Financial Steps You Must Take Before Moving Abroad

Introduction.

Moving abroad is an exciting and life-changing adventure. But before packing your bags and boarding that flight, there are some important financial steps you should take care of first.

From managing your current finances to understanding how to deal with a new country’s tax system, these steps can make your transition smoother and avoid costly mistakes down the road.

Let’s dive into the essential financial preparations you need to make before moving abroad.

What are the Financial Steps You Must Take Before Moving Abroad?

1. Create a Budget for Your Move

One of the first things you’ll want to do when planning an international move is to set a budget. Moving abroad can be expensive.

Between flights, shipping your belongings, setting up a new home, and dealing with unforeseen costs, the financial impact can add up quickly.

Start by breaking down your expenses. Some costs to consider include:

• Flight tickets: The earlier you book, the cheaper they tend to be.
• Visa and immigration fees: Depending on where you’re going, this could vary significantly.
• Shipping and moving costs: If you plan to send your belongings overseas, you’ll need to factor in this expense.
• Emergency fund: It’s always a good idea to have some money set aside for unexpected situations, especially when settling into a new country.

Knowing exactly how much money you’ll need helps you plan ahead, so you’re not caught off guard by sudden expenses.

2. Understand Your Tax Situation

Taxes can be tricky when you move abroad, but they’re an important area to get right. The last thing you want is to end up paying taxes in two countries at once.

Some countries tax their citizens regardless of where they live, while others only tax income earned within their borders.

To avoid surprises, start by researching the tax laws in both your home country and your new country.

For example, the U.S. taxes its citizens on worldwide income, which means if you’re American, you’ll still need to file taxes in the U.S. even if you’re living and working abroad.

However, the Foreign Earned Income Exclusion (FEIE) may allow you to exclude a portion of your income from U.S. taxes, but you’ll still need to file a tax return.

It’s also wise to check if there’s a tax treaty between your home country and your new country to avoid double taxation.

3. Set Up International Banking

Banking while living abroad isn’t always straightforward, but there are ways to make it easier. First, check if your current bank has international branches or partnerships in the country you’re moving to.

If not, consider opening a local bank account in your new country. This will save you from paying high international transaction fees.

You’ll also want to think about how you’ll handle currency exchange. Some people use apps or digital banks, like Revolut or Wise, to manage their money across borders with minimal fees.

These services allow you to hold multiple currencies and exchange them at competitive rates, making life a lot easier.

One thing to remember is that some countries require proof of income or residence to open a bank account, so research what you’ll need in advance to avoid delays.

4. Look Into Health Insurance

Health insurance is a big deal, especially when you’re moving to a new country. Some countries offer public health insurance that you can use once you’re a resident, but others may require private insurance.

Make sure you’re covered for medical care before you leave home. If your new country doesn’t have a public health system, or if you’re not eligible for it, private health insurance is a must.

If you’re staying temporarily, many international insurance providers offer plans that cover emergency medical expenses abroad.

Otherwise, check with your current health insurance provider to see if they offer coverage in your destination country. If not, you’ll need to get a local health plan to avoid paying out of pocket for healthcare.

5. Close or Update Existing Financial Accounts

Before you leave, you may need to update your existing financial accounts. For example, consider whether it makes sense to close or keep your current credit cards, bank accounts, or loans.

• Credit cards: Some credit cards charge high foreign transaction fees, while others may offer travel rewards or no fees at all. Make sure your cards work internationally without racking up expensive charges.
• Bank accounts: If you don’t plan on returning, it may be easier to close your accounts to avoid paying fees for services you no longer need. Alternatively, you could keep them open, especially if your bank offers international services.
• Loans: Don’t forget about any student loans, personal loans, or mortgages you may have. Make arrangements to continue paying them while living abroad or speak to your lender about deferring payments if needed.

6. Build Your Credit History in Your New Country

Your credit history doesn’t always carry over when you move abroad, and it can be tricky to build credit in a new country. Some countries use credit scores for everything, from renting an apartment to getting a loan.

If you can, try to establish credit early by opening a local credit card or applying for a small loan. This will help you build your credit score so you can access financial services when you need them.

7. Plan for Retirement Contributions

Retirement may seem far off when you’re moving abroad, but it’s important to continue contributing to your retirement fund. If you’re from the U.S., the 401(k) and IRA accounts won’t stop existing just because you leave the country.

However, you may not be able to contribute to them while living abroad, depending on where you live and how you earn money.

Make sure to check the rules of your home country’s retirement system to ensure you can continue saving for the future.

You may also want to consider contributing to retirement accounts in your new country if they offer tax advantages or employer contributions.

8. Consider the Cost of Living

The cost of living can vary dramatically between countries. Do some research to understand how the cost of living in your new country compares to your current location.

Look at housing costs, groceries, healthcare, transportation, and other day-to-day expenses to get an accurate picture of what life will cost once you arrive.

For example, countries like Switzerland and Norway are known for high living expenses, while places like Mexico and Thailand are often more affordable. Understanding these differences helps you plan your budget and avoid financial strain.

9. Prepare for Currency Differences

Before you go, it’s a good idea to familiarize yourself with your new country’s currency. While many countries use cash, digital payments are growing in popularity, and understanding how to use mobile payment apps can make your life easier.

Research what types of payment methods are commonly used in your destination country, and plan accordingly.

It’s also worth checking the current exchange rate and considering how you’ll manage your money when moving between currencies. Will you exchange money at a local bank, use an app, or stick with your home currency?

10. Notify Tax Authorities and Authorities About Your Move

Don’t forget to inform the tax authorities in your home country about your move. This helps them understand your new tax status and keeps things clear when filing taxes.

For example, the IRS (if you’re American) has forms that help you report your international move and clarify whether you’re still required to pay U.S. taxes. Similarly, notify your local government or social security office, so your records are up to date.

FAQs

Q1: Should I keep my bank account in my home country?

It depends on your plans. If you plan to visit your home country often or need to access funds from your home account, keeping it open might be a good idea. However, if you want to avoid fees and complications, consider switching to an international bank or opening a local account in your new country.

Q2: How do I deal with my credit score when moving abroad?

Building a credit history from scratch can be tough when you move abroad. Look for opportunities to establish credit, like opening a local credit card. However, keep in mind that credit scores aren’t always transferable across borders.

Q3: Do I need to worry about taxes while living abroad?

Yes! You might still be liable to pay taxes in your home country, depending on where you’re from. For example, if you’re from the U.S., you’ll need to file taxes even if you’re living abroad. Make sure to check your home country’s rules and see if there are any tax treaties that could help.

Conclusion

Preparing for a move abroad involves much more than just packing your things and saying goodbye to friends.

By planning your finances carefully, you can avoid many common pitfalls and ensure your new life abroad starts off on the right foot. Have you considered all of your financial options before making the big move?