroad will affect your regular income distribution in retirement. A couple of general solutions for retirement pension distribution include:
- Move your pension to your retirement country and invest in a new pension plan
- Leave the pension in your home country and have regular payments transferred to a new bank account
Be aware of certain limitations that are in place. For example, if you are moving from the United States, your social security payments won't be distributed if you live in countries like Ukraine, Georgia, or Cuba.
Educating yourself on impactful limitations will help you better plan for your retirement in a different country.
6. Failing to Secure Health Insurance
Health insurance is a significant financial factor that you must get squared away before moving abroad. Expatriate medical insurance plans are based on the following characteristics regarding the policyholder:
- Medical history
- Country of origin
- Country of coverage
These factors will determine your premium, so ensure you know how they relate to you. Request quotes from different companies and be aware of each plan's limitations.
Some plans offer worldwide coverage, which is excellent if you plan on doing a lot of traveling as an expat. Other health insurance policies will set separate pricing for certain regions and refuse to serve those living in specific high-risk areas.
Give yourself plenty of time to find the best deal possible. You want a plan that gives you adequate coverage based on your age and medical needs. Don't find yourself in a medical emergency uninsured because you neglected to find a beneficial health insurance plan. And don’t forget that enjoying good health overseas is about much more than health insurance...
7. Neglecting to Research Inheritance Laws
This mistake is a bit unlike the other ones, but it can nonetheless place your family in a difficult financial situation. Research your host country's inheritance laws before moving.
Some countries have reasonable estate and inheritance taxes, while others like South Korea and Japan have a 50% or higher inheritance tax rate. On the other hand, some countries including Mexico, Norway, and Sweden have a 0% inheritance tax rate.
If you are planning to receive an inheritance, you can make smart financial moves to avoid heavy taxes:
- Donate some of the money to charity
- Minimize retirement account distributions
- Place all of your money into a trust
Middle Eastern countries typically have inheritance laws that can be difficult to navigate. In most cases, couples choose to pass their inheritance on to the surviving spouse. However, Sharia law, which is imposed in some Middle Eastern countries, states that inheritance goes to the closest living male relative.
To protect your assets, you can set up an offshore bank account and keep your funds outside of your host country.
Move abroad – and leave financial worries behind you
Navigating your finances as you move abroad can be confusing. However, when done right, you should be rewarded with great financial gains and little stress. As an ambitious professional or an adventurous retiree, you should be able to enjoy your time in a new host country by avoiding the 7 mistakes we have outlined.
Matthew Woodley is the Group Digital Marketing Manager for New Zealand Van Lines Ltd based in Auckland, New Zealand. After attaining a double degree from the University of Auckland Matthew joined the company in 2012 and has since specialised in digital marketing, sales and e-commerce for the Group. Matthew has written a number of articles on this specialty for FIDI and other publications.