Financial expert Dave Deruytter looks at how exchange rate volatility can prove expensive for expats, and highlights financial issues for expats to plan.
A single currency might not suffice for the day-to-day needs of expats in Belgium. Perhaps your home currency is not the main currency in your host location. Or you have expenses in another currency than that of your income: mortgage repayments, university fees for your children, etc.
Your employer can simplify your cash management by agreeing to pay your salary in more than one currency according to your needs in the various currencies, e.g. 70 percent in the host currency and 30 percent in your home currency.
Alternatively some banks allow individuals to hold current accounts in different currencies. In Belgium for instance, you must first have a current account in euros. Subsequently, you can open accounts in other convertible currencies without extra charges at some banks and manage them all online.
Thus you do not always need to exchange incoming money into euros and back to another currency when making payments, which is expensive and may not be the best solution in view of prevailing exchange rates.
Thirdly you can keep accounts in various currencies in several countries, even with different banks. Moreover, banks which provide an international internet banking service can be an efficient way to manage your cash.
In addition, you can cut your exchange costs by having a credit card in both countries which you can use in the relevant country according to the local currency.
Check out your personal currency situation and take action where appropriate.
Customised investment diversification
When you move to a country with a different currency than your home currency, the fact that you build up financial assets in another currency than your reference currency is another potential issue. If the new currency falls, you would not be satisfied with your return.
Conversely, according to investment portfolio theory, to reduce your risk, enhance your return and curb volatility, you should diversify the asset classes and components of your investments. That is also true for the currencies in which you invest. Make your personal analysis.
Income – mortgage loan repayment mismatch
Real estate is definitely a worthwhile asset class for diversification. However, when you repay a mortgage loan in one currency whilst your regular income is in another currency you could be unpleasantly surprised. All the more so if the currency of your income plummets against the currency of your mortgage repayments.
To conclude: it is worthwhile reviewing your personal currency situation in all three areas. And once you have your overview to seek external advice.
Dave Deruytter is head of expatriates at ING Belgium and has first-hand experience of living as an expat around Europe. Dave boasts more than 30 years of experience in expat financial advice on everything from bank accounts to insurance and real estate.Contact us