How to Financially Plan for a Move Overseas
A major decision like traveling abroad takes months of planning. Not only do you need to consider all necessary documentation and where you will be living, but money plays a major factor. You may have saved enough for the plane ticket but what about food and entertainment? Take the time to really think about each dollar you will be spending.
Open Two Bank Accounts
Often before traveling, people will close their bank account and open one in their new country. However, keep two accounts open to stay organized. Your bank account in your home country should remain open so any financial obligations can be paid off. These payments include mortgage, loan, tax payments and recurring bills.
Establish a relationship with the bank in your new location to manage your everyday cash needs. Prior to moving, save up enough money to pay for at least 3 to 6 months of living expenses and then put it in this new account. Invest in a big bank that has experience with currency conversions. A bigger bank generally offers better exchange rates and can wire money quickly.
Manage a Credit Card in Your Host Country
For everyday purchases use a credit card that has been established in your host country. When setting up a credit card from your new location, you can easily avoid foreign transaction fees and rate fluctuations. A major reason to use a U.S. credit card is because your credit score can plummet when moving overseas. By keeping your credit card active, your credit will not lower.
If you are traveling from the U.S. to another country, you are still required to file returns and pay taxes. According to the Foreign Earned Income Exclusion, for an income less than $97,600 your income is not subject to U.S. taxes. You should still file a return however but will not be double taxed. Additionally, state taxes may apply when renting or selling your home while abroad.
Save for Retirement
Regardless if you are living in a cheaper country, always put away money for retirement. Take advantage of a company that offers a 401K. Some companies may exclude expats, but you can always ask if the plan can be amended to allow expat participation.
Before diving into a major move, always prepare well in advance. You may have been saving for years for this trip but there are many other things to consider. Remember the importance of having a credit card, comprehending taxes abroad, opening a 401K and overseas bank account. Since there are so many aspects to traveling abroad, hiring a financial advisor may make the trip run smoother.