6 Tips to Build a Strong Financial Foundation as U.S. Expats
As a newly married couple, you have many exciting milestones to look forward to. In order to achieve those milestones, you’ll need a strong financial foundation. And if your goals include living overseas, you’ll need to take extra steps to shore up that foundation and help ensure you start your marriage off on a strong financial footing. The following tips can help.
#1 – Talk about your goals and vision for the future.
One of the best ways to begin your financial life together is by having an open and honest conversation about your goals for the future, especially if you hope to live abroad.
Ask each other:
- Where do we hope to live?
- If we need special visas, are those attainable for ourselves and our pets?
- Do we plan to buy a home abroad or rent?
- How often will we travel?
- Will we raise children abroad? If so, where will they attend school?
- Do we plan to move back to the United States at some point?
Taking time to understand each other’s vision for the future can help you agree on shared goals you can use to guide your financial decision-making going forward.
#2 – Share your financial histories.
As you begin your financial life together, it’s important to gain an understanding of your starting point. This means sharing details about your past and current finances.
Important topics to cover include:
- Income
- Spending habits
- Savings
- Investments
- Debts, including student loans, credit cards, car loans, etc.
If you’re citizens of different countries, do your best to explain how these financial topics work in your country. For example, an American mentioning their 401k to a Canadian spouse talking about a registered retirement savings plan (RRSP) may cause confusion. Clarity is key.
#3 – Establish a financial plan.
One of the best ways to help ensure you reach your financial goals is by having a comprehensive financial plan in place. This is especially important for U.S. expats, as the additional complexities of living abroad can be difficult to navigate without a plan to help guide your decision-making.
Consider working with an international wealth manager who has experience helping expat couples navigate the unique challenges they face and can establish a comprehensive plan that clearly lays out how your investment, tax and estate planning needs are being addressed across multiple jurisdictions and currencies.
#4 – Take steps to lower your tax exposure.
A key to successfully managing your finances as a U.S. expat is taking steps to minimize your tax exposure. The United States taxes its citizens on their worldwide income. The good news is that it has tax treaties with many foreign countries, which can potentially save you from double taxation. Take time to educate yourself on strategies such as the foreign earned income exclusion (FEIE) or foreign tax credit to help avoid paying more in taxes than necessary.
A Creative Planning International wealth manager is a great source for updated information and can help you navigate the intricacies of these treaties and strategies to avoid potential tax problems and burdens.
#5 – Save and invest in the United States with money earned abroad.
Before you move overseas, establish accounts with a U.S. custodian willing to work with Americans living overseas. This way, you can continue to invest in U.S. financial markets, which offer the largest and most liquid selection of investment products. As you consider your options, you may find that many U.S. custodians won’t open an account directly with Americans living abroad. However, advisory firms such as Creative Planning International can often open accounts on a client’s behalf, providing a solution for frustrated expats. Note: If you fund certain after-tax accounts improperly (such as Roth IRAs), there can be a large tax penalty, which is another reason working with a qualified professional often makes sense.
#6 – Cover your bases.
Take steps to complete the following financial tasks, which will help set you up for success:
- Update your beneficiary designations for U.S. accounts.
- Freeze your credit.
- Properly terminate your residency from any U.S. state with income taxes.
- Many couples (if both aren’t U.S. citizens) can strategize on which spouse owns what. For example, the American spouse holds U.S. investments and files taxes as married filing separately, while the foreign spouse owns non-U.S. assets.
- Build up an emergency savings of three to six months of living expenses in a liquid account held in local currency.
- Make a plan to cover medical expenses in your country of residence (this may include public health insurance or a private policy).
- Establish estate planning documents that are in compliance with your country of residence’s gift and estate laws.
Feeling overwhelmed? We can help. At Creative Planning International, we work with Americans living abroad and cross-border families to help maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and take into account your unique personal circumstances as we help you plan and invest for the future.
