7 common financial mistakes expats make
It's not too late to regain control of your financial future
One of the biggest challenges that expats confront when moving abroad is the complexity of expat finances. According to HSBC’s Expat Explorer Survey, 75% of respondents (21,950 respondents worldwide) say that their finances have become more complicated since they left their home country.
Compounding this, many expats ignore aspects of their finances before, during and after moving abroad, therefore making organising them even more complex than it needs to be. In this blog we explore the common financial mistakes expats make, which we hope will help aspiring expats make sound financial decisions.
Living beyond your means
Living the expat life can create the illusion of being on holiday, especially during the first few months. This is amplified when expats move to low-tax countries, such as the UAE or Qatar. The excitement of starting their lives in a new location, integrating with the local culture, building a new home, and making new friends can affect their spending behaviour.
Not setting up an offshore bank account
It is well understood that you have to open a local bank account in your new country of residence to assist with your day-to-day financial needs. However, it is also very beneficial to open an offshore bank account, especially if moving to a country with volatile banking systems. The “ABC Expat Rule” is this: If you are from country A and live in country B, then you should bank in country C. To learn more about the benefits of offshore banking download our eBook, The Expat Guide to Offshore Banking.
Not getting your tax right
Many expats forget to inform their home country’s tax agency of their decision to move abroad, thus failing to change their tax status. In the UK, aspiring expats should inform HM Revenue and Customs (HMRC) of their intention to move abroad and submit a completed P85 form. This is crucial for expats to ensure that they will not be sought after for tax, claim tax relief or any tax refund they are owed, and become non-UK resident to avoid tax on certain incomes. If you are a UK expat and want to learn more about getting your tax right before or even after you move abroad, visit the HMRC website or talk to a specialist.
Not researching the law on inheritance in the country you're moving to
This is crucial for expats moving to the Middle East, where countries are ruled by Sharia Law. Even an existing will in your home country may not be acknowledged as valid in a country that implements Sharia Law, as 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.
Neglecting your pension contributions
Many expats neglect their pensions contributions back home, fail to research how they can continue making pension contributions, or do not set up the best alternative scheme. A lot of expats are also ignorant of their pension’s limitations when moving abroad. For example, for UK expats, there is a five-year window for 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.
Falling victim to unregulated financial salepeople
One of the worst mistakes expats make is assuming that their financial adviser is regulated in their new country of residence. Unregulated offshore financial salespeople are like unlicensed doctors giving you a diagnosis – they don’t have the qualifications to give advice. To know more, read this article on why you should use a regulated financial adviser.
Poor investment choices
Making poor investment choices is, to some extent, relevant to the previous mistake, which is getting the services of an unregulated offshore financial salesman, especially in countries with lax regulation. Many expats make investment choices based on the advice of unqualified financial planners, who can deny any accountability when your investments fail and it was their fault.
You wouldn’t jump out of a plane without a parachute, so why become an expat without the necessary tools to help you make wise financial choices? The key, as always, is to educate yourself and take control of your own financial future. But when your situation becomes too complex, you can always get the expertise of a planner to help you organise your finances. If you are just about to become an expat, or if you are already one, have made these mistakes and need help organising your finances, click below and we are more than happy to take the strain.
Editor note: This post has been updated as of 10th August 2016
About Joy Aquino
Joy Aquino served as a Marketing Associate for AES International before relocating to Germany.