Managing Your Life Abroad: A Guide to Financial Wellness

This guide features four ex-pat financial experts that discuss the importance of having a plan for managing finances while living abroad. They specifically discuss important financial factors such as expenses in the host country, income sources, expenses in the home country, managing investments, contributing to retirement, taxation in the foreign country, managing US credit, and identity theft.

Financial Wellness is Crucial.

Financial wellness is crucial, especially for those who are considering moving abroad or are already living abroad. In the Financial Wellness Abroad episode of Flourish in the Foreign, four guests shared their insights on managing finances while living abroad.

Adalia of Picky Girl Travels emphasized the importance of having a plan for managing investments, retirement contributions, taxation in a foreign country, US credit, and identity theft.

Lisa R. Mitchell of Living a Global Lifestyle discussed the need to have a budget and to be mindful of expenses, especially when living in a more expensive city or country.

Aquania Escarne, of The Purpose of Money, stressed the importance of having financial goals and a plan to achieve them.

Finally, Tanya Munford-Pitts, an ex-pat tax professional, discussed the complexities of ex-pat taxes and the importance of seeking professional help to navigate them.

These guests all emphasized the importance of financial wellness in living a fulfilling and sustainable life abroad. Without a plan for managing finances, it can be easy to fall into debt or struggle to make ends meet. This can lead to stress and anxiety, which can ultimately impact one's overall well-being and unplanned return home.

Managing finances while living abroad can be especially challenging due to factors such as currency exchange rates, differences in tax laws, and fluctuations in the cost of living.

However, with careful planning and attention to detail, it is possible to achieve financial stability and even financial abundance while living abroad.

One key aspect of financial wellness is having a budget. This involves tracking expenses and income and setting limits on spending in different categories. By having a budget, one can ensure that they are living within their means and saving money for future goals.

Another important aspect of financial wellness is having financial goals and a plan to achieve them. This might involve saving for a down payment on a house, investing in a retirement account, or starting a business. By having clear goals and a plan to achieve them, one can feel more in control of their financial situation and work towards a more fulfilling and sustainable life abroad.

In addition to budgeting and goal-setting, it is also important to seek professional help when necessary. This might involve consulting with an ex-pat tax professional to navigate the complexities of tax laws in different countries or working with a financial advisor to manage investments and retirement accounts.

Save for a Living Abroad Budget

One important aspect of financial wellness when living abroad is saving for a living abroad budget. Financial coach Aquania Escarne suggests that the amount one should save depends on their personal situation and how they plan to live abroad.

For example, someone who is living abroad with a thin budget may be able to provide for themselves, while someone living abroad with a family may have different needs.

Escarne recommends that individuals should try to save at least three to six months of savings, just like if they were at home, based on what they think they will need. Researching the country's average cost of housing, whether or not employers cover housing costs, and other expenses such as food, utilities, and transportation can help individuals determine their budget.

It is essential to start saving for a living abroad budget as soon as possible. Escarne suggests that individuals should save consistently, with every paycheck, and decide what they can afford to save. If it is 10 percent per paycheck, then individuals should save that much. If it is more, they should push themselves to save more. Any bonuses, birthday money, or extra income should also be put towards the saving goal.

By saving consistently and having a clear goal in mind, individuals can motivate themselves to save towards their living abroad fund. Having a savings chart or visual representation of their progress can also help individuals stay motivated and encourage others to support their goals.

In preparing to go abroad financially, Escarne recommends starting a year in advance. This includes solidifying where to live, estimating how much will be made in the destination country, and deciding whether to rent or sell their current home.

Build Wealth while Abroad

It is not just about saving money, but also about generating wealth and building it for the long term. This is where the concept of generational wealth comes in. Aquania Escarne, an expert in generational wealth building, suggests that the first step towards building generational wealth abroad is to take advantage of the savings that come with living abroad. For instance, if an individual has rented out their home in their home country, they can use the rental income to cover their mortgage and save the money they would have spent on the mortgage. By doing this, they can save a significant amount of money every month, which can be invested in various ways.

One way to invest the saved money is in real estate. Owning rental properties can be a great way to build wealth and generate passive income. However, being a landlord is not for everyone. For those who prefer a more passive approach, there are other options such as investing in real estate through a real estate investment trust (REIT) or owning shares in a hotel. These options allow individuals to invest in real estate without the hassle of managing the property themselves.

