Navigating Finances as an American Expat

Managing your money as an expat abroad comes with its fair share of challenges. From dealing with local banks and sorting out living expenses to managing taxes and getting a health care plan, the sheer number of affairs to handle can easily lead to mismanaged finances and short-term decision making.

Learn how to identify common financial challenges, plan ahead, find the best life insurance companies and know when to turn to advisors for help.

Moving to a different country can have a significant impact on your finances. In addition to tax rules and regulations, you must also be mindful of exchange rates, currency conversions, living expenses and insurance policies. Being aware of financial matters can ensure you’re prepared for the challenges you may face in a new country of residence.

Whether your cost of living gets cheaper or more expensive, managing your cash before and after moving is vital. Aside from flight, luggage and shipping costs, consider expenses like travel insurance, accommodation and transportation before moving. Once you arrive at your destination, think about foreign tuition fees and home or health insurance. You will also have to open a local bank account to make it easier to manage your funds. Remember that being able to rely on yourself financially is crucial, as being in a new country can make it difficult to ask for financial aid from family and friends.

Families with relatives who move abroad without their spouse, children, parents or siblings are considered cross-border or transnational families. While a family member may move abroad for better financial opportunities, there are also drawbacks. Living expenses can increase dramatically in countries with a different currency, which can pose a problem without a proper budget and forecast. Expats who move for economic reasons should also think about the cost of remittances, along with the eventual cost of reunification in a new country.

A common mistake that some expats make is thinking they don’t have to or forgetting to pay their taxes. American citizens living abroad must file federal and state tax returns if their income exceeds the minimum threshold of their respective category. If your new country of residence also requires taxes, you may face double taxation. Expats should be aware of tax implications and laws that can affect their long-term finances and plans abroad. Below are some of the most significant U.S. tax laws that American expats need to know and comply with.

Knowing how to manage and protect your finances wisely when you’re in a different country is vital to ensuring your long-term financial stability. While the process may differ compared to living in the United States, establishing a good financial foundation can be done so long as you maintain discipline and keep your goals in mind.

Cash management will be a completely different experience once you move abroad, which makes gaining financial literacy all the more important. Your expat tax status, currency management skills, costs of living and life, disability, health and travel insurance will all become essential when you move to a foreign country — especially if you’re bringing your family. Learn how to allocate your cash flow in the step-by-step guide below.

If you rely on a bank account in your country of origin, you will have to deal with hefty transaction fees, and you may find that a corresponding bank branch does not exist in your new location. Opening a bank account abroad is a wise financial decision for expats. However, the process can be challenging — especially if there are local, tax and regulation compliance requirements to follow. The following tips can help you choose the right bank abroad and manage your money with ease.

The financial implications of moving abroad are vast. Seeking professional advice from a financial planning advisor can help alleviate the difficulty of navigating new tax rules and dealing with new living costs. However, not all financial planning advisors will suit your needs. Choosing the right one is important, especially if you want to develop a solid working relationship that can last for the long term.

Insurance grants expats peace of mind wherever they are in the world. For instance, life and health insurance is vital for expats moving to a country with a poor quality healthcare system. Even if your new country of residence provides subsidized healthcare, there may be gaps in coverage. Likewise, disability insurance will protect your loved ones if something happens to a member of your family. Below are a few resources that can help expats learn more about insurance.

• Expatica: Expatica is an information hub built for expats, by expats. They provide guides and resources for expats looking to purchase health insurance in their respective country of residence.
• The Association of Americans Resident Overseas: The AARO is an organization dedicated to helping Americans who live outside of the country. They also provide an affordable health insurance option designed for expats, which can be easily moved from country to country.
• Centers for Disease Control and Prevention: The CDC outlines some helpful and insightful information on travel insurance, travel health insurance and medical evacuation insurance that all expats should know prior to moving.
• InterNations: InterNations is a helpful hub on all things related to expat insurance, with topics such as global life insurance and expat health insurance.

