The COVID-19 pandemic disrupted mobility worldwide, with almost all travel halted last year as national borders stayed closed. According to an estimate from the United Nations in their International Migration 2020 Highlights, the pandemic even managed to slow the rise of international migrants by around two million people, reflecting 27% less than the growth expected in mid-2019.
We personally felt COVID-19’s impact on the globalized world we live in. As discussed in an earlier blog post called ‘And Now We Live Here… How to Move to Portugal by Accident’, the pandemic ironically turned our trip to Portugal into a permanent stay. We’ve spent the past months opening local bank accounts, working with lawyers, and arranging tax documents to formalize our migration. If you’re planning to follow our lead and become an expat as travel restrictions ease, here are some tips to keep in mind when sorting through your finances:
Monitor foreign exchange rates
Before you migrate, it’s good to check the exchange rates between your home currency and your destination’s currency. The exchange rate has the potential to affect any debts you need to pay off, and even cause issues with your move abroad. Renting an apartment in a foreign currency, for example, can have you pay more than you expected once the rates change. The US dollar is close to the euro, but it frequently fluctuates, and at higher cost and rates you might get an unpleasant surprise.
Instead of letting the exchange rate unexpectedly push you over budget, keep an eye on the numbers. Survey results presented by data company ECA International found that currency fluctuations are causing Japan to overtake the UK as the most expensive place to send overseas employees to work. The Japanese yen remained steady relative to the US dollar last year, which contributed to higher overall costs in the average expatriate package in Japan.
Open a local bank account
When you move abroad, you will need a local bank account to manage your day-to-day finances. If you stay for a short time, this isn’t needed. Digital nomads don’t need bank accounts in every country, but if you stay put you need a bank to call home. A local bank account will allow you to better adjust to a new place. AskMoney points out, the same core banking services are offered across almost all financial institutions. You need a bank so you can set up savings accounts for your emergency funds, signup for local services, take out loans for home or car mortgages, and grow your financial portfolio with investments.
Ideally, you should sign up for one that offers mobile banking services to make account management and money transfers easier. Another option is to open an offshore bank account so you can make and receive payments in multiple currencies. These international bank accounts often have favorable tax rates if you’re moving to a tax haven, and/or high interest rates on savings for long-term accounts.
Figure out how your taxes and pension will work
Millions of Americans who reside abroad often need help managing their pension plans because these also affect tax liability. The IRS doesn’t permit foreign pension plans to qualify for special tax features like an individual retirement account or a 401(k) plan, so migrant US citizens may have to deal with issues like double taxation for foreign pensions, although they may claim a foreign tax credit instead. Taxes are messy. Get help.
Prior to your big move, find out how you can continue making contributions to your home country’s pension while living abroad. Contact your local tax authority, let them know about your intention to move, and discuss how it will impact your pension right now. It’s best to research the tax system in your new country as well, to avoid unpleasant surprises.
For more insights on growth, self-discovery, and life as a digital nomad, follow the stories on the JMRing.
*The above is not to be taken as tax advice. Seek counsel on any and all tax decisions.