Another way to generate wealth while abroad is through affiliate marketing. Individuals who have a blog or platform can include affiliate marketing as a way to make money by selling other people's products to their audience. This is a great way to make passive income that can be invested in various ways.

Investing in the stock market is also a great way to build wealth. By investing in stocks that pay dividends, individuals can receive a dividend check every quarter. This is a great way to generate passive income that can be reinvested to build wealth over time.

“F@#% You” Money is Crucial

It is also important to have a safety net in case of emergencies or unexpected situations. This is where "F you money" comes in.

As described by Adalia of Picky Girl Travels, "F you money" is the money that gives you the freedom to say "F you" to a situation that is not serving you well. It is the emergency fund that gives you the space and freedom to make decisions based on what is good for you, rather than being dictated by financial constraints.

Having "F you money" is crucial for anyone, but especially for women living abroad. As Adalia points out, circumstances may arise where one may need to cut and run, and having an emergency fund provides the ability to do so without being financially trapped. This is particularly important for those who are new to a country and have not yet established a network or safety net.

"F you money" is not just about emergencies, but also about having the financial confidence to make decisions based on what is best for oneself. For those who grew up in families where money was not discussed or where negative emotions were associated with it, building financial confidence is key to achieving financial stability and abundance.

Investing and Avoiding Debt

This compilation episode discusses the importance of investing and avoiding debt, particularly for those living abroad. Adalia Aborisade of Picky Girl Travels emphasizes the need for women to have financial knowledge and control over their finances, as they may be left in a vulnerable position if their partner is in charge of finances and investments.

Adalia shares her personal experience of taking a 60% pay cut when moving abroad but still being able to invest, save, and achieve financial stability. She emphasizes the importance of avoiding debt and approaching it with a strategy, as it can be a tool or a burden depending on how it is used.

One way Adalia was able to achieve financial stability was by having fewer financial obligations and not having to siphon off a portion of her income to pay bills back in the United States. She also started investing early on, despite the limited investment options available to her as a public school teacher. She kept things simple by investing in index funds and ETFs, which helped her beat inflation and grow her wealth.

Adalia also advises individuals to save a significant portion of their income, even if they are living abroad and have minimal expenses. By consistently saving and investing, individuals can achieve financial stability and abundance while also building a safety net for unexpected situations.

Prioritize and Plan for Retirement

One key aspect of achieving financial freedom is prioritizing and planning for retirement. As the Financial Wellness Abroad episode highlights, it is important to first consider one's priorities and what is important to them.

For some, travel may be a priority, while for others, it may be having designer clothes or other luxuries. However, it is important to recognize that one cannot afford everything and must make choices based on what is truly important.

For those who prioritize retiring early, a more aggressive plan for saving and investing may be necessary. This may involve downsizing in other areas of life to free up funds for retirement savings. It is also important to consider the potential impact of living abroad on retirement benefits, such as Social Security. For individuals who have not paid into Social Security or have spent a significant amount of time living abroad, it may be necessary to take on more responsibility for their retirement savings.

One key strategy for retirement planning is investing in index funds that track a large market index. This allows individuals to diversify their investments and minimize risk while still achieving potential growth. It is also important to avoid debt and prioritize paying off any existing debts as soon as possible. By avoiding debt, individuals can free up funds for retirement savings and avoid the potential negative impact of high-interest rates.

Ultimately, prioritizing and planning for retirement requires a combination of financial knowledge, discipline, and a willingness to make choices based on what is truly important.

Investing is Key for Retirement

One of the key components of planning for retirement is investing. As discussed previously, investing is essential for building wealth and ensuring financial security in retirement. Adalia Aborisade, a former public school teacher who now lives abroad, shares her own experiences and insights on investing for retirement.

She recommends investing in a total stock market index fund and contributing to it on a regular basis. While some retirement programs offered by employers may be expensive or even scams, individuals can take control of their own finances by investing in stocks or real estate. Saving alone will not make one rich, as inflation will erode the value of money over time. Investing is necessary for long-term financial growth and security.

