CC Award Update

We got the award.

In an earlier post, I expressed some reservations about these big awards and the minimum spend required to achieve them. I still feel that, and my wife still feels that. We did drastically reduce our planned expenses. We don't like feeling incentivized to make big purchases.

But I still wanted the award for reasons I'll explain later, so I found a method of manufactured spending to make it work. There aren't many available to us Americans abroad, but there are some, and I took advantage.

The manufactured spend did cost something as a percentage of the spend, so it wasn't free. Basically, it's a cost for the accumulation of these points. I think it's better than buying a bunch of expensive stuff totaling $4000.

Why do it at all though? The basic calculation in my head was something like this: we are going to travel to the United States again at some point in the next two years, so therefore it's worth spending a little, to save much more later. The return is pretty good in this case (around $70 spent to save between $600-$1000 later). Even if I later eat the annual fee, the return is decent.

The reality is that we're going to visit family in the US at some point. It's important to both of us, and despite any savings goals we have, it's not worth sacrificing relationships or missing seeing child relatives grow up. Next summer we'll suffice with FaceTime, but the next year we'll almost certainly be heading back.

Or we'll help relatives who aren't as financially well off come visit us. It is much cheaper for us to pay to fly someone here, than for both of us to fly to the US and find accommodation and transportation.

Will we do this again? Maybe. I'm looking at other card award possibilities, but the trouble with manufactured spending is that it's kind of skirting the rules. I prefer to draw as little attention to myself as possible regarding my American financial accounts, and manufactured spending can open me up to closer inspection. I might do this with another similar card and then focus on things like hotel cards that provide free nights automatically. Since hotel costs were a high proportion of our last visit, cutting down on that would be worthwhile.

Or maybe I won't. I could just continue to add points to this card that I have and otherwise use normal German payment methods to get by. Germany doesn't have the same glut of strategies that the US has, but it has a few, and those might be enough to both satisfy the points accumulating itch and to keep things simple.

Some US Expat Challenges

Before I moved out of the US, I didn't give much thought to the challenges of saving money and trying to build wealth. I was just happy to have a job, and I was happy that my wife accepted this new adventure.

But once here, it became increasingly clear that we Americans have challenges while living abroad that are unique to us. Here are some.

Filing Two Tax Returns

This is the big one. We Amis have to file both in our resident country as well as the US, and under certain circumstances we can owe taxes to both countries. There's no exit interview when you move abroad, so you just have to learn this on your own by reading the IRS website or by asking other expats. If you miss one or several returns, you're going to have a bunch of work to sort through to catch up, not to mention potential penalties.

As for the actual filing, you can use programs like TurboTax to file in the States, but TurboTax doesn't know everything. As soon as you move away from simply being an employee for a single employer earning under whatever the cutoff for the Foreign Earned Income Exclusion is, you enter a much more complicated tax situation. For example, being self-employed while resident abroad requires some familiarity with the treaties negotiated between the US and your resident country, if such a treaty exists.

U.S. Banks Probably Don't Want to Deal with You

You face an uncertain result if you tell your American bank back home that you've moved abroad. Many simply maintain an American address with a family member rather than take the risk of their bank closing their accounts. It's the same story with credit cards and investing accounts.

Foreign Banks May not Want to Deal with You

Because of the long arm of the U.S. government, foreign banks are required to disclose information about American account holders to the U.S. government. When opening an account abroad, you may be sent IRS Form W-9 from the foreign bank.

Many banks don't want the hassle, and they may simply refuse to give you an account because of it. When FATCA was passed, there were lots of stories of Americans losing access to banks and banking products. It's gotten better since then, but we always have to assume that it could happen again.

Floating Currencies and Conversion

Living abroad subjects you to currency risk. If you have any kind of financial life in the US, you will need dollars at some point, and you will then be hit with the reality of ever-shifting global currencies.

When my wife and I first moved here, the euro was worth around 1.38 dollars. In the first year, we tried just getting our lives together and didn't aggressively pay down the debts accrued to move here. Within around a year, the euro plunged in value, and suddenly we faced debts accrued in dollars becoming larger relative to our European incomes simply due to currency fluctuation.

On top of that, converting currencies costs money. If you use a service like XE Trade or Transferwise, they will charge you some kind of fee or make money by converting at a slightly disadvantageous rate. But they're much better than using a bank or one of those conversion kiosks.

Complex Rules for Investing

Once you've actually saved your money, it's unclear where to put it. Save it abroad or in the US? What kind of vehicle? Savings accounts pay basically nothing (especially in the eurozone), but when you look at equities you are entering a new world of complexity. Individual stocks or funds?  Real estate and rental income? You have to consider the taxation rules for both countries when making your decision, and you have to consider potential future changes to the law. What strategy is the lowest risk within this complex matrix of possibilities? I've made my own choices here (buying individual stocks rather than funds), but each person will have to make their own choices.

For example, buying funds as an American in Germany is really risky. If you buy funds in Germany, the US will tax them punitively. If you buy funds in the US, Germany taxes them less punitively than they used to, but I find the rules excessively complex and somewhat punitive.

Do You Speak the Language?

We are at risk, though this applies to everyone, when we don't speak the home country's language as well as everyone else. The fine print matters, and if you find English legalese tricky, it's only going to be trickier in a language you didn't spend speaking during your school years.

That list should give you an idea of what we're dealing with. In many ways, of course, we're very privileged. We chose to be abroad. We chose this country. At least in Germany, most Germans seem happy to have us living here.

But there are a lot of traps you can step in while living abroad. I'm still learning.

Saving Abroad

I've been living outside of the U.S. for a number of years now, and something I discovered after moving away:

It's tricky to save money as an American living abroad.

Because we're subject to U.S. taxation and our home country's taxation (in my case Germany), we often have to jump through hoops that most other people never even think about. You can get mad about it. I did. Having to do all this extra work and face the extra complication and potential tax penalties and costs from complying felt like persecution. For those of us who are earning a middle class living, it feels punitive.

It's unfair. Full stop. But there's not much to do about it other than:

• Give up.
• Deal with it and figure it out. 

And it's possible that you might have some fun figuring it out! At the very least, there's a lot to learn in the process.

So I'm writing this to help organize my thoughts about dealing with money while living abroad and potentially help anyone who comes across this material.