Day 04: Step #2, Preparing Your Budget

How Much Will It Cost You To Live Where You Want To Live?

Dear Student,

We have figured your total potential nest egg, the total amount of capital you could have available to fund your life overseas if you liquidated all your assets.

And we have converted that lump-sum nut into a monthly overseas living budget. In Step #3, we’re going to consider options for where best you might spend that money and determine just how much life overseas this monthly nut will buy you. We’ll connect the dots between the best places on Earth to plan for a new life right now… and your personal circumstances, priorities, and preferences.

Before we begin our geographic considerations, though, I want to walk you through how your expenses for living wherever you determine you want to live will break themselves down, to show you, item by item, how to approach the process of budgeting your life overseas. We’ll take this in two parts.

Because the bulk of any budget is given over to housing (rent or a mortgage), I recommend that this be considered separately from all other expenses you’ll incur. I also strongly recommend that, no matter where you decide to settle, you rent rather than purchase your new home in life overseas, at least at first and perhaps long term. We’ll return to this point later in the program, when we’ll walk through the process of finding a rental in the location where you’ve decided to settle.

Today, we’re planning your budget, and, again, we’re considering the cost of housing separate from the cost of everything else. Start by deciding what percentage of your total monthly nut (the amount you figured it in yesterday’s lesson) you want to give over to housing (rent). It should be no more than half.

If your total monthly nest-egg fund amounts to less than US$1,000, this means you have US$500 (or perhaps less) available to budget for rent. It is possible to find a comfortable rental for that amount many places in the world. In Panama, you can rent a local-style house in the Veraguas Province, for example, even at the coast, for as little as US$200 or US$350 per month. Likewise, in certain parts of Ecuador or Thailand, this budget would afford you a simple but reasonable rental. It’d be possible to find a comfortable rental in even more places for a budget of US$500 a month.

If your total monthly nut is US$1,000 to US$2,000 per month, your options expand, of course. A nut this size could allow you a monthly rental budget of as much as US$1,000, which should afford you better-than-reasonable rental accommodation in many of the places I’m going to introduce you to in Step #3.

If your total monthly nut is more than US$2,000 per month, frankly, you’re golden. You should be able to afford to live in any of the places I’m going to recommend. With a budget of more than US$3,000 per month, you could live almost anywhere in the world you wanted.

As I said, we’re going to return to the rental question later in the program. Finding one to suit your preferences and your budget is an important part of the how-to-go-overseas process and requires separate, focused discussion.

Today, the focus is your budget beyond your housing expense.

Expense Item #1: Condo/Building/Homeowners’ Association Fee

The monthly condo or homeowners’ association (HOA) fee is your contribution to the costs of maintaining and managing the apartment building or private development community where you’re living. It covers your share of shared expenses, including security, groundskeeping, internal roads, the swimming pool and other amenities, and sometimes a concierge in apartment buildings (in Paris or Buenos Aires, for example). You may incur this expense as an owner or a renter. It’s called different things in different places. In Paris, for example, the building fee is the syndic fee, and it covers the costs of maintaining the courtyard, the lobby, the elevator, the building façade, etc.; in Panama, it is referred to as the “PH” fee (that is, the propiedad horizontal), and, again, it’s to pay for the cost of maintaining and improving public areas, the elevators, and—important in Panama City—the building’s área social (or social area), which typically includes a pool, a game room, sometimes a gym, a children’s play area, and a barbecue.

This fee is the expense of the owner of the property, but typically it’s bundled into the rent you pay as a tenant. And in some parts of the world you, as the tenant, are responsible for making the payment to the HOA management group directly—that is, you could be asked to write two “rent” checks, one to your landlord and a second to the building association to cover the monthly fee.

The HOA fee is more for newer buildings than for older ones and more for bigger residential communities with many shared amenities than for smaller ones with simply, say, a little clubhouse and pool.

You won’t necessarily have this expense, and, if your overall monthly budget is tight, you should focus on rental options that are HOA fee-free. In a planned, gated community or a condo tower, you’ll almost certainly incur an HOA fee. Renting a small farm or beach house from a local owner, on the other hand, you wouldn’t.