Adalia also emphasizes the importance of having different "pots of money" for different purposes. One pot is for emergency situations, such as needing to leave a country quickly. Another pot is for situations where one may want to quit a job or take a break from work. Finally, there is a pot for more luxurious expenses, such as travel or other experiences. By having different pots of money, individuals can prioritize their spending and ensure they have enough saved for different situations.

Adalia also discusses her own journey of planning for retirement and choosing where to live. She researched different countries and their retirement visa requirements, ultimately choosing to live in Mexico with the option to move elsewhere in the future. By taking control of her finances and investing in her future, she was able to make choices based on her priorities and desired lifestyle.

Understand Credit and Vet Advisors

When living abroad, there are additional considerations to keep in mind, particularly when it comes to credit and financial advisors.

Lisa R. Mitchell, a former international banker who worked primarily in the ex-pat division of her banks, discussed the importance of understanding credit abroad. She noted that there is no global credit score and credit histories do not travel. While there are a few companies working to create an international credit score, it is important to understand the local credit laws and regulations in each country.

For example, in some countries, not paying debts can result in jail time, while in others, it may be tied to one's immigration status. Privacy rules are different in each country, which can impact credit reporting and monitoring.

To ensure that one's credit is not negatively impacted while living abroad, it is important to check one's credit report regularly and use a virtual private network (VPN) to protect personal information while using public Wi-Fi. It is also important to protect one's passport and bank data, as identity theft and fraud are common risks for ex-pats. Finally, it is important to consider the credit of one's children and take steps to freeze, alert, and monitor their credit while living abroad.

Another important consideration for ex-pats is how to properly vet a financial advisor. As Lisa R. Mitchell noted, ex-pats are often targeted by financial advisors who assume they have excess money to invest.

However, it is important to find an advisor who understands the unique challenges and opportunities of living a global lifestyle. This may include understanding the reporting and taxation requirements for US citizens investing abroad. It is also important to have a clear investment strategy and to work with an advisor who can help execute that strategy while navigating the complexities of investing abroad.

Financial Planning is Crucial Overseas

Living overseas can be an exciting and rewarding experience, but it also comes with its own set of financial challenges. Financial planning is crucial overseas to ensure that individuals can maintain their financial stability and security. Lisa R. Mitchell, a financial expert, discussed the importance of financial planning for ex-pats and highlighted some of the key considerations that individuals need to keep in mind.

An investment strategy is also crucial for ex-pats, and Lisa advised individuals to have a clear understanding of their investment goals before moving overseas. Expats need to consider whether they already have a portfolio and whether they will be investing for the first time. Lisa also cautioned against being seduced by local advisors who may not have the necessary credentials or knowledge of foreign investment products.

For ex-pats who are having children abroad, financial planning takes on an even greater importance. Lisa highlighted the need to consider the financial implications of having a child in a foreign country, such as citizenship and military service requirements. Expats also need to have financial discussions with their partners and consider whether to have a cohabitation agreement in place.

Plan Finances Before Moving Abroad

Moving abroad can be an exciting and life-changing experience, but it is essential to plan finances before making the move. Lisa R. Mitchell, a financial expert, shared her insights on some of the most significant mistakes ex-pats make with their finances while living abroad. She emphasized the importance of moving with intention and considering where one is in the circle of life.

One of the primary concerns for expats is managing their income and expenses in a foreign country. Lisa suggests that ex-pats need to have a financial blueprint that outlines their expenses in the host country and any expenses they may still have in their home country. They also need to have a plan for managing their investments, contributing to their retirement, and managing taxation in a foreign country.

Expats also need to consider the financial implications of having children abroad. Lisa points out that education can be expensive, and ex-pats need to think about where they want their children to go to school. They also need to consider whether their child has any learning challenges and whether the country they are living in can offer the necessary infrastructure and support.

Important Finance Factors

There are a number of factors that expats need to consider when it comes to their finances.

First, they need to align their finances to the payment structure of their new country. While some countries pay monthly, others may pay bi-weekly or even weekly. This means that ex-pats need to plan their expenses accordingly and ensure that they have enough money to cover their bills and other financial obligations.

Another important factor to consider is having multiple sources of income. The COVID-19 pandemic has made it clear that relying on just one employer is not enough. Expats need to have a clear understanding of their sources of income and plan accordingly. This means having a backup plan in case of emergencies, such as job loss or unexpected expenses.

