2019 update: 7 common financial mistakes expats make
The complexity of expat finances is one of the biggest challenges for expats moving abroad.
According to HSBC’s Expat Explorer Survey 75% of respondents (21,950 respondents worldwide)…
Say their finances have become more complicated since they left their home country.
Many expats ignore aspects of their finances before, during and after moving abroad.
This makes them even more complex to organise.
Want to know more?
In this blog we explore the common financial mistakes expats make.
We also look at ways for expats to control their finances so they can have the clarity they need to feel confident about their financial futures.
Here they are.
1. Living beyond your means
The expat life can have the illusion of being on holiday, especially during the first few months.
This is amplified when expats move to low-tax countries.
The excitement of a new location, new culture, new home, and new friends can affect their spending behaviour.
They may be tempted to eat out more often…
Furnish their home with new furniture…
Or shop in the luxurious malls every weekend.
By all means, expats should enjoy their new lives.
But avoid being pulled into a lifestyle they cannot maintain or afford.
There are many websites and applications to help expats cut costs.
The Entertainer, for example, with its 2-for-1 deals is great for enjoying the city for half the price.
2. Not setting up an offshore bank account
It’s expected to open a local bank account in a new country of residence to assist with day-to-day financial needs.
And, to have a salary paid into it.
However, an offshore bank account is especially beneficial for expats.
The “ABC Expat Rule” is this:
If you are from country A and live in country B, then you should bank in country C.
3. Not getting your tax right
Many expats forget to change their tax status in their home country.
In the UK, expats should inform HM Revenue and Customs (HMRC) of their intention to move abroad and submit a completed P85 form.
This is crucial to ensure they will not be sought after for tax, claim tax relief or any tax refund they are owed, and become a non-UK resident to avoid tax on certain incomes.
4. Not researching the law on inheritance in the country you're moving to
This is especially for expats moving to the Middle East, where countries are ruled by Sharia Law.
Even an existing will in their home country may not be acknowledged as valid in a country that implements Sharia Law.
The rules of inheritance are pre-determined and leave little room for debate.
Where the spouse would, more often than not, receive the inheritance…
In Sharia law, the wealth would be passed on to the nearest living male relative.
It is therefore important for expats to explore their options, such as keeping the majority of their wealth out of the country, in an offshore bank account, for example.
5. Neglecting your pension contributions
Many expats neglect their pensions contributions back home.
Either they fail to research how to continue making pension contributions…
Or do not set up the best alternative scheme.
Many expats are also ignorant of their pension’s limitations when moving abroad.
For example, there is a five-year window for UK expats to continue pension contributions with a maximum contribution of £300 per month.
Beyond this amount, expats would have to pay tax on their pensions.
6. Falling victim to unregulated financial salespeople
One of the worst mistakes expats make is assuming their new financial adviser is regulated.
Unregulated offshore financial salespeople are rife.
Unlike other professions such as lawyers and doctors, financial advisers are often unlicensed.
They often encourage investors to take out products that wreak havoc on their financial futures.
Education is the best way to avoid becoming another victim of traditional financial services.
7. Poor investment choices
Linked to the previous point…
Financial salespeople sell toxic products promising them the biggest pay-out.
These products are designed to line their pockets and their clients'.
Often, expats are sold on the false idea of ‘free advice’…
Only to lose their money to hidden layered commissions and exorbitant exit penalties once they decide to move back home.
Here are 10 investing rules to live by, to help you on your way to making better financial decisions.
It's not too late to regain control of your financial future
We all have goals and dreams.
Many expats move abroad to take advantage of overseas wealth.
Earning money in a low-tax country can boost or kick-start your investments.
They can do wonders for those who remain disciplined, focussed and motivated.
If you need help staying the course, get in touch.
We’d be happy to help.
Editor's note: This post has been updated as of 5th August 2019.