There are many reasons why you would consider working and living abroad, including growing your income. However, moving to another country is more complicated than it seems. Aside from adjusting to the culture and lifestyle of this new location, you will also need to maintain your finances with two currencies in mind.
Two of the biggest financial concerns for expats are money transfers and savings. Remitting your income from another country can be tricky, especially with the differences in currency exchange rates.
Meanwhile, saving up is vital for any healthy and sustainable lifestyle—especially when you’re in a foreign country. Staying on top of your finances is the best way to reach financial independence and stability while abroad.
Below are some ways you can save and send money while working abroad:
1. Keep up with exchange rate fluctuations
Exchange rates are hardly constant, seeing rises and falls in a matter of seconds. Because of this, the timing of a money transfer is crucial as it will help you get the most value out of your hard-earned income.
Keeping up with the exchange rate fluctuations can help you decide when to best wire your money. It is also important to know the difference between inflated exchange rates and real-time mid-market exchange rates.
Additionally, staying updated with local and international news can provide you with insights to help anticipate future fluctuations or explain current exchange rate trends.
2. Spend in local currency
Typically, expats are paid in U.S. dollars for their work and services. Fortunately, U.S. dollars carry a strong and often stable value in most parts of the world. Meanwhile, your home expenses heavily depend on the cost of living in your country of residence.
A good practice is to pay for expenses in the local currency so you can take advantage of the dollar’s higher value and bolster your purchasing power, even if your income remains the same. You may also get better local rates on purchases and services when transacting in the local currency.
3. Use a transfer service over international bank transfers
It may seem easier to transfer money through your bank, but there are some drawbacks to it. Bank exchange rates are often fixed over a certain period, which may prove disadvantageous when you want to transfer money at a higher rate. They may also charge additional and often hefty fees in addition to the amount you are sending.
Instead, consider finding a reliable transfer service. A good transfer service offers fair exchange rates and low fees and maintains a trustworthy reputation. It should also be convenient to use and compatible with your specific remittance needs.
4. Have a local bank account
Having a bank account in your country of residence is one way to make your finances more manageable and convenient.
First and foremost, a local bank account provides you with easy access to cash. With this, you can address your daily banking needs and have a reliable source of funds in an emergency or unexpected situation. It also makes it easier to transact within your country of residence and provides another avenue to exchange currencies when needed.
U.S. citizens may need to file tax forms for expats to account for assets in foreign countries that exceed a certain amount. The details of expat tax filing can easily be discussed with a tax professional.
5. Be aware of any fees for sending and receiving money
Transfer services will often charge fees when you send or receive money internationally. These fees can come up depending on several factors—the amount of the transaction, speed of the transfer, offered exchange rates, method, and so on. There may even be a receiving fee or miscellaneous service charges that the recipient will need to settle.
Before proceeding with a transfer, make sure that you know all fees that this transaction can incur. If these fees are too high, consider switching to a different service. Additionally, it is not recommended to pay extra fees to expedite your transfer unless there is an urgent need.
Understand the terms and conditions when working with transfer services
In relation to familiarizing yourself with additional fees for transferring money, it is also essential to know the terms and conditions for transacting with your chosen transfer service. This will help you manage your expectations and give you a chance to look for alternatives should things go wrong.
Critical details include transfer procedures, alternative options available to you, and potential liabilities if funds are not transferred by the specified date or time. You should also take note of the refund policy when physical transfers like cash pick-ups or deliveries are lost or unclaimed.
Take advantage of tax benefits
If you’re a U.S. citizen, you are required to pay taxes to the IRS, regardless of where you are in the world. Remaining compliant with IRS tax requirements can be difficult and costly, especially when settling owed taxes. Luckily, you can leverage tax benefits to reduce the amount you need to pay.
One such tax benefit is the Foreign Earned Income Exclusion (FEIE). Under FEIE, you can apply for a tax exemption on your “foreign-earned” income up to a specific, annually-established threshold. You can consult with a tax professional to determine if your income can qualify for FEIE or other benefits.
Be a savvy shopper
For expats who are only beginning to live their lives abroad, a common mistake is settling on a purchase out of convenience. This may reduce your troubles now but can eat away at your savings in the long run. No matter where you are in the world, being a savvy consumer can make all the difference in maintaining your budget.
Make full use of all available resources to compare prices for all your purchases. Look for shops and markets that offer affordable options. If you can, speak to other expats and ask for advice. They can provide you with the information you need to get a good deal with the perspective only someone in the same situation as you can provide.
Do your research before spending on big-ticket items
One of the challenges about living abroad is having limited safety nets for your finances. Because of this, careful budgeting and purchase planning are vital for survival. Big-ticket items like apartment leases, cars, and work equipment are necessary for your job and comfort but can cripple your savings when they are unplanned for.
Proper research will help you better understand the local market for these items, the price ranges to expect, and other pertinent details. Not only will this help you make an informed decision on your purchase, but it will also save you from overpriced or bad deals.
Avoid unexpected medical expenses
Medical expenses are known to be very costly. Even worse, a sudden trip to the hospital or unexpected accident can quickly drain your savings and put you in financial difficulties. Health problems can also impede your ability to work and earn income to replenish your funds.
Take the necessary steps to safeguard your health by living a healthy lifestyle and purchasing a health insurance plan. With an insurance plan, you can cut down on expenses for treatment and receive compensation for any income lost.
Live your best life abroad
Working and living abroad is a big risk, requiring good financial management to make it successful. Knowing the best practices for transferring money and saving up can lessen your worries, improve your financial state, and even boost the quality of your life abroad.