Financial Management for Living Abroad

If you choose to retire abroad on a modest income, financial management is still necessary.

Living abroad can be a great adventure, but it requires sound financial management.  While it is very true that one can enjoy a lower cost of living in many countries, there are a few economic realities that one should be aware of. Living abroad will be a great adventure if one you learn how to manage your expenses effectively.

Living Abroad: Adapting to the Cost of Goods

If you decide to retire abroad, many things will be significantly cheaper, on the other hand you will find that many commodities are not cheaper and in fact, may be more expensive. Part of the trick to living abroad successfully is to understand these variations in cost and adapting to them.

For example, a Big Mac overseas is usually cheaper if the cost of labor and materials to make a Big Mac are also cheaper. Big Macs in northern Europe are more expensive because these things are more expensive. On the other hand, if you are living abroad in Southeast Asia, Big Macs will be much cheaper due to lower labor and material costs.

Living Abroad – Energy and Transportation Costs:

The cost of energy and transportation tend to be expensive worldwide whether it is for electricity or oil. This is primarily because the price of oil is set by the global rather than the local economy. Whether you live abroad in Europe or Southeast Asia, these countries have to buy energy from the global marketplace and pay the same price.
To minimize the cost of energy, one can look for a country that either produces its own oil or makes significant use of alternative energy to keep the price of energy down. But that limits the number of destinations for retiring abroad.

A more practical alternative is to adapt one’s lifestyle to lower the costs of energy and transportation. When living abroad a retiree can decide to use public transportation (and share the cost of fuel, vehicle maintenance, and insurance with other riders). Or, one can strategically live near markets and simply walk to the market.

If you live abroad, drive a gas guzzling SUV, live in a huge house that requires a lot of cooling and lighting, then you can expect your energy costs to be as high if not higher than living in the states.

Living Abroad – Costs of Imported Goods:

If you live abroad and insist on consuming imported products, your cost of living is not likely to go down. In fact, they are likely to go up, simply because you are paying for the product, plus the cost of transporting that product from the USA to your country of retirement.

To minimize the cost of imported goods, you will need to look for substitutes for those goods. Usually, locally produced goods will be much cheaper. For example, if you enjoy a good California wine, you will pay for the wine and transportation cost for that wine. On the other hand, if you can find an acceptable local substitute, it will probably be much cheaper simply because the cost of grapes and labor may be much lower locally.

Living Abroad – Housing Costs:

The cost of housing can be much cheaper when living abroad, but it is not a guaranteed fact no matter what country you live in. If you live in the capital city, odds are that you will be competing with wealthier locals as well as wealthier expatriates for housing. This tends to drive the price of housing up due to the demand for limited housing.

On the other hand, if one avoids the competition by looking for a subdivision not heavily populated with wealthy working expatriates, one can usually find more affordable housing. If one moves outside of the city or to a smaller city, the price of housing should drop significantly and your costs for living abroad will drop.
If you really want to live on the cheap, when living abroad you can always adapt to the life and housing of the locals. If you are adventurous, this could mean an indigenous type of lifestyle – perhaps not so bad if you’re living on a tropical beach somewhere. Shop around, odds are you will find housing that varies from an ultra cheap hut to everything else up to living abroad in a huge and fancy villa.

Living Abroad – Food Costs:

The price of foods will generally be lower in developing countries. Costs will tend to increase the more processed the food is. If you purchase a chicken that has been chopped up and shrink wrapped in plastic, you pay for the chicken, the materials to package the product, any labor involved in packaging, and energy used to package. On the other hand, if you live abroad, you will usually be able to purchase a chicken from a local market without all the extras and reduce your expenses.
When living abroad, if you shop in a fancy supermarket, the cost of the food will include the cost of labor, rent, refrigeration, air conditioning and other overhead that the supermarket owner charges. Shop at a local market and all of these prices will decline.

Living Abroad Financial Management Summary

Living abroad can be a great adventure and much less costly than life in America, but it will require some conscious management of your lifestyle. For me, I’d be comfortable walking to a local market and preparing my own food to minimize expenses. Not only is it more environmentally friendly and healthier, but it frees up more of my retirement income for travel, for the occasional fine dining, for savings, and other things that I enjoy.

On the other hand, living abroad can be miserable if you cannot manage your budget effectively. Many Americans have learned to live abroad on very modest incomes. In most instances they’ve learned to adapt to the reality of the local economy. On the other hand, if you are a Donald Trump, well by all means disregard all of this advice and do as you please.

(Photo by: Louis Louro)

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