Managing Finances When Living Abroad

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The lure of a lower cost of living and experiencing exciting cultures has motivated roughly nine million Americans to live abroad. This is especially true when it comes to seniors looking to retire. But besides what to pack, money can be a significant stress point.

As an expat, managing your money can be a challenge. You not only have to worry about living expenses but also banking becomes an issue. What are the tax ramifications of living in a foreign country? There’s much more than knowing what to pack that goes into a move abroad.

Understand Local Currency and Exchange Rates

When living abroad, spending the local currency may feel different than using the U.S. dollar. It’s hard to wrap your head around 100 yen worth $16. But it’s essential to understand the exchange rate of your new country’s currency.

The trap of not understanding exchange rates is frivolous spending. This is because the value of the “new” money hasn’t been internalized yet.

Use the local currency to set up a budget. In other words, plan how much money you intend to spend monthly based on the local currency, not American dollars. It will make your budget much cleaner and more realistic.

Maintaining US Bank Accounts

Future expats may question keeping their American bank account. But it’s important to keep your U.S.-based account for several reasons.

You can pay U.S. bills or transfer to other U.S. banks without paying bank or currency conversion fees.

It also depends on how long you’ll be abroad. You may not want to close your accounts if you’re only going to be gone for a year or two.

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But if you keep your U.S. accounts active, you may have to pay state taxes, depending on what state the account is located. Many expats relocate to a low-tax or non-tax state to keep U.S. accounts without paying state taxes.

Your American bank may not let you use a foreign address. In that case, use credit unions such as the State Department Federal Credit Union (SDFCU). You can go through organizations like American Citizens Abroad (ACA) to open an account.

You could also use a family member’s address with your bank. If that’s not an option, use a paid mail forwarding service. These businesses provide a physical address, not a P.O. box. They will either ship your mail to you or scan it and send digital copies.

Check with your U.S. bank and see what fees they charge for withdrawing and transferring money internationally. There are banks, like Chase Bank, that cater to expats.

Always notify your bank that you will be overseas.

Open a Local Bank Account

If you will be living in one place abroad, you’ll want to open a local bank account. Necessities like renting, buying a home or paying bills for local services should be done through a local financial institution.

When you have a local bank, you’re not charged every time you use a debit card with fees and currency conversion costs. When purchasing with a debit card, some American banks charge three to five percent fees.

When deciding on a local bank, ask what fees they charge for service or withdrawals. You’ll also want to ensure they provide mobile banking.

Maintain a Good Credit Score

To maintain a good credit score in the United States, keep your credit cards. You'll still be using them, and by paying for them, you’ll keep your credit score healthy.

You'll also need to maintain a U.S. bank account and address. Make it a point to switch to online statements. It’s more convenient, and it protects you from having your mail stolen.

Security standards are different globally. So, ensure you monitor your accounts for signs of fraud.

International Health Insurance Coverage Needed

There are risks to not having health insurance anywhere, but if you’re in a foreign country, you could accumulate massive medical bills quickly. There is no free healthcare for expats.

If you’re 65 or older, remember that Medicare doesn’t provide coverage if you live outside the United States for more than six months.

Private U.S. health insurance plans sometimes offer limited coverage outside the country, but that is rare. You'll need to purchase international health insurance.

Taxation and Legal Obligations

Just because you live abroad doesn’t mean you escape U.S. taxes. American citizens living abroad must file federal and state income tax returns. The exception is if your income is below the minimum threshold.

Besides filing a tax return every year, an expat is required to file the Foreign Bank and Financial Account Report (FBAR). In conjunction with the Bank Secrecy Act, you’ll be required to report foreign financial accounts to the Treasury Department. These include:

• bank accounts
• brokerage accounts
• mutual funds

But if you forget to file this report, the Internal Revenue Service (IRS) will know. Foreign financial institutions are required to report as well. Under the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions are generally required to report assets held by U.S. account holders.

Your new country may also require taxes. This could set you up for double taxation.

Before you make a move, sit down with your accountant and determine what the tax ramifications are.

Secure Finances When Moving Overseas

It’s exciting to move to another country. For many, it’s a significant turning point. But besides packing and picking out your new home, some financial planning must be done. First, check on your health insurance; this could bankrupt you if you don’t have it lined up properly.

Know your new country’s exchange rate and consider opening a local bank account.

Remember, you’re still liable for taxes in possibly both countries.

The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.