Managing your cash flow while overseas
It's hard enough to live in another country, facing a new language or different culture, but dealing with a foreign currency is a whole new ballgame. If you have income from the U.S., due to fluctuations and volatility in exchange rates, you may see your income go up and down in local currency terms. It can create havoc on your cash flow and you may be forced to reduce expenses simply because of an unfavorable currency move. There are some ways, however, to make your life easier while being abroad.
Start by creating a cash reserve in the local currency. These savings could be 3 to 6 months of living expenses and should be easily accessible should you need it. Having this available to you reduces the need to pull cash from another currency when it may be at a time that's unfavorable. If you run an international business or travel for work, you may want to open an account that allows for multiple currencies. You could use Transferwise, among others, to establish multi-currency accounts.
While abroad, you may see some card readers asking if you want to convert your U.S. dollars. Always say no as their card conversion software has a poor conversion rate. Your bank’s debit or credit card will more likely provide a favorable conversion.
If you’re moving abroad consider saving up in the new currency or invest in country-specific bonds and stocks. This depends on your risk tolerance and time horizon for the money, however, foreign investments often follow the currency moves of their host countries.
If you're buying a house abroad, but not for a while, you can purchase futures or options on the local currency to ensure the protection of your purchasing power. Don't let your dreams die because of unanticipated currency moves.
The U.S. dollar, against most currencies, continues to devalue since the peak in early 2017 (see chart). If your income is in dollars then expect living costs to continue to increase. If you have dollars sitting in your bank, consider converting sooner than later as the decline is still progressing.
At Eureka Wealth Management, I help my international clients manage their currency risk. I can provide multi-currency accounts and help them time and strategize for moves in the currency to make for a favorable exchange. I also provide strategies for retirement savings, tax & estate strategies, investments, and insurance for expats overseas. Visit eurekawealthmanagement.com/expats or call +1(760) 537-0791.