I’m a Financial Advisor: Here’s the No. 1 Thing I Tell My Clients Living Abroad
Written by
Cindy Lamothe
Edited by
Gary Dudak
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Living abroad is idyllic for many people — having the chance to explore new places, meet new people and learn about new cultures. It’s all something to feel excited about.
What’s not so dreamy? Managing your money while living abroad.
For many expats planning to live internationally, this is a scary topic. There’s so much to know, and it’s not always easy to get answers. Do you still pay taxes? How should you plan for retirement? Should you invest overseas?
Thankfully, GOBankingRates spoke with Dayten Rynsburger, finance expert and CRO at Niche Capital CO, to discuss his top advice for expats. According to him, managing finances abroad as an American involves some key financial considerations. Here’s the main thing you need to know, along with several other helpful notes.
First and Foremost: Know Your Tax Obligations
For Americans living abroad, one of the most fundamental aspects of managing finances is navigating the complex landscape of U.S. tax obligations in conjunction with the tax regulations of their host country.
In sum: Expats are obliged to deal with both the U.S. and the host country’s tax systems.
“The U.S government requires citizens to report on their foreign income, thus understanding concepts like Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) is extremely important,” said Rynsburger.
To optimize your financial situation, you should be aware of tools like the Foreign Earned Income Exclusion (FEIE), which allows for the exclusion of a portion of foreign income from U.S. taxes, and the Foreign Tax Credit (FTC), which provides a credit for taxes paid to a foreign government. FATCA (Foreign Account Tax Compliance Act) compliance is obligatory, requiring reporting foreign financial accounts exceeding specific thresholds.
To eliminate double taxation and abide by tax regulations, Rynsburger advises his clients to consult a tax consultant who understands expatriate rules.
Banking and Investments
Beyond taxes, expats should also consider how currency exchange rates and investment management differ when living abroad.
“Handling bank accounts and investments in different countries may be difficult or complex,” said Rynsburger.
He tells his clients to ensure international banking services are available to them, while also comprehending how currency fluctuations affect their investment portfolio. “It’s also good to know the local financial laws as well as reporting requirements.”
Currency Exchange
Exchange rate fluctuations can also significantly impact savings and investments, so it’s vital to have strategies to mitigate these risks.
“Be careful about any transfer of currency or asset management in terms of exchange rate changes,” Rynsburger warned. “Using hedging strategies as well as multi-currency accounts can help minimize risks related to currency fluctuations.”
Retirement Planning
Rynsburger advises clients to have knowledge on how living abroad affects your U.S retirement accounts and what retirement options are available in that nation where they reside.
“Optimal long-term planning needs coordination between the U.S and foreign pension plans,” he said.
Other Tips for Expats
When it comes to financial planning, there are so many things Americans living abroad need to understand in order to protect their financial well-being.
“They are all important because the neglect of one could have a boomerang effect on all they have labored to build,” said Mafe Aclado, finance expert and general manager of Coupon Snake. “You see, for many of my clients living abroad, the plan has always been to return home to America when all has been said and done.”
She continued, “So I always try to ensure that amongst other things, that they understand that although they may be currently cultivating on foreign soil, that they should always make sure to protect the garden they left behind at home both by tilling the soil, and occasionally adding fertilizers to it in order to help improve the quality of produce it yields at harvest.”
One important thing she never fails to emphasize to her clients living abroad is the importance of maintaining a good credit score at home. “Maintaining a good credit score is important for Americans living abroad because it protects their future credit needs, especially for when they return home.”
Having a good credit score, according to Aclado, makes lots of things easier: securing a mortgage loan, business loan, insurance and securing better employment.
“For Americans living abroad, having a good credit score is like having insurance that protects their financial needs for the future, and offers them a safe landing for when they come home,” she said. “This way, they don’t have to start from scratch.”
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