As promised, here's my husband's thoughts on living abroad, with a focus on managing finances, dealing with tax preparation, managing remaining finances back home, etc. I love how practical his advice is and while it may not work for you, it's something to think about as you're making the transition abroad or still figuring it out (it is indeed an ongoing process!). Feel free to drop a comment if you want him or me to expand on any points you see here!
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Monica did a really nice job explaining the challenges we've faced, both personally and professionally, during our expatriate experiences. You can imagine there are stories behind each and every bulleted item in her list, but expanding on those may be fodder for other posts. She has asked me to comment on the paperwork and financial challenges that came with our experiences, so I’m going to spend some time going over my methods for managing those topics. The methods I use are not strictly for expats…they can also be useful for day to day life experiences, but there is a strange marriage of paper and electronics that happens when you become an expat, so I’ll go through that.
First things first, though…
Where is your home country?: United States of America (Minnesota)
How many years have you been away from your home country?: 4 years
What is your current and previous expat location?: Currently in Eindhoven, The Netherlands; previously in Torino, Italy
Why did you choose to live abroad?: I was presented with an interesting professional opportunity, with an interesting product, in a fascinating culture.
Are you working?: Yup. I’m a mechanical engineer for a medical device company.
How often do you go to your home country?: perhaps once a year.
So I’m going to tell you how we manage our paper and financial lives while overseas…this isn’t “the right way,” it’s my way. If you think these kinds of things are helpful for you, I encourage you to find ways to adjust them to meet your own needs.
With what currency are you paid?
You need to think ahead about this question, because it has an impact on your access to funds overseas.
There are at least three ways that an expat can get paid. For our first jobs, we were paid in dollars to our US accounts by the US branches of the companies we worked for. This means that we would be earning dollars and spending euros…that’s obviously a mismatch, but we still had a lot of US expenses that needed to be paid in USD, from US accounts. So this worked fairly well. We just needed to figure out how to buy stuff in local currency without paying exorbitant exchange fees.
Another way to go is to hedge - I met one colleague who was paid half his salary in euros and half his salary in US dollars. That’s pretty smart, and provides him some margin when the exchange rates fluctuate.
In our current position, we are paid solely in euros. This brings its own challenges, because while we have wound down most of our US expenses, we do still have some, and now it is expensive to wire money back home to keep those accounts funded.
How do you get spending money in each of these cases?
The easiest way to make purchases is with a Capital One credit card. They don’t charge extra for foreign currency purchases. You pay the Wall Street exchange rate and that’s it. But they only accept dollars, which is relatively challenging to address when you are paid only in Euros. You also earn points on your payments, so you continue to have a small benefit.
For access to cold hard cash, we set up an account with Charles Schwab. If you take advantage of their offer to link a brokerage account to a checking account, then you can withdraw cash from your US account using overseas ATMs at no extra charge! It is literally just the wall street rate. What’s great about this is that we can be traveling anywhere in the world, and if we need money, we just pull it from the local cash machine. Easy peasy. That said, it’s still critical to call the bank if you travel to make sure they know you’re abroad.
If you’re paid in euros, then you have a European bank account. That’s pretty easy to figure out. Europeans are debit card nuts, so you have PIN payments possible at almost any establishment you want, making cash withdrawal almost obsolete anyway.
Banking as an expat:
We only have two experiences with this…assuming you have your residence papers, setting up a bank account in Eindhoven is EASY. Sign a few documents, they mail us PINs and debit cards and that’s that. Funny enough, the hardest part of the whole transaction was the initial deposit. We had hand carried a thousand euros or so to give us a little spending money when we first arrived. We withdrew it using our US-based bank cards by using the local Italian ATMs. But we found out that the banks here in The Netherlands don’t actually carry cash…nor do they typically accept it. It turns out that when you open a bank account, you get a one-time opportunity to deposit cash without additional fees. Good thing we only wanted to do it once. Basically, every bank transaction is electronic. We got used to that fast.
