Anyone can make mistakes that cost them financially and we, as expats, are not immune either. In fact, there are often more pitfalls to negotiate when you are living as an expat than when you are back home.
As with so many things in life, a lot of potential issues can be avoided with some preparation, so I have compiled my Top 7 Financial Expat Mistakes in order to help you avoid some of these pitfalls.
1. Underestimating The Cost Of Living
Many expats arrive in their host country on a wing and a prayer, having done very little in the way of research on how much their living costs are likely to be.
These days it is easy to find information online, so there’s no excuse for going in blind. Sites like Expatistan can offer some good insights and also check out the local expat sites.
Understand the cost of living and what you’ll be paying for the everyday stuff. Does it look like your monthly expenses will be cheaper than what you are used to or will you be spending a larger portion your income each month?
Underestimating your monthly expenses can be a drain, as can falling into the trap of overspending – see Lifestyle Creep below.
2. Bad Investments
Unfortunately, this is a common theme amongst expats.
In countries with large numbers of expats, you will also find large numbers of financial product salespeople.
Whilst there are some good ones, there are also many very bad ones, who are only interested in the commission they can receive from selling their products.
You need to be extra vigilant here.
The right financial planning and investment advice can save and make you money, but using expensive and inappropriate products will end up being a mistake.
I can write all day about this, so check out some of these other posts that go into bad investments in more detail.
3. Health And Life Insurance
More often than not, the insurance you have at home will not cover you for an expat assignment.
Sometimes, long-term travel insurance that you may have taken out back home will cover you for a medical emergency, but you need to check the details and it is usually under the assumption that your permanent residence is still the one back in your home country.
In the event of an accident, the last thing you need is to find out that you are not actually covered. This can end up being a very expensive mistake. You should always inform your insurer of changes in your circumstances anyway, since not doing so may render cover invalid in the event of a claim.
The same is true with life insurance. Long stays outside your home country will usually invalidate the policy, so you need to check with your provider.
It is important that you do not leave yourself exposed. If you don’t already have it as part of your salary package, it is a good idea to negotiate the inclusion of life and health insurance before you agree to taking on the expat assignment, as it will be one less thing to worry about.
Not retaining an address in your home country can make it difficult to keep a bank account open and may even affect your credit rating, making banking difficult when you return home. So, before you leave, simply change your correspondence address to that of a relative.
If you have a lot of credit cards, this could be a good time to close and consolidate some of the accounts. Retain the ones in good standing and keep them for emergency use. Remember also to inform the credit card company that you are spending some time abroad.
There’s nothing worse than needing the card in an emergency, only to find it gets blocked due to suspected fraudulent use. (Yep – been there!)
Whilst on the subject of banking, it is also a good idea to open an offshore bank account. It is legal to do so and having one can bring numerous advantages.
5. Tax Filing
Know your tax position.
Your company may help you with this, but otherwise, you need to be on top of it for self-assessment purposes. This is particularly important for passport holders of countries that tax their citizens on their global income, e.g. USA.
On the subject of administration, another hassle-saving tip is to bring original, hard and electronic copies of passports, birth certificates, degree certificate and other documents that may be relevant.
These sorts of documents are usually required for banking, visa renewals, investments and other official administration and if you have them with you, rather than having to contact someone back home to locate and send them to you, it will make your life easier.
6. Lifestyle Creep
The term ‘Lifestyle Creep’ is is used to describe the situation when somebody’s living costs increase with (and sometimes extend beyond) rises in their take-home pay.
As an expat, it is easy for spending to spiral out of control if you’re not careful.
Treating the expat assignment like an eternal holiday or trying to keep up with the “Expat Joneses” can easily lead to frequent overspending, which can rapidly negate the advantage of a great expat salary package
Check out my post “Lifestyle Creep and How To Reverse It” for more on this.
7. Estate Planning
This is something that is often over-looked by expats.
Cross-border estate planning can be complicated and a last will and testament that you set up in your home country may not be valid in your new country.
This may not be so important for those of you on short-term expat assignments, but still worth considering you have complex family situations and/or assets in various places around the world.
An example of a situation that may require some more rigid estate planning, is the divorced expat who has remarried and has children with a local in their host country.
Probate and inheritance laws may be treated differently and so it is important seek professional advice from a tax expert or estate planning lawyer to ensure that, in the event of your death, your assets are allocated according to your wishes and that family members are not disadvantaged due to oversights in cross-border inheritance laws.
So, there you go – that’s my Top 7 Common Financial Mistakes Made By Expats and they are all easily avoidable with a little preparation and a bit of awareness!
I’d love to hear if you have made any financial mistakes as an expat and if you did, how you dealt with them.