Expense Item #2: Property Taxes

You won’t be liable for any property taxes in Croatia, for example, nor in Buenos Aires (though you will pay annual tax on property you own elsewhere in Argentina). That is to say, not every country imposes property tax, and, for those that do, the cost to you will likely be less—perhaps considerably less—than you may be paying for property tax now, either because the percentage is less, the value of the real estate is less, or both.

If you intend only to rent, as I recommend, property tax won’t be an issue for you anywhere.

Expense Item #3: Transportation

Will you need a car where you’re thinking of relocating? If so, this likely will be your greatest expense after housing. In some places, in fact, the cost of owning a vehicle can be greater than the cost of your rent. In the friendly mountain town of Santa Fe, Panama, for example, you could rent a two-bedroom house for US$200 a month. However, unless you’re comfortable with the idea of using your own two feet or a taxi to get around town and the national bus service to travel the rest of the country, you’ll need to invest in a vehicle. In a remote mountain region like this one, where roads can flood during the rainy season, maintaining your vehicle won’t be easy. It might seem as though you’re repairing tires and replacing shock absorbers almost as often as you’re filling the gas tank. If you’re not up for the expense or the hassle of car ownership, consider less remote options and cities with good public transportation. Living without a car in many of the places I discuss in these pages, the cost of transportation could go from being one of your biggest expenses to a negligible line item in your monthly budget.

Expense Item #4: Gas

Often used for cooking, gas is typically a negligible expense—a few dollars a month—except in places (France, for example) where homes are heated with gas. If you’re using gas for heat, the cost varies according to the size of your residence, of course. In Paris, we paid the equivalent of US$200 per month on average to heat our three-bedroom apartment.

Expense Item #5: Electricity

You might spend as much for electricity living in Panama (where you might run the air conditioning day and night) as you would for gas and electricity in Paris (where you need it for both heat and air conditioning, depending on the season). This was the case for us when we moved from Paris to Panama–our electricity costs remained the same. If your budget is small, think about places like Cuenca, Ecuador; Boquete, Panama; or Medellín, Colombia, where the weather is springlike and pleasant 12 months a year, meaning you can get by most of the time without either heating or air conditioning. Most homes in Medellín, for example, have neither central heating nor air conditioning installed. It’s not an issue (or an expense).

Expense Item #6: Telephone

This cost varies greatly country to country and region to region. France is a big winner when it comes to telephone expense. You can buy a phone package from Orange, for example, for about 32 euros a month that includes unlimited free calling to the United States and Canada.

In most of the world, though, if you’re not careful, your monthly phone bill can be a shock, even the most costly item in your entire budget (including housing and transportation). Over the years, some of our phone bills have been more than US$1,000 a month.

Finally, Lief put his foot down. Fortunately this didn’t mean we could no longer stay in touch with family back in the United States, because, by this time, Voice over Internet Protocol (VoIP) technology had advanced to the point where it was possible to use this strategy almost anywhere in the world. It is by far the most cost-efficient approach. Many providers now offer VoIP service, but I recommend Skype, which I’ve found to be the most reliable.

The only limitation is your Internet connection. If you have a good one, your Skype service will allow you to chat at will with friends and business associates anywhere in the world. You can call from Skype to a telephone for a few cents per minute, and Skype-to-Skype calls are free. Set your kids and grandkids up with Skype accounts (you may find they already have them), and you can speak with them whenever you want for as long as you like.

For local in-country calls wherever you relocate, it could be as simple as purchasing a local SIM card to replace the U.S. SIM in the phone you currently own. The SIM can be attached to a contract or pay-as-you-go. If you pay as you go, US$15 of credit in most places will get you 30 days of data, and another US$10 should be all you’d need for calling or texting for a month.

If you’re not planning on bringing your U.S. cell phone with you, you can buy a cheap, “burner” cell phone and buy credit, again, paying as you. You can buy a pay-as-you-go cell phone for as little as US$20, for example… and it often comes with US$10 of free calling credit (meaning the phone is only US$10). A US$10 calling card for my pay-as-you-go cell phone lasts me all month.

