By Peter Dougherty
WALK into almost any casino in the world and you may notice that card games are played with several decks shuffled together.
Casinos do this for practical reasons, but for the player, it makes the game harder to follow. More cards are in circulation, probabilities become difficult to calculate, and keeping track of what has already been played is a challenge.
For Americans living in Spain, managing their personal finances can feel remarkably similar.
Instead of playing with one familiar deck, Americans who move to Spain must deal with two tax systems, multiple currencies, as well as financial and other assets spread across continents.
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Each of these elements has its own rules and timing. Individually, they may seem manageable.
Once shuffled together, however, the financial picture can quickly become confusing.
Even a great hand can be misplayed. An American family in Spain with significant assets and a solid financial foundation can still end up making mistakes if their cross-border planning is handled poorly: wrong structures, unwise decisions, bad timing. The cards don’t win the hand, the strategy does.
These are the different decks that are in play:
Americans in Spain need to manage the taxation cards. The United States taxes its citizens and green-card holders regardless of where they live, while Spain taxes its residents on their worldwide income.
There is also the exchange rate deck of cards. For Americans in Spain, everyday expenses are likely to be in euros while investments, retirement accounts or other assets often remain in U.S. dollars.
Assets and liabilities are another deck to manage. American expats may have a Spanish bank account, a US brokerage account, 401(k) or other retirement plans, Social Security benefits and even liabilities in both countries. Looking at each account separately is like studying one card while ignoring the other cards in play. The important question is how all the cards work together.
My years of experience in the finance sector have shown me that one approach to managing money stands above the others for these expats: goal-based financial planning. That’s because goal-based financial planning organizes our finances around specific life goals, rather than around abstract benchmarks like ‘maximize returns.’
Instead of asking ‘how do I get the highest return on my investments?’, goal-based financial planning starts by asking ‘what am I actually trying to achieve, and by when?’ Common goals might include:
- Retiring at a certain age
- Funding children’s education
- Leaving an inheritance
This approach is especially useful for Americans in Spain because goals such as ‘retire by 2045’, ‘buy a house in Spain,’ or ‘fund a U.S. 529 savings plan’ each have different timelines and investment strategies. This means that they benefit from being planned separately rather than as one undifferentiated pot of money.
Living in Spain should not mean gambling with one’s financial future. With goal-based financial planning and clear assumptions, Americans in Spain no longer need to react to each card and, as it appears, they can start playing their hand with confidence.
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