Saving and investing should be part of any expatriate’s long-term financial plan. With the number of offshore investment opportunities, ensuring that your hard-earned money works for you can help you achieve your long-term goals. However, this can be difficult for an expat in a new country. As investment options vary across the globe, expats run the risk of getting taxed unknowingly. Thus, identifying the right investment opportunities, developing a strategy and minimizing currency risk are key steps to establishing an effective saving and investing plan.

Expatriates have a number of investment options available to them — but choosing wisely is a must. Keep in mind that FATCA and PIFCs can reduce income due to the tax returns required. Some options that expats have include offshore investment bonds, managed future funds, commodities and more. If you have enough capital, you can also consider purchasing property in your new country of residence and turning that into an AirBnb or your long-term home. If you aren’t sure or do not feel confident in your investment skills, you can turn to expat-specific products from international banks. Some banks have a number of wealth management products designed specifically for expats.

Having a long-term investment strategy can ensure your stability no matter where you are in the world. As an expat, exercising flexibility in your plans is a must — especially if you travel every few years. Compared to those who stay stateside, planning your investments will involve more factors, such as regulatory requirements, fees, safety considerations and more. Use the step-by-step below as a starting point to help you create a long-term investment plan as an expat.

Investments which are not made in U.S. dollars often pose a greater risk — be it stocks, funds or properties. Good returns can be easily diminished by changes in the exchange rate between the USD and the currency in which your investments are made. One way to minimize currency risk is to have a portfolio that’s highly diversified across currencies. This is best done in countries with currencies pegged against the dollar, such as Saudi Arabia or Lebanon. Another option is currency-hedged funds, which are mutual funds that use futures and options to hedge against currency risk. Expats can also consider investing in rising currencies, which typically come from countries with low debt to GDP.

Building retirement savings early is the key to enjoying life after your working years. While it’s possible to continue contributing to an individual retirement account (IRA) you may have, it’s not wise to have that account be your only source of money. Think about international savings accounts or other investment opportunities that can grow your money before retirement, and don’t forget to think about the tax implications. Keep in mind that different countries have different rules regarding taxation of retirement savings. Even foreign retirement account distributions are considered taxable income by the IRS.

Employing the benefits of an individual retirement account (IRA) or Roth IRA can provide tax savings, asset protection and estate planning. Starting as early as possible can help you compound tax-free funds during your working years.

Living abroad comes with certain safety risks that need to be mitigated with life insurance and proper estate planning. For instance, your new country of residence may lack quality healthcare. If you end up sick, you may be leaving your family with no source of income. Purchasing health, disability and life insurance policies are a must for any expat. For those who travel frequently, travel insurance is also something worth considering.

Planning ahead in case of an untimely death is equally important. Create a will to ensure all your assets go where you desire. If you have children, you may also consider creating a trust.

While having a will is one of the fundamentals of estate planning, it’s important to remember that you have two inheritance laws to consider: that of the U.S. and that of your new country of residence. Consider making two wills: one for property and assets located in the U.S. and one for property located abroad. The easiest way to do so is to hire an estate planning attorney who can help identify the laws and tax regulations you need to consider.

The resources below provide more information about how expats can manage their finances, invest wisely, plan for retirement and mitigate risks.

• American Citizens Abroad: ACA provides a page dedicated to providing resources for American expats. From finding tax preparation services to knowing how and where to vote, it covers a vast number of sites where expats can get help with their concerns.
• American Citizens Abroad's Estate Planning for U.S. Citizens Living Overseas: This resource from the ACA explores estate planning for U.S. citizens residing overseas. It outlines the validity of U.S. wills abroad and how property laws can differ in every country.
• InterNations's Expat Insider: The Expat Insider 2021 from InterNations provides a look into how expats around the world are managing their finances. This can give you good insight into the best countries to move to when it comes to financial matters.
• InterNations's Financial Checklist for Expatriates: This financial checklist for expatriates offers a brief look at what expats need to consider when it comes to setting goals, building up reserves, making projections and more.
• Internal Revenue Service: To have a better idea of the taxes to pay and when, the IRS has a number of resources that can help clarify when to file, what to file and how to file.