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.

Tracking Spending Overview

"Track your spending" has a better chance of helping than hurting. I've been tracking my spending for years, and I vouch for it. Thankfully my wife is on board, so we've gotten very good at it.

Some people who have really honed their habits don't need to because they have trained themselves to habitually avoid overspending. But if you are trying to change your financial life you probably don't have those habits yet, and it can only help to write things down. Plus, if you like gathering and manipulating data, writing down data about years of transactions can provide lots of possibilities.

Here are the things that are absolutely necessary to write down:

• Transaction date. You need this to know how much is coming in and out in a given time-period. 
• Vendor name. If you don't have one, then just make one up that's memorable. "Toilet" and "Kiosk" and "Apotheke" are common European stand-ins for fairly generic vendors.  
• Category. I personally think it's better to start simple and add complexity in response to necessity than start with dozens of sub categories. The categories that are necessary for you to track will reveal themselves over time. If you want to keep it really simple, just use categories for housing, transportation, utilities, food, and everything else (we use David Ramsey's "Blow" to cover a wide variety of things). If you have debts, add those in. 
• Amount. Obvious, right? I personally list expenses with a minus sign in front, since that makes it easier to add to spreadsheet formulas. 

Those are the biggies. Here are some others that might be useful:

• Budget Month. I use "budget month" because it lets me stick things that happen in one month in a different month. For example, if you get paid at the end of the month, you want that money for the next month and not the one that just happened. 
• Account. This might be useful or it might not be. If you're doing things with credit cards, it may be useful to know if some spending happened on a credit card rather than coming out of a cash account. 
• Notes. Maybe there's something unusual about the transaction that you want to easily recall. 
• Tax-Related. If you want to deduct something, it may be good to write it down at the time of purchase. I don't do this
• Project. This is a new idea for me. Basically it lets you categorize certain spending as part of a larger effort. So, for example, if you go on a vacation, there may be costs that are categorized as "Travel", "Food", "Lodging", "Blow", and on and on, but a project tag (in this case something like "2018_SummerVacation" or "2018_SavingsGoal") lets you track the entire extended spending for the effort. You could really go off the deep end on this if you start viewing your life as a series of larger and smaller projects. 

I personally write everything down in a spreadsheet. You could also use paper if you want, but spreadsheets have the advantage of being easily modifiable, and the data can be easily analyzed as you get better at using the spreadsheet. 

I use Mint additionally, but I don't rely on it for budgeting or contemplating my cash flow. It's great for seeing transactions pop up from all my various American accounts, but their budgeting tools are too stiff for my purposes. It's better than nothing, but I think the time devoted to developing one's own system is superior. 

Once you've been doing this for awhile, it becomes second nature. I won't lie: it can take some time to build the habit. Some ways to make it easier:

• If you carry a smartphone, write down every petty cash transaction in some kind of notes app. This is for when you don't get a receipt. I've used some automation apps on iOS to add these notes to the spreadsheet once I've written them down.
• Keep every receipt and then add them to the list later. Insist on receipts if it looks like the vendor will supply them. 
• Spend less and have fewer transactions so you have to do this less often. 

Budgeting and Decisions

Yesterday, my wife and I came to a conclusion: we will not be doing a big U.S. visit in 2019. I got super stressed about this decision while we were making it, but the decision became much easier after doing three things:

• Adding up the costs of the last big trip taken a few months ago. 
• Looking at our budget for the next few months. 
• Talking about the decision with each other. 

The numbers don't lie. The last trip was really expensive. Although there are areas where we could cut costs and optimize, the next one would likely also be expensive in unavoidable ways, and combined with some other upcoming costs and upcoming financial uncertainties (cough cough taxes) it meant we'd be opening ourselves up to too much financial risk. Additionally, even if the uncertainties went our way, another trip would set us back on our longer term financial goals. 

So we had to bail on the idea. I sent out the messages to the relatives. Sorry. No big trip this year. I'd feel guilty, except that I know the numbers and how unrealistic it is to expect to do this every year. 

This is one reason why we should set financial goals, track our spending and budget future spending. At numerous points in my life, major decisions were made much clearer when the budget spit out its numbers. Rather than just a vague unease with a purchase or choice, the numbers show us why we are uneasy. They show us how the unwritten budget math in our minds is most likely lying and presenting an overly rosy view of things. Nearly any major decision can be reinforced or rejected by checking the budget. 

But we have to make one and follow it. It's hard, but it's worth it.