7 money moves to make before living abroad
The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
Thinking of living abroad? You’re not alone. A growing number of Americans are leaving the U.S. for career opportunities, a lower cost of living, or to stretch their retirement savings. In some countries, a lower cost-of-living and a booming economy mean you won’t just save money — you could stand to make money, too.
BRIC nations (Brazil, Russia, India, and China) can offer great financial incentives for living abroad, like promising investment opportunities or lower interest home loans.But before you take out a loan in Brazil or invest in property in China, be sure you understand the true financial implications of leaving the U.S.
Moving abroad without a financial plan could leave you stuck without affordable housing or unable to return home quickly in an emergency. Here are seven smart money moves to make before you move abroad.
1. Start saving now
If you’re seriously thinking of living abroad, the time to start saving is now. It’s great to have seven to nine months’ worth of living expenses in the bank — or in an easily accessible, low-risk savings vehicle — before you move abroad.
You may need more or less depending on your lifestyle. The exact amount you should save will depend on your job, family status, lifestyle, the current exchange rate, and your local network abroad.
As a future expat, don’t just plan for the costs of moving abroad. Think about the costs of moving back, too, or flying back to visit family and friends.
What if you have an opportunity to move abroad before reaching your savings goal? Make sure you at least have the funds to cover housing costs, including security deposits and other settling-in costs, plus emergency health care and repatriation expenses.
2. Create a budget for living abroad
It’s great to have savings, but you should also understand the cost of living in your new country. If you’re not sure how much things really cost there, your savings might not last as long as you think.
Before you move abroad, figure out the costs of housing, food, education, entertainment, transportation, utilities, and insurance in your new country. From there, you can create a monthly budget based upon your income and projected expenses.
You can find sample budgets for many countries online. Expat blogs, moving checklists and online cost-of-living calculators are also helpful for planning your budget.
Once you move abroad, track your living expenses for a few months and see how your budget stacks up. You can then adjust your spending accordingly.
3. Choose your bank before you go
If you’re heading to a country with a less developed banking system, be sure to research banks in advance.
Focus on the bank’s international clearing networks and whether they issue U.S.-style credit cards with the Visa or MasterCard brands. You can also check whether a bank participates in a shared ATM or payment clearance network like Cirrus.
When banks participate in consumer-oriented networks or partnerships, it’s a good sign that that they’ve been vetted by other major businesses and they’re reliable.
You should also find out if bank deposits are guaranteed. If the host country’s government guarantees the accounts, consider the stability of the government. If the guarantor is a private organization, research the strength and reputation of the organization.
Once you’ve vetted a bank’s networks and guarantors, be sure to look at variables like interest rates, fees, and ATM access. If you’re planning on buying a home in your new country or need help with the cost of moving, choose a bank that offers mortgages or personal loans.
Finally, make sure private banks in your target country allow U.S. citizens to open a bank account. In some countries, private banks might hesitate or even refuse to let U.S. citizens open accounts. These banks might not be able to comply with the Foreign Account Tax Compliance Act, which requires them to inform the IRS of accounts held by expats.
4. Set up your bank account ASAP
If possible, start the application process for an overseas bank account before you leave the U.S. While you might not be able to open an account before arriving in your host country, you can still gather all the documents you’ll need once you get there.
Delays in opening a bank account can cause unexpected financial stress. Without a local account, you might have problems finding housing, obtaining a credit card or cellphone, or cashing your paycheck. Contact your new bank before you move and ask which documents you’ll need to get the ball rolling.
5. Understand expat taxes
Hoping to hop on a plane and skip out on your tax bill? Even if you’re thousands of miles away, you’re still on Uncle Sam’s radar. The U.S. requires citizens and green card holders to file returns and pay taxes when living abroad, even if they also file a tax return in their host country.
This doesn’t necessarily mean you’ll be double-taxed. Under the Foreign Earned Income Exclusion, if your foreign earned income is less than $104,100 in 2018 and you meet certain time tests for residency abroad, your income is not subject to U.S. taxes, although you should still file a return. If your income is higher than this amount, foreign housing expenses or taxes paid to your host country may be applied to offset or reduce your U.S. liability.
State taxes may also apply if you’re renting or selling your home while abroad.
Given the complexity of these issues — and stiff penalties for noncompliance — discuss your situation with a qualified accountant before you move abroad.
6. Keep saving for retirement
No matter how easy the living is in your host country, you should still keep stashing away cash for retirement.
If you work for a company with a 401(k) plan, keep contributing while you’re living abroad. If the company policy excludes expats, ask if the plan can be amended to allow expat participation. Companies may find an amendment worth the value of having good employees overseas.
People with traditional or Roth IRAs should note that contributions to these vehicles might be prohibited while overseas. If you don’t have taxable income, you can’t contribute to an IRA.
If you’ve escaped all U.S. tax liability thanks to the foreign earned income or other exclusions, you can find alternate ways to save. Consider establishing a brokerage, investment, or savings account earmarked for retirement.
7. Keep your credit in check
Do you have an excellent credit score? Leaving the U.S. to live abroad for an extended period could cause that score to plummet— and cause financial trouble when you return home.
When most people return to the U.S. from living abroad, they want to buy a home and a car. Many are surprised to find they no longer have a credit score and have to re-establish their credit.
To prevent this, remember to use a U.S. credit card a few times a year. Buying a couple of books from Amazon.com — and paying your debt on time — can keep your credit score pristine.