The contrast between Italian banking and Netherlands banking couldn’t be starker. Banking in Italy was an amazing experience. The sheer volume of paper that was processed in order to make it work was shocking. And what’s even more amazing is that the system seems to work like 20 years ago in the USA, with really horrendous bankers hours, reams and reams of paper documents, but also with fees for using the teller. Remarkably, they actually use real paper to record your transactions…paper! with signatures! To set up an account, you set up a formal meeting with a local banker, who greets you very formally. The specific bank branch is also critical to the process in Italy, as it serves as the location for bank deposits (for expats, anyway) and is the place to go for mortgages should you want one. In this day and age of electronic banking, it is remarkable to suffer through those kinds of strange restrictions, but it’s a typical example of the kind of thing you have to realize you are taking for granted back in the US.
But here’s another hint: maintain a bank account in the US with somebody you trust. Put their name on the account with you. In a pinch, they can help you move some money around.
What obligations do you have…and which will you maintain from afar?
Here’s a list of obligations we had, and our thought process behind each of them:
We each had our own homes when we got married, so we started dealing with those...
Speaking of calling in…
When we came to Europe, we ported our existing cell phone numbers to Google Voice. This provides us with a local US number at no additional charge, and it provides a nice voicemail box as well. We just use that phone number if we need to list a local US number. The biggest benefit is that it is the listed number for our credit cards already, so when I call my card companies from google voice, it already recognizes that number as my home number, even though I’m way over in Europe.
One of our friends uses something called MagicJack, which has a monthly subscription fee, but is still pretty cool. The idea is that you plug an extension into the router, and you plug any landline phone into it. At that point, magic jack communicates with its service, and the telephone is activated through the internet - you have a VOIP connection through the US, and you can talk with that line through a normal home telephone. This is more comfortable than with google voice, and more private, given that Google Voice communications are like talking to a speakerphone.
For personal communications, FaceTime and Skype work well when at home, as long as everyone in the house wants to participate in the conversation. For a more private solution, I have been using an application called Localphone on my iPhone. It’s a neat application. It contains its own list of contacts, and when I select the contact to call, Localphone dials my phone to a local Netherlands number, but the person on the other end of the line is the person in the US I wanted to talk to. The cost is really low…I put $10 in and it would last me for many 40-minute phone calls (the length of my commute home in Italy), because they are less than a penny per minute. This approach is nice because it doesn't rely on the phone’s data connection or download limits…it is actually using the phone minutes.
Managing your paperwork:
Although most of our mail in the US has been stopped by virtue of our departure from the country, we do still get correspondence, some of which is very important. Monica’s parents have been indispensable in managing our mail for us. They perform a quick sort to throw away the trash, and then periodically forward our documents to us using the postal service. It’s about $16 each time for about 4 months of mail. Included are our various 1099s and W2’s from the US that come around tax time.
Both Italy and The Netherlands have their fair share of paperwork and bureaucracy. But Italy is a whole new world of bureaucracy. They have special colored ink stamps they aggressively apply to documents printed from a dot-matrix printer (dot matrix!!!!) in an effort to partially emboss the papers. Then they sign over the top of the colored stamp. They also have a paperwork tax you have to pay for official papers, and that’s done with a self-adhesive sticker, just like a US postal service stamp. Remarkably, every regional authority has its own method for registering you as a resident alien, so it’s a different process every time. You should just assume that you will do it wrong the first time and will need to reschedule. The end result of all this is that you will generate a ton of documents that you really aren’t allowed to get rid of.
As expats, we live in a smallish apartment in a city. As Americans, we used to live in a big house with big storage. So, we used to keep a lot of papers around. As expats, we don’t keep paper unless its absolutely necessary. There’s just no space for it anywhere. I do keep one 3-ring binder with all of our papers for each country. Our Italy one is bursting at the seams, but the one from The Netherlands is still ok and doesn’t seem to be filling up quickly. The things I keep in real paper format are the things that have to be that way, like the residency applications and letters granting residency status. Dates of entry and exit from the country, our dog’s pedigree, things like that which are really on paper and need to stay that way.
How do I manage to keep all my files in order without keeping all the paper? ScanSnap and OCR.