Moving money is also an important consideration. Expats need to be aware of the fees associated with moving money between countries and ensure that they have enough time to exchange and transfer funds to cover their financial obligations. They should have a plan B in case they are unable to access their funds due to unforeseen circumstances.

Credit is another important consideration, and ex-pats need to be aware of the credit terms in their new country. Applying for credit can be complicated, especially if the application is in a language that the expat is not fluent in. Therefore, it is important to understand the credit system in the new country and only apply for credit if it is necessary.

Taxes are also a crucial consideration for ex-pats. They need to understand the tax laws in their new country and ensure that they are filing their taxes correctly. This may involve filing for foreign income exclusion and other forms to ensure that they are not overpaying on taxes.

File Taxes Annually When Abroad

One crucial aspect of financial planning for ex-pats is filing taxes annually. Many people assume that leaving the United States means they no longer have to pay taxes, but this is a common misconception. The US government taxes worldwide income, meaning that ex-pats are still required to file taxes each year, even if they are living abroad.

Another misconception is that leaving the country automatically means you are no longer a resident of your home state. However, some states still require residents to pay income tax, even if they are living abroad. For example, California and Alabama are two states that require income tax payments from their residents, no matter where they are living in the world.

Failing to file taxes annually can have serious consequences for ex-pats. It can impact their social security benefits, and they may have difficulty obtaining credit when they return to the United States. Additionally, not having a record of income can make it challenging to purchase a home or buy a vehicle.

To avoid these issues, ex-pats should file their taxes annually and ensure they are complying with their home state's tax laws. Many states offer the same exclusions as the federal government, and there may be opportunities for expats to circumvent tax laws in certain states depending on how long they have been living abroad.

It is also essential to take the necessary steps to show that you are moving abroad, just as you would if you were living in the United States. This includes changing your banking and driver's license information and taking other steps to establish residency in your new country.

Follow Rules When Doing Business

Expat Tax Professional, Tanya Munford Pitts discusses the importance of following rules when doing business, whether it is in the United States or abroad. The speaker suggests that ignorance of the law is a major problem for American citizens who choose to do business in other countries. It is essential to investigate and find out what needs to be done to become a business owner in a particular country.

Tanya also highlights the misconception that digital nomads have about taxes and tax residency. Some digital nomads believe that as long as they do not make money in a particular country, they do not have to pay taxes in that country. However, this is not always the case, as different countries have different tax jurisdictions. In Spain, for example, if an individual lives there for 183 days, they are considered a tax resident and are taxed on their worldwide income.

Tanya advises entrepreneurs and digital nomads to follow the same rules that citizens of a particular country follow. It is crucial to investigate and find out what needs to be done to become a business owner in a particular country. Otherwise, it is just a side hustle, and the individual may face potential financial consequences.

She also emphasizes the importance of filing taxes annually when living abroad. By doing so, ex-pats can avoid potential financial consequences and ensure their financial future remains secure and stable, regardless of where they choose to live.

Report Foreign Bank Accounts Accurately

One important aspect of filing taxes when living abroad is reporting foreign bank accounts accurately. The Foreign Bank Account Reporting Act (FBAR) requires individuals to report any income over $10,000 in total on any given day in their bank accounts abroad. This means that if an individual has multiple bank accounts with $10,000 or more, they are required to report all of them. Failure to do so can result in severe financial consequences.

The purpose of FBAR is to crack down on individuals who are storing their funds offshore outside of the United States, particularly those with millions and billions of dollars. However, this regulation affects all individuals living abroad who have foreign bank accounts. It is essential to file tax returns and make sure to file FBAR accurately to avoid any potential legal issues.

Notably, the federal government and other countries are in cahoots and are reporting what individuals have in their bank accounts, whether they know it or not. Therefore, it is crucial to file tax returns and FBAR to ensure that the US government understands an individual's financial situation.

Go Abroad & Cultivate A Life Well-Lived

Beyond the practicalities of living abroad, there is a deeper message to be gleaned from Flourish in the Foreign’s tagline: "Go Abroad and Cultivate A Life Well-Lived." It encourages those interested in living abroad to not just move to a new country but to actively seek out a fulfilling and enriching life there in all aspects of life: professionally, mentally, spiritually, physically, and financially.