Finance mistakes are common among expats because they are often unaware of the pitfalls while dealing with finance away from home. However, with some awareness and planning, most of these can be successfully negotiated.
Here are six common financial mistakes that expats make and the ways to avoid them:
1. Underestimating the cost of living
Before you embark on the expat journey, do a thorough research on the cost of living at your destination. It is important to know the impact of everyday stuff on the monthly income whether the overall monthly expenses will be cheaper or costlier and so on.
Underestimating the expenses can land you in a difficult financial position. Get an idea of the income and expenses to get a picture of expected savings. With proper planning, overspending can be avoided.
2. Ignoring the banking operations
While leaving, it is important to retain an address in the home country for keeping the bank account open and active. If not, it could affect the credit rating. Further, it might make banking difficult once the expat returns home.
Hence, it makes sense to change the address of correspondence to that of a trusted relative if no one lives at the current address.
Likewise, close/consolidate the credit card accounts. Keep a couple of cards for emergency use and get rid of those with low ratings. It is advisable to inform the credit card company about the expat status. There is nothing more frustrating than finding that you can’t use your card in an emergency because the company blocked it due to suspicion of fraud.
It is important to open an offshore bank account. It makes payment of bills (paying utility bills, daily expenses etc.) in your foreign country easy. This also makes the transfer of money from the expat country to your home country effortless.
Most banks offer specialized forex services to their customers. For instance, Commonwealth Bank offers its customers both in-branch and online forex services via its online banking platform. Foreign exchange services offered by the bank make transfers in/out of the country easy.
3. Not factoring in the exchange rates
Most expats don’t give a second thought to the exchange rate fluctuations. This can be particularly damaging to their budget in case of regular withdrawals for fixed payments back home. For instance, the mortgage payments or repayment of any outstanding loans in the home country would require regular monthly outflows. In such cases, it makes sense to get a fixed rate of exchange for at least six to 12 months. This means there will be no additional pressure on your carefully calculated budget.
Most banks publish exchange rates on their websites daily. It is also available from a variety of other sources. For example, CBA exchange rates offered by different providers are readily available at the click of a mouse and they are updated daily. Observe exchange rates over a period to get a better idea of when to make the transfers to the home country.
4. Opting for inadequate health and life insurance cover
It is important to get the right insurance cover for your life and health while on an expat assignment. Under-insuring might prove costly if something goes wrong, especially with health insurance. While the long-term travel insurance taken out from home country could cover any medical emergency, it is important to make sure that it offers overseas cover. Wherever possible, go for a comprehensive health cover because expenses such as dental expenses could be costly in certain countries.
it is better to communicate any change in the circumstances to the insurer. If not, it might render the cover invalid. With life insurance policies, long stays outside the home country usually invalidate the life cover. So, make sure you check with the insurer.
Wherever possible, negotiate the inclusion of health and life insurance as part of the salary package. It will mean one less thing to worry about while living abroad.
5. Underestimating the moving costs
Most expats underestimate the moving costs. To avoid this, it is essential to draw up a budget for the move abroad. It is important to factor in the possible external changes that would affect the budget, such as foreign exchange rate fluctuations and fluctuations in the local cost of living.
Also important is to note that there are one-off costs such as expenses for legal services, property purchase/rental, local administration costs/taxes and so on. All these little expenses can add up and topple your budget. Hence, you have to consider them and make provisions.
6. Ignoring the tax requirements
While most expats will get help from their company to fill out tax forms, it is important to get an overview of the individual tax position. Some countries tax people only if they generate their earnings in their home country while some countries tax their citizens on their global income.
In this context, it is worth remembering to take original hard copies of documents like passports, birth certificates, graduation certificates and other such necessary documents. Carrying an electronic copy over and above the hard copy is also advisable.
Make sure that you carry all necessary documents required for visa renewals, banking, investments, tax filing and other possible requirements. That way, you don’t have to ask someone back home to track the documents and send it across to you.
The above pointers can go a long way in avoiding financial mistakes while in a foreign country. All you need is some awareness and a little planning to overcome these common financial mistakes.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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