The Fujitsu scansnap is an incredible scanner. It’ll scan duplex in one pass, feed different shapes of paper with ease, all while performing on-the-fly OCR for your documents. I use the OCR to make the documents searchable, which means with my Mac, I can use the spotlight search to find anything. I also use it to scan all of our receipts so I don’t have to keep track of them. Why do I scan receipts? Well, partially because it was really hard to keep track of expenses when spending money in foreign currency. We had a budget to stick to, but it was really hard to do that without a real time understanding of our expenses. The Mac also has a neat application called Hazel, which is able to look into the OCR text of a document and take actions, like renaming the files and sorting it into the proper folders. So when I get a document, I can just scan it it in, and if it is a tax document it goes right into the tax document folder on its own, with a proper name.
The real magic of this approach though is that when I get a long letter from the Dutch government in the mail, which looks very imposing being full of Dutch words, I can easily feed it into my scanner, push the button, and because of the magic of OCR, I can copy and paste the entire text of the document into google translate in less than 30 seconds. Then I know the meaning of the letter, and I can throw it away, and file it electronically in the Dutch government electronic file.
With all of my documents going into my computer, I also have to have a strong backup system, both in-house and off-site.
This leads us into the next topic: Taxes!
I’m not a tax expert. I’m just not. But I have had to learn how to retain all of my tax documents in a good format for my reference. Many expats (like us) have access to accountants who will ensure our taxes are filed in a prudent way. The accountants were hired by the employer, and their allegiance is to the employer, not to us, so it still takes a bit of vigilance. The process is simple but time consuming. They send an electronic organizer to us that we have to fill out where the questions are similar to those provided for turbotax style tax software. But this is where having set up electronic access to everything will pay off. One of the trickier parts of the taxation is the funny questions asked in different countries. In both The Netherlands and in Italy, they levy a wealth tax, meaning that they tax us on the total value of our assets and savings. This is anathema to Americans of course, but there isn’t much choice.
As Americans, we are taxed on worldwide income every single year, and we are required to file our returns every single year. The only way to avoid that is to stop being American. It is important that we apply for the foreign earned income exclusion in order to reduce our tax burden in the USA. If this isn’t filed for properly, then it is likely that the exclusion will be lost, which means a huge tax hit. So stay on top of that!
To be properly prepared, you will want to save:
I recommend consolidation. To make this process easier, it’s best to get your financial life compressed to the fewest number of accounts possible. I’ve been reducing my accounts year by year, and it has been making the process easier for us.
That’s all folks
That’s a huge outpouring of stuff for my first-ever blog post. If you’re interested in a little more information on any of the topics above, I can probably expand on them.
____________________________________________________
Monica did a really nice job explaining the challenges we've faced, both personally and professionally, during our expatriate experiences. You can imagine there are stories behind each and every bulleted item in her list, but expanding on those may be fodder for other posts. She has asked me to comment on the paperwork and financial challenges that came with our experiences, so I’m going to spend some time going over my methods for managing those topics. The methods I use are not strictly for expats…they can also be useful for day to day life experiences, but there is a strange marriage of paper and electronics that happens when you become an expat, so I’ll go through that.
First things first, though…
Where is your home country?: United States of America (Minnesota)
How many years have you been away from your home country?: 4 years
What is your current and previous expat location?: Currently in Eindhoven, The Netherlands; previously in Torino, Italy
Why did you choose to live abroad?: I was presented with an interesting professional opportunity, with an interesting product, in a fascinating culture.
Are you working?: Yup. I’m a mechanical engineer for a medical device company.
How often do you go to your home country?: perhaps once a year.
So I’m going to tell you how we manage our paper and financial lives while overseas…this isn’t “the right way,” it’s my way. If you think these kinds of things are helpful for you, I encourage you to find ways to adjust them to meet your own needs.
With what currency are you paid?
You need to think ahead about this question, because it has an impact on your access to funds overseas.
There are at least three ways that an expat can get paid. For our first jobs, we were paid in dollars to our US accounts by the US branches of the companies we worked for. This means that we would be earning dollars and spending euros…that’s obviously a mismatch, but we still had a lot of US expenses that needed to be paid in USD, from US accounts. So this worked fairly well. We just needed to figure out how to buy stuff in local currency without paying exorbitant exchange fees.
Another way to go is to hedge - I met one colleague who was paid half his salary in euros and half his salary in US dollars. That’s pretty smart, and provides him some margin when the exchange rates fluctuate.
