As an expat, or even as a potential expat, you’ll know that along with all the other things you have to think about when you’re setting up in a different country, the impact of a change in the cost of living can make a big difference. Climate, salary and social life are all important aspects of a successful stay, but making sure you have control over your living expenses is vital.
Adjusting to how much things cost relative to what you are used to is a key part of expat life, and forewarned is forearmed. According to a survey by the World Bank, food, housing, energy and healthcare costs continue to account for as much as 89% of annual spending, regardless of your location. It’s therefore vital that your day-to-day financial planning takes this into account, regardless of whether you’re employed, self-employed, looking for work in your new location or even retired or retiring.
Do your homework
Cost of living calculators will help you appreciate the wide range that can be found across the globe, since living costs vary dramatically from country to country.
For instance, Luanda in Angola, Africa, is the world’s most expensive city for expats to live, according to research published last year by HR consultancy Mercer. The top 10 of the world’s most expensive places also included three Asian cities: Tokyo, Osaka, and Hong Kong, which was joint eighth most expensive city with Zurich.
Europe’s most expensive city is Moscow (fourth), followed by Geneva. London is ranked joint 17th alongside Paris, according to the survey.
Calculate what you’ll need in advance
If you are planning a move, know how much money you will need to have an equivalent lifestyle to the one you currently have. This will help you to negotiate your salary better (if you are moving for a job), gauge comparisons in the housing market and give you a sense of what general living expenses are like. And don’t forget that there may be one-off costs associated with setting up, such as buying a house or a car, which may take time to even out once the “honeymoon” period is over.
Consider medical insurance and education
Healthcare is something that should also not be overlooked. If you have relocated with your job you may be entitled to receive medical cover provided as part of your employer’s benefits package. If not, and if there is no reciprocal agreement between your home country and the country in which you settle, you may need to take out your own medical insurance.
Some employers may pay for your children to be educated at private schools (particularly in countries where state education is limited). But in situations where private school fees are paid, you will probably still face additional costs. “International schools tend to have significant extracurricular programmes,” says Rupert Morley, CEO of Sterling Relocation, a provider of global relocation services. He also points out that “if a child is left at school [in their home country] there is the cost of boarding, as well as the issue of flying to join the family at the end of each term.”
Think of the small additions
Other additional living costs may include employing a driver and domestic staff where relevant, and joining certain clubs to participate in expat social or business life. And then there is the cost of maintaining assets based in your native country. If your house is let out, for example, management fees will need to be paid to a letting agent.
Negotiate the most suitable remuneration package if moving with your job
If you are moving with your job you may be lucky enough to have benefits provided by your employer to help pay for additional expenses, but relocation experts say such perks have been cut back in recent years in response to the economic downturn.
The most common form of remuneration package for expats is known as the “build-up” or “home approach”. This means that the salary in your host country matches the salary you were getting in your native country; or a job of equivalent value if it were done in your home country. Various allowances and benefits may be added to your base salary, which could result in you being significantly better off if the cost of living in your host country is substantially lower than your home country.
However, not all companies offer such a generous salary package. Josephine Woolley, PR manager at ECA International, which advises companies on employee relocation and benefits, says some companies “prefer to offer remuneration that reflects the market rate of the host country”, although the employer may add benefits.
“Companies typically provide a cost of living allowance to ensure purchasing power is maintained when an employee is sent to work elsewhere in the world so that they do not lose out,” adds Woolley. This allowance will typically take into account exchange rates and inflation.
Again, if you’re moving as an employee your company may provide financial advice, but it’s still a good idea for all expats to get expert advice of their own, to help them budget for living costs in a new country and manage their finances successfully.
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.