When anyone is considering a permanent or even temporary relocation overseas, the number of questions that must be addressed can be overwhelming. Picking up an entire household in one country and then having to reestablish it within a completely different culture and standard of living will test the limits of anyone’s desire for adventure. Moving where your home language is spoken can lessen the travails, but the basics of local laws, schooling for dependents, medical care, and insurance, let alone the need for adequate income to cover living expenses, require detailed planning and preparation.
The one area that often is overlooked is the impact of foreign currency exchange rates on the process. If you happen to work in a corporate treasury department and have learned how to hedge “forex “ risk, then you are ahead of the game. Currency hedging, however, is not for the inexperienced, but you can follow many of the “tricks of the trade” on a general basis to benefit in the long run.
There are two types of currency risk to address. Corporations worry first about their balance sheets, and then about their revenues and expenses. Your process will follow a similar path, in that you will need to review your assets and liabilities, and then decide how you will want to structure them related to currency risk after your relocation. After this task, you must analyze your various income and expense streams and decide how best to rearrange those to mitigate the impact of changes in the currency markets.
The key objective with your personal balance sheet is to match assets with liabilities in the same currency such that your exposure is limited to the “net” of each pairing. List each asset and liability in either a column for home currency items or for foreign-based items. In another set of dual columns, list income streams associated with each asset or payment streams associated with each outstanding debt. The “net” figures in each column will become your “planned” balance sheet exposures.
Your focus now turns to income, independent of returns on your assets, and your planned living expenses after your move. Once again, divide these between “home” and “overseas”. For example, you may choose to rent your home while you are away, put some items in storage, and leave other personal debts in your home country. If the net figure for “home” items results in an expense burden, then you may wish to work with your employer to “split” a portion of your income to remain in your home currency. If your “home” figure yields a surplus and your foreign net costs are positive, then you may wish to work with your banker or employer to structure forward purchases of foreign currency at planned future intervals.
Every individual’s personal financial situation will vary, and your position in the management hierarchy of your employer will determine the amount of flexibility in splitting income streams or having local living expenses covered. If you have children, the location of their schooling will obviously require additional funding analysis, but the primary goal is to “match fund” on a currency basis to minimize risk.
Problems become pronounced when income is paid in a foreign currency, but major obligations back home require frequent transfers. If your home currency strengthens, a funding “gap” could cause increasing financial losses over time. If you are retiring to another locale, the stability of your new country’s currency will determine if you should move your income-producing assets.
Exchange rates can cause problems. Review your situation and modify to minimize your “net” exposures.
Tom Cleveland has had an extensive career in the international payments industry with over 30 years of experience in executive management, corporate governance and business development. Mr. Cleveland also earned an engineering degree from Georgia Institute of Technology and did graduate work in Finance at Georgia State University. Currently, Tom writes for ForexTraders.com and offers a lot of insight by expressing his ever-growing investment knowledge.