From failing to take the offshore advantages available to them, to getting it wrong when it comes to seeking financial advice or by banking in the wrong currency, expats are at risk of making 5 key financial mistakes. These can erode an expat’s wealth and see them returning home poorer and disillusioned.

You’re here: Home Offshore Banking and Saving Offshore Savings and Investment 5 Ways Expats Lose Money and How to Avoid Making the Same Mistakes

It’s a fact that encountering financial problems is the main reason why expatriates fail to make a new life abroad. There are 5 main ways that expats lose money when they relocate, and in this article we identify them in a bid to protect you from them.

In these exceptionally tough economic times it’s not surprising that increased numbers of Britons want to escape the UK: as discussed in a Place in the Sun’s article ‘One in Three Brits Would Work and Live Abroad .’ However now more than ever, would-be expats have to tread carefully to secure their financial footing before making the move.

If you’re planning a relocation or you’ve recently made the move and you want to ensure you remain living abroad and loving your new life, here are the 5 ways expats lose money and how to avoid making the same mistakes…

1) Fluctuating Currencies Create Confusion Rather Than Opportunity

Those who live and work in the UK, earn their salary in sterling and spend pounds at the supermarket will of course be impacted by poor interest rates and high inflation, but they will not face direct exposure to fluctuating exchange rates on different currencies.

This is perhaps why so many expatriates fall foul of currencies when they move abroad. I.e. because they have no experience of the risks involved when one fails to protect one’s wealth from money market movements.

Back in 2004 – 2005 local savings accounts denominated in Turkish Lira offered expats living in Northern Cyprus and Turkey double-digit returns on their money. Many were attracted to the returns and failed to factor in the many elements that can impact on a currency’s continued strength.

Some lost significant sums of money when they got out at the wrong time, or they saw their previous gains eroded when they came to release their funds and transfer them back to pounds for example.

Currently Britons are seeing their pounds take a pounding against the likes of the euro, and so perception about currency woes has increased.

However, this still doesn’t prevent Britons from losing out time and again with currencies. Britons make many mistakes such as leaving their pension in pounds in the UK and then drawing on their pension in a different currency abroad. They earn abroad in euros and then send money home via a bank transfer and incur high fees and suffer poor exchange rates.

Britons fail to factor in a currency’s worth when they buy foreign property, and some don’t think about the currency they are saving or investing in in relation to the currency they may one day want to withdraw their money in.

Currency exchange experts HiFX recently explained why sterling has dipped in international money markets. In so doing they have shown why it is critical not to take a risk with currencies. I.e. the information is now out there for Britons to make a much more informed choice, and to thereby avoid many of the common currency woes.

We also always recommend that expats take financial advice that takes into account currencies, and which cautions against taking a high-risk attitude to money market movements.

Don’t risk losing out on your savings by having them in the wrong currency, and don’t waste money on fees, charges and poor exchange rates when you move your money around the world. Seek advice and be aware.

2) Repatriating Wealth is Not Always the Best Option

Expats repatriate a considerable proportion of their wealth according to the findings of last year’s HSBC Expat Explorer survey.

What this means is that expats risk losing out with currency conversion costs (see point 1 above), they risk introducing funds to a taxable environment when perhaps they could legitimately have avoided taxation had they instead moved funds offshore, and they may even fail to realise that in so doing they are investing in funds and solutions that are inappropriate for their financial position now that they are living abroad.

It’s very understandable that expats want to manage their money in ways that they are familiar with – which explains why they do move so much of their wealth back to the UK for example. But the likes of ISAs and British pensions are not tax advantageous to most expats, despite being common ways for them to attempt to save their money.

You don’t even need to take our word for it; in a recent post we explained how a pensions expert has damned traditional onshore pensions as a means for saving wealth!

Ultimately this means that expats need to become savvier about how and where they save and invest so that they are doing the absolute best for their money. Which leads us neatly on to the next point.

3) Offshore Savings and Investment Products Require Research

The offshore financial marketplace is massive, and it’s awash with products, funds, solutions and services from many different product providers. This can create confusion for expats. Once you’re an expat it’s no longer a case of going to a comparison website and looking to see who offers the highest interest rate on a cash ISA for example!

In other words, expats often have no idea where to start looking for the right approach to their financial portfolio’s management.

In the past we have asked and answered the question: ‘why aren’t expats aware of their offshore advantage ?’ But perhaps the question we should be answering is how can expats start to take their offshore advantage?

Well, the answer lies in part with point 5) below – i.e. through seeking qualified and correctly regulated, independent financial advice. And it lies in part with expats then taking the time to do their own research into the suitability, security and viability of any product or solution suggested to them, the jurisdiction it is managed under, the company offering the investment and the underlyings the money is perhaps invested in.

Expatriates should seek qualified advice – they should also ensure they do their own due diligence to ensure advice given is wholly appropriate. If an expat invests into a fund that is unsuitable they could risk exposing their money to anything and everything from a jurisdiction with no investor protection policy in place, to high levels of otherwise avoidable taxation.

The bottom line is that expats need to take financial responsibility.

4) Property Abroad is Not a Guaranteed Safe Investment

Historically in the UK property has outperformed stocks and shares as a solid returning investment asset as long as it’s held for the long-term. Britons are also a nationality which speculates on real estate and seeks to profit from it.

Believe it or not, property markets around the world differ on many fundamental levels to our own in the UK. For example, in Germany you can be highly taxed if you attempt to short-term speculate on real estate, and in many nations across Europe a home is bought between family members and remains in the family for generations.

Expats need to know that throwing their money into property abroad is not always a wise move. Rules and regulations differ, levels of protection for the buyer differ considerably, and taxation and fees and associated charges related to buying, owning and reselling a home can make an affordable dream property into an expensive money pit!

The Foreign and Commonwealth Office offers some sage advice for Britons contemplating buying property abroad. In their report they caution Brits to always seek independent advice at every step of the way.

We have also produced an independent guide to buying a property abroad safely so that any Brit relocating overseas can ensure they avoid the common mistakes that can really erode their wealth.

5) Any Expatriate Financial Advice Sought Should be Given by a Qualified and Correctly Regulated, Independent Authority

Finally, in our recent post ‘How Can Financial Advisers Offer Better Interest Rates on Offshore Savings? ’ we touch upon how you can ensure you’re dealing with a reputable financial adviser abroad.

We also always advise that expats ask for testimonials and references from any adviser they trust to give them advice. It’s critical too that expats understand that where an adviser gives them advice from — i.e. the nation in which the adviser is located/regulated is critical if ever it comes to a complaint needing to be raised.

Expats may feel it’s simpler all round to seek advice from an independent financial adviser in their old home nation – or to just speak to someone locally abroad. However, this is absolutely not the case…

Firstly expats have a unique and often complex financial situation that covers their tax liability which may exist in more than one country. They may need to take into account the laws relating to succession and IHT in more than one country too. What’s more, it is most often the case that there are massively advantageous methods for at least a part of an expat’s wealth management offshore – and no adviser in the UK or who is local to your new nation will be able to take all of this into account.

They will therefore not be able to give ‘best advice.’

You have to think internationally when it comes to financial advice as an expat, and then you need to make sure your adviser is used to dealing with expats, is qualified, experienced, backed by a solid brokerage, regulated and comes recommended by other expats.

In Conclusion

If you heed the above warnings and direction you will be most likely to avoid the 5 main ways expats lose money abroad.