In our current position, we are paid solely in euros. This brings its own challenges, because while we have wound down most of our US expenses, we do still have some, and now it is expensive to wire money back home to keep those accounts funded.
How do you get spending money in each of these cases?
The easiest way to make purchases is with a Capital One credit card. They don’t charge extra for foreign currency purchases. You pay the Wall Street exchange rate and that’s it. But they only accept dollars, which is relatively challenging to address when you are paid only in Euros. You also earn points on your payments, so you continue to have a small benefit.
For access to cold hard cash, we set up an account with Charles Schwab. If you take advantage of their offer to link a brokerage account to a checking account, then you can withdraw cash from your US account using overseas ATMs at no extra charge! It is literally just the wall street rate. What’s great about this is that we can be traveling anywhere in the world, and if we need money, we just pull it from the local cash machine. Easy peasy. That said, it’s still critical to call the bank if you travel to make sure they know you’re abroad.
If you’re paid in euros, then you have a European bank account. That’s pretty easy to figure out. Europeans are debit card nuts, so you have PIN payments possible at almost any establishment you want, making cash withdrawal almost obsolete anyway.
Banking as an expat:
We only have two experiences with this…assuming you have your residence papers, setting up a bank account in Eindhoven is EASY. Sign a few documents, they mail us PINs and debit cards and that’s that. Funny enough, the hardest part of the whole transaction was the initial deposit. We had hand carried a thousand euros or so to give us a little spending money when we first arrived. We withdrew it using our US-based bank cards by using the local Italian ATMs. But we found out that the banks here in The Netherlands don’t actually carry cash…nor do they typically accept it. It turns out that when you open a bank account, you get a one-time opportunity to deposit cash without additional fees. Good thing we only wanted to do it once. Basically, every bank transaction is electronic. We got used to that fast.
The contrast between Italian banking and Netherlands banking couldn’t be starker. Banking in Italy was an amazing experience. The sheer volume of paper that was processed in order to make it work was shocking. And what’s even more amazing is that the system seems to work like 20 years ago in the USA, with really horrendous bankers hours, reams and reams of paper documents, but also with fees for using the teller. Remarkably, they actually use real paper to record your transactions…paper! with signatures! To set up an account, you set up a formal meeting with a local banker, who greets you very formally. The specific bank branch is also critical to the process in Italy, as it serves as the location for bank deposits (for expats, anyway) and is the place to go for mortgages should you want one. In this day and age of electronic banking, it is remarkable to suffer through those kinds of strange restrictions, but it’s a typical example of the kind of thing you have to realize you are taking for granted back in the US.
But here’s another hint: maintain a bank account in the US with somebody you trust. Put their name on the account with you. In a pinch, they can help you move some money around.
What obligations do you have…and which will you maintain from afar?
Here’s a list of obligations we had, and our thought process behind each of them:
We each had our own homes when we got married, so we started dealing with those...
- House #1: keep it and rent it. Turns out that being able to depreciate a property is a huge help when tax time comes. So combining the depreciation with the rental income actually manages to (almost) pay for the property. We don’t earn anything, but it has allowed us to avoid losing much money. Find a reputable management company who is full service. They’ll make the process one of low overhead. Note that we also needed landlord insurance on it, so we need a way to pay that bill...
- House #2: I had some roommates for awhile, but once they left, we decided to sell this house. It wasn’t in a good enough neighborhood to rent it out at a high enough monthly price. This was an incredibly painful decision because I had invested a tremendous amount of money in remodeling it. But without a rental income to sustain it, the cost was far too high. It had to go.
- Accomplishing the sale of a house from afar was much easier than I ever expected. We were able to use online electronic signatures for everything, so contracts were pretty easy to review from email. The hardest thing was to manage the timeframes involved. Due to timezones, you’re never able to respond fast enough. The second hardest thing was the check with the proceeds…but since we had an account in the US, we were able to have the proceeds sent to our parents, who were on the same account, and they were able to make the deposits for us. If we hadn’t done that, then we would have had to fedex or DHL the paper check across the ocean.
