Understanding how much disposable income is available to save and invest is important for everyone, but even more so for expat families having to come terms with a new environment quickly.
The chance to relocate abroad inevitably conjures up images of new challenges, life-changing experiences and, of course for some, high salaries and bumper benefits packages for you and your family. And while all of this might be true, if you're going to make the most of the experience it doesn't come without some solid planning in the first place.
The responsibility for getting it right is arguably heightened if you have, or are planning to have, a family, so it's important that all aspects of living as an expatriate family are considered. "If you are planning to emigrate, the most important thing is to plan before you change [financial] jurisdiction," says Christopher Wicks, director of Bridgewater Financial Services. He points out that because expats are subject to different tax, legal and healthcare regimes, they need to understand how they can take advantage of any opportunities that are available to them.
One of the first considerations for any family relocating is to make sure you have a roof over your head, and that your house is secure - financially as well as being somewhere safe for your family. While each country has its own laws in terms of buying property, a common recommendation is to rent before you buy, so that you can get to know "the lay of the land" first. It will give you and your family the chance to get a sense of the local culture and environment before committing to buying a specific property in a particular location. This is exactly what Irene Li, her husband, Mark McFarland and two daughters, Isabella (nine) and Sasha (seven) decided to do when they moved to Dubai in 2006. Initially, they rented for three years and then, as rental prices continued to rise, they decide to buy their own home in the lush green area called the Lakes. "We feel much happier in our own home and it gives us a greater sense of wellbeing," says Li. "It means we can landscape the garden and decorate our home as we like. The Lakes area has great schools and facilities for kids and it has a real community spirit."
Managing multiple currencies
Another immediate challenge is managing multiple currencies, as currency fluctuations can have a severe impact on the buying power of your income. Chris Saint, a currency analyst with Hargreaves Lansdown, says it's important not to leave foreign exchange until the last minute as currency markets can move very quickly, resulting in wide variations as to how far your home currency will stretch. As any parent knows, keeping the kids entertained and giving them the best chance to take full advantage of the opportunities an expat life offers doesn't always come cheap.
The dual challenge, then, is coping with transferring money and making international payments across countries, or managing the risks associated with currency fluctuations from within those countries. It's worth exploring whether fixing an exchange rate for a period of time to overcome fluctuations, as arranged by currency exchange companies and international banks, could be beneficial to you.
Li says she was greatly helped by attending a talk at her local bank before leaving the UK, and because she and her family have lived in different countries, the thought of managing different currencies doesn't faze her. Her family has a bank account in Hong Kong, an offshore account in Jersey and one in Dubai.
Another seasoned expat, Michael Reed, lives in Seoul with his wife Yuko and their three children, having previously lived in Tokyo and Hong Kong since leaving the UK in 1989. He says he's also found managing multiple currencies straightforward: "There have been few, if any, issues with managing different currencies, given that my bank account in Hong Kong offers a very efficient multi-currency service. One quickly adopts a new 'benchmark' currency, in my case US dollars, and all investments and costs thereafter are valued against that."
Protecting your family's financial future
In addition to retaining your bank account in your home country and opening one in your destination country, it could also be beneficial to open an offshore bank account so you can grow your savings and investments and maximise any potential tax efficiencies.
Bridgewater's Wicks suggests that if you're leaving your home country for good "it might also be worth considering moving your pension to a qualified recognised overseas pension scheme (QROPS) for greater flexibility once you have been working abroad for five or more years". He points out that if you do plan to stay in that country for a long time it may be advisable to move your pension to a local arrangement to avoid adverse tax consequences. However, it is strongly recommended that independent tax advice is obtained in respect of any pension transfers.
Whatever part of the world you and your family are relocating to, it is fundamental that you do the necessary financial planning, so your family's needs are catered for. Find a financial adviser who understands the challenges of expat living in a particular location, and can regularly offer you and your family advice, giving you the peace of mind that your loved ones are well cared for.
This is one of a series of articles from HSBC Expat we're publishing to help current and future expatraites to manage their finances. This series will contain articles regarding tax, cost of living, family finances and growing your wealth.