Expense Item # 7: Internet

The cost of Internet can be a significant part of your budget if you need uninterrupted access 24/7 and aren’t relocating to a city. In Panama City, for example, you can have wireless Internet for as little as US$20 or US$30 a month. But reliability decreases the further you get from the city, so many living in the interior of the country, at the beach, or in the mountains, invest in satellite Internet. This costs you about US$500 in hardware and setup and then US$250 a month or more. You can opt for a lesser setup, but you’ll still pay at least US$40 a month and won’t be able to do much with the speed and amount of data given for that amount.

Expense Item #8: Cable TV

Again, this is a significant budget issue only if you’re living outside the cities and developed regions of most countries. In a main city, such as Panama City, for example, basic cable costs about US$30 a month.

Expense Item #9: Household Help

This can be one of the big benefits of living overseas. You can arrange full-time help around the house for as little as US$250 a month in Nicaragua or Uruguay. The going rate for a good maid who’ll also cook for you and do your laundry in Panama City is US$450 a month, and about US$300 interior of the country. A gardener can cost as little as US$100 a month (in Uruguay, for example). In Panama, you’ll spend US$450 a month for a full-time driver/guy Friday.

Of course, as nice as help around the house can be, this is not a necessary expense. If your budget is tight, you can avoid this expense altogether or opt for a once-a-week maid. In Panama, this can cost as little as US$40 per visit.

Expense Item #10: Food

Just as in the United States, groceries are a hugely variable expense. Your monthly food spending depends on how you want to live and eat. Here in Panama, a couple could spend less than US$300 a month on groceries. On that budget, you could eat well, but you’d be eating like the locals.

Or you could shop at the Riba Smith superstore every week and load your cart with imported cheeses, specialty hams, wine, and prepared foods, in which case a couple’s monthly grocery spend could be as much as, say, US$600.

Grocery costs also vary according to region. In Paris, we lived in the 7th arrondissement, in the historic heart of the city. We discovered that prices in the grocery stores in our neighborhood were sometimes 25% more than prices for the same items in grocery stores in the 15th arrondissement, for example, a more working-class district.

Bottom line, your grocery expense in your new home is going to come down to how local you take your lifestyle. If you adapt your eating habits to the region where you relocate, focusing your diet on locally grown produce and foodstuffs, rather than seeking out imported or processed treats, your grocery expense will be small. You could maintain a diet more similar to the one you’re probably consuming now (including brand-name items like Coca Cola, Aunt Jemima, and Entenmann’s, for example) in many of the places I’m going to recommend you consider for your new life overseas… but it’ll cost you.

In other words, this is a highly controllable expense item.

Expense Item #11: Entertainment

This is another big variable that you control. Sticking with Panama as an example, you could budget US$100 a month for entertainment. That’d allow you two or three dinners out at modestly priced restaurants (Panama City boasts many good ones) and a couple of nights out at the cinema each month (a ticket for a first-run movie in English costs as little as US$6, depending on the day of the week). On the other hand, you could spend US$100 on a a single dinner for two at Ruth’s Chris, for example. You get the idea.

Expense Item #12: Miscellaneous (Dry Cleaning, Haircuts, Household Bits And Pieces, Etc.)

In the places I recommend to you in the dispatches to come, these little everyday expenses can cost a fraction of what they’re costing you now. In Panama City, my husband has his hair cut at the barbershop down the street for US$5 (and, no, I’m not embarrassed to be seen with him). I can have mine trimmed at the salon on the corner for US$20. Dry cleaning costs an average of 90 cents per item (compared with US$6 or US$7 per item in Paris, for example).

Expense Item #13: Travel (Within Your New Country Of Residence And For Visits Home)

How often will you want to return home? Your biggest related expense will be airfare. Allow for it in your budget, as well as for in-country travel. You’re taking a big step and making a big effort to relocate somewhere new and exotic. Once you’re there, you’ll want to get out and see the place as much as your budget allows.

Expense Item #14: Medical Care And Health Insurance

One of the really big pluses of retiring to another country is that your budget for medical care and health insurance can become a fraction of what it might be in the United States. We’re going to return to the question of health care in Step #6, when we’ll walk through your options for insurance, as well as the associated costs choice by choice, and determine which one makes most sense for you. For our purposes today, you can assume that this expense can be greatly reduced for you, depending where you decide to relocate. Even if your total cost of health insurance right now is Medicare alone, your cost overseas can be less.