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ExPat Finances: Three Key Strategies for Building a U.S. Expat's Financial World

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Published: 04Sep2009
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Sean is living a very exciting life. At the ripe old age of 27, Sean, has a sky-rocketing career, annually earning in excess of six-figures. He sees the world as an international stage for his career success. Recently, Sean met Amber, and they plan to marry and start a family. By his own admission, it's time for Sean to clean up some of his financial mistakes. While Sean has focused intently on developing his earning potential, he let other issues tarnish his credit report, missed important tax deductions, and spent his money as quickly as he earned it.

I interviewed Sean and Amber for nearly an hour, reviewing their financial details and talking with them about their goals for the future. Since they are just starting to build their financial world, the three important points emerged: They are not as organized as they need to be for financial success. They are not receiving good tax and planning advice. They do not understand how to plan for their financial future. After they deal with these issues they can focus on growing their financial world and protecting what they're working so hard to achieve.

ORGANIZATION

Sean has moved a number of times and one of his big regrets is that he has not stayed organized. He's not sure where to find his prior tax returns and cannot readily locate any of his critical important documents. To be fair, Sean is not foolish. He is a very bright man, proficient in those things allow him to make a high income at an early age. He and Amber see the need to need organize and focus their financial world.

What I've recommended they do is take the time to locate the 17 critical documents that everyone should have quick access to in the event of an emergency. Then, store digitized copies of them in a secure, online service. That way, they need only find Internet access to be able to retrieve that information. When they move, these copies will not be lost in the process. In addition, they need to gather the information on their banking, savings, credit cards, and investment accounts. They need all this information in one place as well. I suggested a service that updates the values in these accounts nightly. They need to organize their financial and personal information in one place so that they can have in-depth discussions with a trusted financial advisor about their future.

TAX PLANNING ADVICE

Sean has not received good tax advice in the past regarding the tax filing regulations and exclusions available to American Expatriates. The hearsay he has received from family and friends has been dead-wrong. He still needs to file his 2008 income tax return. He is not sure if he qualifies for the Foreign Earned Income Exclusion for 2008. He is not sure if his foreign earned interest, dividends, and capital gains are taxable in the U.S. and he is not sure if his Internet business income is taxable in the U.S. or not.

Sean really needs a qualified tax advisor to help him sort out all the pieces of his tax world. He also needs to identify all his travel in a travel journal. I communicated to Sean that interest, dividends and capital gains earned anywhere in the world are taxable in the U.S. He will collect that information for the year 2008 so that his tax return can be accurately filed. He will need to consult with his tax advisor to understand how he can eliminate or defer U.S. taxes on the income associated with his internet business.

MANAGING THE FUTURE

As Sean and Amber contemplate marriage and starting a family, I suggested to them that the biggest argument between husbands and wives is generally over money. It is time for the two of them to implement some good financial basics. For that, I have three recommendations that will help them for the future.

For the next 60 days, they will each record all of their spending and once a week, they will share the details of their purchases with each other. This is not to be a time to judge each other, but a time to understand the habits and values of the other. This is an opportunity to have open conversations that will help them understand each other's point of view and to know how best to focus their spending in the future.

Another financial basic for them to implement is the concept called, "Pay yourself first." This means that each month, before they pay their other expenses, they will set aside a fixed amount for any future goals. They first need to build an emergency savings account. They should have 6-12 months of expenses set aside. After that, they should build savings for other goals they may have. I asked each of them to check into what employer-sponsored retirement programs might be available. I encouraged them begin contributing to those programs, to help save for retirement while reducing current taxes.

In order for Sean and Amber to define their financial future better, I recommended some books that I like to have my clients read. The Richest Man in Babylon, by George S. Clason; Rich Dad, Poor Dad, by Robert T. Kiyosaki; Simple Wealth, Inevitable Wealth, by Nick Murray; and for Sean's business: the E-Myth series by Michael E. Gerber.

Sean and Amber have the opportunity for a great future together. In order to get off to a strong start they need to organize what they have, manage today's income well, and find a qualified tax and financial professional to help them chart their course for the future.

Nick Hodges, President of NCH Wealth Advisors, provides US expatriates with the best tools, strategies and planning techniques to help expats manage their tax and financial goals and dreams on a day-to-day basis regardless of their location. To claim your free gift, ExPat Life Portfolio Kit, visit his site at =======> ExPatCFO.com

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