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How should you handle your finances if you are planning to shift abroad?

08 Sep 2021 - Contact Sayan Sircar

Tags: NRI

6 mins read

This post deals with the financial steps needed to prepare for shifting abroad within 1-2 years.

How should you handle your finances if you are planning to shift abroad?

Introduction
Dealing with uncertainty
Investing before emigrating
Steps to take just before emigration
Having enough liquidity for shifting expenses
- Visa/Work permit application expenses
- Travel/relocation costs to the new country
Having funds for set up in the new country

Introduction

Shifting to a foreign country requires a fair bit of financial planning to ensure a smooth transition and no significant hassles. We will discuss these essential points:

dealing with uncertainty
investing before emigrating
steps to take just before emigration
having enough liquidity for shifting expenses
having funds for set up in the new country

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Dealing with uncertainty

If you do not yet have an offer (from job or education) and are just applying for a course/job or work visa/PR, then there is a fair bit of uncertainty. Therefore, you should not take any drastic steps (like selling equity mutual funds) that will jeopardise your finances just in case you do not end up emigrating.

However, if you already have an offer or a visa/PR, you can move forward with more certainty.

Investing before emigrating

The time leading to emigration is an excellent opportunity to simplify your portfolio as much as possible. Instead of having investments scattered across multiple banks, funds and stocks, you should go through a de-cluttering exercise. Even if you do not end up emigrating, a simple portfolio is easier to manage than a complex one.

Close older bank accounts that are not being actively used to lessen the later NRE/NRO account conversion process. While outside India, it won’t be easy to maintain multiple accounts, receive OTPs, do KYC updates, and keep minimum balances.

For Demat accounts, you need to critically evaluate each stock you hold to ensure that the stock portfolio will do well and will beat a simple Index fund. If you do not have the conviction and time to continue analysis regularly, please exit the stocks and invest in mutual funds.

For mutual funds, you should simplify to the fullest extent and switch to index funds to make it easy to track and reduce the negative impact of active decision making.

If you sell stocks and mutual funds, calculate and pay capital gains taxes before the quarterly due date.

Steps to take just before emigration

These are legal and regulatory requirements to update KYC and change status for your bank, demat and mutual fund accounts. In addition, from the income tax and foreign exchange management act (FEMA) perspectives, the status will change.

This topic is covered in more detail here: How should an NRI handle investments and accounts in India before shifting?

Having enough liquidity for shifting expenses

The standard goal-planning method for near term goals applies here. If the expense is due within three to five years, you should keep the money in a savings account or FD to insulate the funds from market risk.

Visa/Work permit application expenses

Apart from the direct application fees (up to a few lakhs per applicant depending on the country), some countries require you to demonstrate enough liquid funds or net worth before granting the visa. If the requirement is to hold it in the bank account, this money will have to be arranged by selling investments from the previous step.

Travel/relocation costs to the new country

Relocation costs will majorly consist of:

flight tickets for self and family
household goods if you want to move stuff

Having funds for set up in the new country

hotel accommodation costs until you rent a house
bank account setup costs (funding the minimum balance)
housing lease deposit amount (this may be reimbursed as part of your job offer)
living costs for few months in case you need to find a job after entering the country (use a cost of living calculator to estimate this)
health and other insurance costs
car downpayment costs if public transport is not available (in this case, car loan EMI will be a part of your monthly expenses)

All of these costs will be a substantial amount depending on the country. However, these can be estimated today and saved in bank RD/FD starting immediately.

To provide a perspective on the numbers you need to save, and if you are saving in a recurring bank deposit that gives 3% post-tax, you need to invest ₹ 20,190/month to reach five lakhs in 2 years.

Target (lakhs)	1yr	2yr	3yr	4yr	5yr
5	₹ 40,994	₹ 20,190	₹ 13,257	₹ 9,793	₹ 7,715
10	₹ 81,989	₹ 40,380	₹ 26,515	₹ 19,585	₹ 15,430
15	₹ 1,22,983	₹ 60,570	₹ 39,772	₹ 29,378	₹ 23,145
20	₹ 1,63,977	₹ 80,761	₹ 53,030	₹ 39,171	₹ 30,860

If you already have money saved for this purpose, this is how that money will grow: ₹ five lakhs kept in an FD for two years will grow to around ₹ 5.30 lakhs in 2 years at 3% interest post-tax. This assumes you are not making extra contributions.

Corpus (lakhs)	1yr	2yr	3yr	4yr	5yr
5	₹ 5.15	₹ 5.30	₹ 5.46	₹ 5.63	₹ 5.80
10	₹ 10.30	₹ 10.61	₹ 10.93	₹ 11.26	₹ 11.59
15	₹ 15.45	₹ 15.91	₹ 16.39	₹ 16.88	₹ 17.39
20	₹ 20.60	₹ 21.22	₹ 21.85	₹ 22.51	₹ 23.19

You can use the online Goal-based Investing calculator to estimate the numbers in your case. Since the time horizon is short, it will be prudent not to chase returns by taking higher risks by investing in equity for a short duration.

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