9 money management tips for expats
Everything gets more complicated when you’re crossing borders. So what do expats need to think about? How does living in Switzerland change the way you should manage your finances?
|We asked the experts at Guardian Wealth Management for their top tips.
1. Know your rights
There is a lot of noise on the internet, so get informed by a professional.
At the moment, Americans in particular are feeling isolated and punished.
“But if you work and earn in Switzerland the Swiss banks have an obligation to give you a basic salary account. But they may try to dissuade you due to paperwork hassle and compliance,” she explains. “Make sure you speak to a specialised US client agent in the bank.”
Due to FATCA and complicated reporting procedures, Swiss banks just try to avoid American customers. There is also uncertainty regarding US taxation of foreign pension.
So do your research and be ready to push back if someone tries to brush you off.
Of course, this applies to all aspects of money management – do your research!
2. …but follow the rules
At the same time, don’t be rude. Rules are rules for a reason, and if you break them you suffer the consequences. Once again, Americans face special challenges.
“When it comes to investments for instance, Americans have to declare everything they have, and declare it to both Switzerland and the US,” says Byskov. “And if they have investments which the IRS has not put their stamp on, Americans will get penalized.”
There are, however, solutions for Americans to have fully compliant IRS portfolios, so ask a specialised international financial planner.
Frontaliers also face special challenges.
“A frontalier is a person who actually works in Switzerland but lives in France,” Byskov says. This never used to be an issue, but due to tighter regulations in recent years between France and Switzerland, these cross-border employees must take care.
“People who reside in France but work or invest in Switzerland should take the funds back and put them in a French-recognised solution,” she explains.
“A lot of people haven’t done it yet. They need to get their money fully regulated in France. There are now interesting tax efficient solutions available for internationals living in France.”
If you move around a lot there may be dozens of different rules to keep track of, which means it’s probably worth seeking help from a financial advisor to make sure you don’t mess up.
3. Keep track of your pensions
Speaking of messing up, you don’t want to lose all your pension savings, do you?
“One of the biggest complications of being an international is that you end up with small pension pots in different countries,” Byskov says. Pensions are one of the main areas where her clients need advice.
“Often pension pots in various countries are not index linked, so over time, they lose value,” she says. “And it might be based on the salary you had when you left and not what you make when you actually retire.”
Expats frequently find that the value of their pensions abroad are “absolutely minimal” due to lack of continuation, Byskov adds.
“If you have lived and worked in several countries and have a little bit saved in each country, having to manage that when you reach retirement is very difficult,” she explains. “There are also different rules for how much you are allowed to save and at what age you can access your pension.”
A financial planner can help you consolidate your pensions and make sure your money is working for you or available to your family when you die.
Inheritance tax is also important to understand, so that as much of your money as possible can be passed over to your loved ones.
4. Get ready to rent
Photo: Charleston's TheDigitel/Flickr
When it comes to housing, Byskov cautions that getting a mortgage “can be quite difficult, especially for internationals”.
“If you don’t plan on living in Switzerland for at least ten years, it often does not make sense to buy,” she adds.
In Switzerland you need to put down at least 20 percent of the price cost on your own, and the bank can lend out a maximum of 80 percent. But, Byskov says, you should be ready to pay another 5 percent on top of that in notary costs and other fees.
There are possibilities of getting an international mortgage, she adds – but each case varies.
5. Plan ahead – especially for your kids and your retirement
If you first move abroad in your 20s or 30s, it’s easy to breeze through a jet-set life without thinking too much about the future.
“You go happily through life, a bit oblivious, until you have children and you’re in your 40s and you think, ‘Goodness me, what have I done with my life? Where are all the savings I thought I would have now halfway through my career?’” Byskov laughs.
“If you haven’t done any planning, it comes back to bite you – pretty hard.”
When children grow up in an international environment, they have no boundaries, Byskov says. You might be surprised when your child announces he or she wants to study in the UK or the US.
“And if you haven’t planned for that, it could become impossible to pay for,” she says. In general, people have children later in life, often resulting in children reaching university age at the same time their parents are getting closer to retirement.
“Those are two big milestones,” says Byskov. “If you’re not prepared, the double-whammy of university fees and retirement can really sting financially.”
6. Ensure your insurance is valid
Speaking of planning, you might think you’re okay because you have health insurance, or life insurance, back in your home country.
Don’t be so sure.
“A lot of people set up coverage back in their home country and keep paying into it over the years. And then when something happens, they go back to it – and the company says, ‘Sorry, you didn’t tell us you weren’t residing here, and it’s no longer valid’,” Byskov says.
“So check all your insurances to make sure that they actually do cover when living in different countries - or get international coverage if they don’t.”
Typically if you’ve moved abroad your family is very dependent on you as well, Byskov notes.
“Usually one partner has been given a job somewhere else and the other follows,” she says. “And there are generally more costs involved. So make sure that the life insurance is actually high enough to cover your family.”
7. Consider your lifestyle
Photo: Laura Brunow Miner/Flickr
The same goes for retirement, actually.
“When you have been moving around a lot, your lifestyle is much different than it would be if you had stayed at home in your family property that was passed on to you,” Byskov remarks.
Expats typically earn more than they would at home – but they also have higher expenses. And to a certain degree people want to continue their lifestyles when they retire.
“That’s where a big pitfall comes in,” Byskov says. Make sure that your pension – or the combined pensions from the various countries you have worked in - is high enough that you’ll be able to maintain a standard of living you’re accustomed to. A reasonable estimate is 70 percent of your final salary when you retire.
“When you do set up a retirement plan of any sort, make sure it’s an affordable one by starting early, stick to it and make sure it’s portable across jurisdictions,” Byskov says.
“A specialised international financial planner can help you figure out what is the most advantageous when it comes to long term savings.”
8. Women beware
Are you female? Maybe you should spend some extra time thinking about money management and your future, Byskov says.
“Generally women don’t earn as much as men. Which means women are actually penalized when it comes to savings and pension accumulation.”
In Switzerland insurance costs are usually higher for women, the retirement age is one year earlier, and statistically live longer than men. Combined with the earnings dent many women face due to taking take time off to raise kids and working part-time, things can get rough especially when there are also ageing parents to support.
“Unfortunately, 40 percent of marriages end in divorce. And as an international woman, if you’re the one who followed your husband for example, then you’ve really got no back-up,” Byskov explains.
Whether or not a divorced woman is entitled to a part of her husband’s assets varies from country to country – but most frequently women end up taking care of their children, accumulating even more costs and a lower capacity to save.
Only 20 percent of women currently receive an adequate pension. (EU Commission report) According to an EU report, Byskov adds, only 20 percent of women “currently receive an adequate pension”.
“When you go to a job interview, how often do you ask what the pension system is actually like and work out the details?”
9. Ask questions and take control
Regardless of your gender, every expat employee needs to take responsibility of their financial well-being. If you hear one employer offers a good pension, don’t take it as gospel – dig into the details yourself.
Ask about pension plans. Ask what the rules are when you leave the country. Ask about fees, ask about interest rates and premiums, ask about savings options, and ask if there’s anything else you should know. If you need help, an international financial advisor can help you figure out exactly what is relevant for your life situation based on your current country of residence and possible future plans.
“Plan ahead,” Byskov says. “Take control of your finances.” No one plans to fail; they simply fail to plan!
This article was produced by The Local and sponsored by Guardian Wealth Management.
This content was paid for by an advertiser and produced by The Local's Creative Studio.