Monday, May 23, 2022

How to Save Money as an Expat?

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Contrary to popular belief, there are actually many expats who are on a budget. Even those who aren’t, soon learn that being an expat doesn’t equal being on a continual holiday, even when they choose to relocate to a country with lower costs of living.

It all boils down to savings. Many people actually have the awareness that they shouldn’t spend all their earnings as soon as they get hold of them, but saving for emergencies and saving for being an expat are not exactly the same thing. And it also comes down to planning.

Consider Disposable Income

Many people have become aware that surplus money doesn’t grow when left in a bank account. Not only do banks tend to charge unsightly fees for their services, but they also devalue your bank account savings by means of inflation.

To be sure, not everyone is fit to become an investor, but there are other ways to better maintain your savings. A savings account, for example, may be a good idea for emergencies, but only for emergencies. In that sense, you can as well bury the money in your garden and dig it up when you need it.

So, what can be done to manage savings more efficiently?

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Also Read: Turning Your Hobby Into a Side Hustle? Here’s What You Need to Know

Make Your Savings Plans

Money Management Guide

First of all, you should plan properly. Make a sustainable savings plan and — equally important — define your savings goals. Once you know where you’re heading, it will be much easier to think up solutions that are cost-effective and tax-efficient (never ever forget to take taxes into account!).

One solid idea is to create an investment portfolio. This is a far better idea than to risk losing money on unpredictable investments (such as cryptocurrencies), as this strategy will enable you to make periodic investments when the time is right. Consider long-term growth as opposed to short-term investments.

If uncertain where and how to start, it is perfectly viable to consult an expert to help you get started. A good financial adviser will take your specific circumstances into account and help you create the best customized plan. The one thing to keep in mind here is that you should review your strategy regularly as time doesn’t stand still and circumstances (especially geopolitical) change continually.

Calculate the Costs of Living

One of the common mistakes expats make is that they take a brief look at the costs of renting and food and decide the country they’re about to relocate to is cheaper to live in than the States.

This is a huge no-go. It’s too late to remember all the recurring costs once you’ve already moved. Think in terms of services you use at home and take them into account.

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For example, on top of the essentials, there are also the costs of utilities, local transportation (public transportation vs. buying a car vs. renting a car), housing costs, clothing, and more to take into account.

Make sure to do proper research and estimate the monthly costs, plus the taxes before making a final decision. There are also housing exclusions that can help out.

Also Read: Infographic: 9 Nudge Theory Tested Examples to Give You “Life, Career and Savings” – Goals

Calculate the Costs of Relocating

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Next on, there is more than meets the eye to relocating costs. Many expats make the mistake of assuming that the movers are the only cost they need to calculate.

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Consider this: many expats end up renting temporary accommodations and only then take their time finding the right long-term deal. This, in simplest terms, means you’ll need to pay movers at least twice, and that if you’re lucky.

Depending on the country you’re relocating to, you’ll need to take into account the term “furnished.” In some countries, towels, bed linens, cookware, and even some pieces of furniture may not be included, meaning you’ll have to invest quite a lot to make your apartment liveable. Don’t forget that you’ll need some time to get an idea of what’s expensive and what’s reasonably priced in the new country of residence, so calculate in some more expenses in the beginning.

Finally, keep in mind that there may be unexpected costs once you arrive, especially if you don’t know your way around. There may be various administration costs, fees and deposits.

As a rule, it is always the best idea to get in touch with the local expat community ASAP, as these people can show you the ropes and also recommend the best and most cost-efficient services.

Also Read: 5 Ways to Save Money By Making Your Office Sustainable

Create a Budget, Open a Local Savings Account, and Keep Records of Your Spending

Once you have an idea of estimated monthly costs, it’s time to take action. First of all, you should create a budget. Calculate your monthly earnings vs. monthly spending (average), and create a savings plan based on that. Everything extra is a gain, so this basic strategy will allow you to use the extra money to enjoy your expat days.

Then, you’ll need a local bank account. While you won’t be able to save too much (as discussed above), the savings account will help you leave some money on the side without being tempted to spend the very last penny on some exotic item you won’t actually need (it happens quite often to new expats, in fact).

Finally, keep records of your spending, at least in the beginning. This will give you a solid idea of how to adjust your budgeting strategy as money spending habits differ from person to person.

Know Your Taxes

Now, the matter of taxes is cumbersome for many, but there’s no way around it. As soon as you get settled, you should make sure to learn all there is to know about the local taxes: the actual amount, where to pay them, and how to pay them.

That’s just one-half of the riddle. The other part is federal and state taxes. Unless you’re an expat originating from Alaska, Florida, Nevada, South Dakota, Texas, Washington State or Wyoming, you’re eligible for income taxes for expats if you:

  • Earn income in the state regardless of where you reside
  • Get pensions, retirement income or any other government benefit in the state

As for state taxes, you are eligible if:

  • You lived in the state for any duration during the tax year
  • You have a permanent place of residence in the state
  • Your immediate family lives in the state while you’re abroad
  • You keep your voting rights, ID card, or driver’s license in the state

There are useful hacks to alleviate the costs for tax purposes, all of which we’ll consider below.

Streamlined Tax Filing Procedures

The Streamlined Filing Procedures (SFP) are an alternative to the IRS programs and are devised exclusively for expats. The SFP covers a number of tax returns.

To qualify for the SFP you should be able to:

  • Demonstrate that the reason for not filing taxes in the past was because you didn’t know you were required to
  • Have lived outside the U.S. for at least 330 full days during one or more of the three most recent tax years
  • Not have had an abode in the U.S. for one or more of the three most recent tax years
  • Produce a signed statement (Form 14653) certifying all of the above

Prevent Double Taxation

In some cases, you may be able to prevent being taxed on foreign-earned income. There are four ways to choose from, as follows:

The Foreign Tax Credit (FTC)

The Foreign Tax Credit (FTC) helps expats claim a dollar-for-dollar credit on foreign income taxes. To qualify, the expat should obtain a foreign tax liability.

The Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) is applicable to expats who can pass either the Bona Fide Residency test or the Physical Presence Test. Up to $112,000 of the foreign-earned income in this year can be excluded in this way.

Tax Treaties

The U.S. has tax treaties with 70 countries set in place. If you’re planning to establish your own business, look up the countries that have a tax treaty with the U.S. 

Key Takeaway

Saving money as an expat may be a complex process, at least in the beginning while you’re still learning the ways of your country. However, some general tips may help you step up the process, notably:

  • Making a savings plan
  • Monitoring your monthly spending
  • Calculating the costs of living
  • Calculating all the costs of relocating
  • Making use of STP and preventing double taxation
  • Opening a local savings account

The most important thing to remember is — to learn on the go. There’s no one-size-fits-all approach applicable to everyone, so make a customized savings plan as you get familiar with local costs.  

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