- Monica’s pet cat…we were expecting to take Dusty with us, but after exploring what would be necessary with shots, and the cat’s violent lack of interest in receiving them, we decided to give the cat to Monica’s parents…who proceeded to feed him salmon. So no more cat. It’s in love with them now. [Monica’s editorial note: Grr, he just doesn't like the cat!]
- Mortgage payments: managed electronically through the bank websites. This is awesome.
- Electronic bill pay. Equally awesome.
- The truck: its purpose was for remodeling the house. With the house remodeled and sold, the truck needed to go. No need to keep paying insurance on it.
- The sports car: the smart thing to do is to sell it. After 4 years of being overseas, it gets a whole body style older. But I just couldn't part with it. I already paid for it, and I put so many personal hours of hard work into it that I just couldn't let it go. Besides, it still looks pretty good. So that’s one where I needed to set up an insurance program on it.
- Insurance: a few interesting bits of insurance…I mentioned that we needed a rental policy for the house, I needed a fire and theft policy for my car that I could turn into a driving policy when I’m back visiting, and we needed to have a separate jewelry policy. I cannot stress enough the value in having a great insurance agent who likes to give good service. It is very easy to manage and pay for our policies over the phone using an American credit card. We don’t have good visibility to the due dates of the policies, nor the paperwork that regularly arrives, but the agent calls us to check in if there’s an issue. It works really well.
Speaking of calling in…
When we came to Europe, we ported our existing cell phone numbers to Google Voice. This provides us with a local US number at no additional charge, and it provides a nice voicemail box as well. We just use that phone number if we need to list a local US number. The biggest benefit is that it is the listed number for our credit cards already, so when I call my card companies from google voice, it already recognizes that number as my home number, even though I’m way over in Europe.
One of our friends uses something called MagicJack, which has a monthly subscription fee, but is still pretty cool. The idea is that you plug an extension into the router, and you plug any landline phone into it. At that point, magic jack communicates with its service, and the telephone is activated through the internet - you have a VOIP connection through the US, and you can talk with that line through a normal home telephone. This is more comfortable than with google voice, and more private, given that Google Voice communications are like talking to a speakerphone.
For personal communications, FaceTime and Skype work well when at home, as long as everyone in the house wants to participate in the conversation. For a more private solution, I have been using an application called Localphone on my iPhone. It’s a neat application. It contains its own list of contacts, and when I select the contact to call, Localphone dials my phone to a local Netherlands number, but the person on the other end of the line is the person in the US I wanted to talk to. The cost is really low…I put $10 in and it would last me for many 40-minute phone calls (the length of my commute home in Italy), because they are less than a penny per minute. This approach is nice because it doesn't rely on the phone’s data connection or download limits…it is actually using the phone minutes.
Managing your paperwork:
Although most of our mail in the US has been stopped by virtue of our departure from the country, we do still get correspondence, some of which is very important. Monica’s parents have been indispensable in managing our mail for us. They perform a quick sort to throw away the trash, and then periodically forward our documents to us using the postal service. It’s about $16 each time for about 4 months of mail. Included are our various 1099s and W2’s from the US that come around tax time.
Both Italy and The Netherlands have their fair share of paperwork and bureaucracy. But Italy is a whole new world of bureaucracy. They have special colored ink stamps they aggressively apply to documents printed from a dot-matrix printer (dot matrix!!!!) in an effort to partially emboss the papers. Then they sign over the top of the colored stamp. They also have a paperwork tax you have to pay for official papers, and that’s done with a self-adhesive sticker, just like a US postal service stamp. Remarkably, every regional authority has its own method for registering you as a resident alien, so it’s a different process every time. You should just assume that you will do it wrong the first time and will need to reschedule. The end result of all this is that you will generate a ton of documents that you really aren’t allowed to get rid of.
As expats, we live in a smallish apartment in a city. As Americans, we used to live in a big house with big storage. So, we used to keep a lot of papers around. As expats, we don’t keep paper unless its absolutely necessary. There’s just no space for it anywhere. I do keep one 3-ring binder with all of our papers for each country. Our Italy one is bursting at the seams, but the one from The Netherlands is still ok and doesn’t seem to be filling up quickly. The things I keep in real paper format are the things that have to be that way, like the residency applications and letters granting residency status. Dates of entry and exit from the country, our dog’s pedigree, things like that which are really on paper and need to stay that way.
