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While living abroad can offer many once-in-a-lifetime experiences in travel, dining and culture, it's important to think about the impact these extra travel expenses can have on one's savings.
Through careful preparation, expatriates can make the most out of living abroad without taking a hit to their net worth. Here are a few savings strategies to keep in mind while living abroad.
Whether they're saving for retirement or a new vacation home, expatriates should calculate a target number that represents how much they'll need to save after taxes to finance their future goals, says Douglas Goldstein, CFP, president of Profile Investment Services, a financial planning and investment firm in Jerusalem and Miami, and author of The Expatriate's Guide to Handling Money and Taxes.
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To determine their target savings plan, Goldstein suggests that individuals calculate the difference between what they earn and what they plan to save. For instance, "if you earn $10,000 per month and save $2,500, all you have to spend is $7,500," he says. "You have to live within those means." Goldstein also recommends that individuals work with a qualified tax planner who can help them figure out if they owe taxes to both the home and host countries.
Because expatriates likely have a bank account in their home country to finance expenses like a mortgage, they should be proactive about sending funds to this account to accumulate domestic savings, says Andrew Fisher, CFA, CPA and president of Portland, Ore.-based Maxim Global Wealth Advisors, an independent wealth management firm that focuses on cross-border families. When sending money overseas, individuals should be mindful to minimize the number of international wire transfers, as sending "numerous small wires can become quite costly," Fisher adds.
To execute transactions in foreign countries at the most favorable time periods, individuals might consider using a trusted online foreign exchange service, which can offer real-time rates and email market-rate alerts. Moreover, expatriates can also avoid taking a hit to their savings when banking overseas by lumping money transfers together. "The bigger the amount, the better rate you'll most likely get," says Victor Hinojosa, director of North American partnerships at Western Union Business Solutions. "So if you have the ability, hold off and try to send as much as you can at once."
While living abroad, some expatriates might decide to diversify their savings in the form of investments across various foreign countries. Fisher recommends that individuals hold assets in areas with "stable financial infrastructures" and avoid foreign countries where there is civil unrest. This will help ensure that an individual's foreign investments offer opportunities for long-term returns and also can help mitigate risk against their savings in the future.
If an individual is uncomfortable with putting his or her savings in an unfamiliar market, it may be best to keep assets in the home country. "If someone is living overseas, he should generally keep his savings and investments in his home market since setting up a brokerage account in the foreign country can complicate his situation," Goldstein says.
No matter how individuals decide to grow their savings, it's necessary that they stay up to date on their deposits and money transfers. "Whether it's done yearly or monthly, you should try to add to your savings on a regular basis," Goldstein says.
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