How do I manage to keep all my files in order without keeping all the paper? ScanSnap and OCR.
The Fujitsu scansnap is an incredible scanner. It’ll scan duplex in one pass, feed different shapes of paper with ease, all while performing on-the-fly OCR for your documents. I use the OCR to make the documents searchable, which means with my Mac, I can use the spotlight search to find anything. I also use it to scan all of our receipts so I don’t have to keep track of them. Why do I scan receipts? Well, partially because it was really hard to keep track of expenses when spending money in foreign currency. We had a budget to stick to, but it was really hard to do that without a real time understanding of our expenses. The Mac also has a neat application called Hazel, which is able to look into the OCR text of a document and take actions, like renaming the files and sorting it into the proper folders. So when I get a document, I can just scan it it in, and if it is a tax document it goes right into the tax document folder on its own, with a proper name.
The real magic of this approach though is that when I get a long letter from the Dutch government in the mail, which looks very imposing being full of Dutch words, I can easily feed it into my scanner, push the button, and because of the magic of OCR, I can copy and paste the entire text of the document into google translate in less than 30 seconds. Then I know the meaning of the letter, and I can throw it away, and file it electronically in the Dutch government electronic file.
With all of my documents going into my computer, I also have to have a strong backup system, both in-house and off-site.
This leads us into the next topic: Taxes!
I’m not a tax expert. I’m just not. But I have had to learn how to retain all of my tax documents in a good format for my reference. Many expats (like us) have access to accountants who will ensure our taxes are filed in a prudent way. The accountants were hired by the employer, and their allegiance is to the employer, not to us, so it still takes a bit of vigilance. The process is simple but time consuming. They send an electronic organizer to us that we have to fill out where the questions are similar to those provided for turbotax style tax software. But this is where having set up electronic access to everything will pay off. One of the trickier parts of the taxation is the funny questions asked in different countries. In both The Netherlands and in Italy, they levy a wealth tax, meaning that they tax us on the total value of our assets and savings. This is anathema to Americans of course, but there isn’t much choice.
As Americans, we are taxed on worldwide income every single year, and we are required to file our returns every single year. The only way to avoid that is to stop being American. It is important that we apply for the foreign earned income exclusion in order to reduce our tax burden in the USA. If this isn’t filed for properly, then it is likely that the exclusion will be lost, which means a huge tax hit. So stay on top of that!
To be properly prepared, you will want to save:
- year-end statements for all retirement accounts, including 401k, traditional IRA, roth IRA, roth 401k, pensions
- year-end statements for all of your bank accounts
- an accounting of the value of all of your stock purchases, in particular any stock purchases done through an ESPP.
- mortgage statements…in The Netherlands it turns out to be handy to have access to all your statements. Fun fact: when you sell your home, you lose access to all the documentation online. So make sure you download it first!
- rental profit and loss statement…one trick we found useful was to have a breakdown of our town home association fees,which are somewhat deductible. We had to get it from the management of the association. In order to make rental properties really useful to you, you have to deduct everything possible, so take advantage of that by keeping good records.
- any foreign bank accounts need to be declared if the value was ever above $10000 in the year. There’s a special form to fill out that isn’t actually part of the normal IRS process. It’s a separate electronic declaration. It is pretty important because the fines for forgetting to file the form are exorbitant. In fact, while this is true for US taxes, the fines for failing to report your worldwide assets for the wealth taxes of foreign countries are REALLY exorbitant…in Italy, it can apparently lead to forfeiture of the asset! And since the wealth tax is like 0.01%, it’s better to declare than to lose your stuff.
I recommend consolidation. To make this process easier, it’s best to get your financial life compressed to the fewest number of accounts possible. I’ve been reducing my accounts year by year, and it has been making the process easier for us.
That’s all folks
That’s a huge outpouring of stuff for my first-ever blog post. If you’re interested in a little more information on any of the topics above, I can probably expand on them.
This is great information Matthew, with such great ideas and clever solutions! I liked learning more about you and the ways you think :) One minor amendment on Magic Jack is that the fees are annual at $19.99/yr.
ReplyDeleteThanks for the clarification Jamie! Magic Jack is a great solution for making phone calls home!
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