Expat Finances

What is Your Dollar Worth?

I don’t understand finances or economics as well as Warren Buffet or Janet Yellen. There have been times when I actually agreed with Denise that the stock exchange is simply monopoly money. In fact, over the years we have been fairly conservative in our investment strategy relying on low-cost, index funds…including Warren’s favorite the S&P500.

Currency Fluctuation

So when it comes to things like currency fluctuation I am a neophyte. Yes, I understand the economic principle of supply and demand. And I understand when interest rates go up fewer people buy houses. [Fun fact, I bought my first home in Philadelphia in 1981…can you say, “18% mortgage interest rate”? Yowser!] But from what I read, before my eyes glazed over, there are many factors that impact the exchange rate between currencies … monetary policy, political stability, money supply, interest rates, inflation rate, etc.

I am Really Conservative

Before you scream, I never thought of you as a conservative, let me be clear. When it comes to my politics I am an unashamed progressive! But when it comes to money, I have always been pretty conservative. Some might add the word frugal. Some of my co-workers would have said cheap!

Perhaps it was my mom instructing me on money matters as a child. I recall watching her on Friday evenings place money into envelopes marked electric, mortgage, groceries, etc. The week I got my first allowance (25 cents) we went to the local savings and loan and opened my first savings account. When I was 18 and heading off to college, I needed to take my mother and a birth certificate to prove my identity. I had never made a withdrawal and my 18-year-old signature didn’t look anything like the one when I opened the account at 6.

While I have enjoyed this trip down memory lane, you are likely thinking what does all of this have to do with Portugal? It doesn't. Okay, perhaps I am easily distracted…so let me get to the point.

Funding Your Account

As we were applying for our visa, Portugal tightened its D7 requirements. They added the requirement to open a Portuguese bank account. We were advised to fund this account with at least the minimum required for two adults. Note: the minimum requirement is based on the Portuguese minimum wage, 665Euros/month. However, this is paid 14 times a year…not sure why, the calendar is the same. So the math looks like this:

• 14 x 665Euros = 9310Euros/per person

• 9310 x 1.5 = 13,965Euros if applying as a married couple

• 9310 x 2 = 18,620Euros as Denise and I were applying as two individuals

At the time when we were funding this account, the US Dollar was at a recent low of approximately 0.81. Therefore, it cost us $22,988 to fund the account to the minimum requirements. (NB: this does not include transfer and wire fees that we will discuss in a future post.)

Going Forward

At the time, I didn’t really understand how low the dollar was in relation to the Euro. I was aware that Canadian friends, who wintered in the California desert, often complained about their dollar in relation to ours. Somehow, wrongly I assumed, our dollar was strong everywhere and transferred about twice the amount required.

• I had no idea what expenses we would have upon arrival,

• I had read that expats are required to make higher than typical rental deposits, and

• Frankly, we had more than enough cash on hand.

Your situation may be different than ours. If so, you need to follow the exchange rate more closely and learn to quickly do the math.

Take for example our rent. At the current exchange rate, our 2300Euro/Month rent is costing us $2771/month. (Note: The bulk of our investments remain in the US. In addition, Denise’s pension is paid in US dollars. As such, we tend to calculate expenses such as rent in both Euros and dollars.) One year ago, when the dollar was stronger, it would be only $2452…a difference of more than $300. While we will never have to worry about the $11.7million inheritance tax the GOP thinks should be eliminated*, $300/month is not going to change our lives. But we are fortunate. If you are thinking about leaving the US because you need to stretch your retirement dollars and seek a lower cost of living, consider exchange rate fluctuation and how it may impact you.

*My wife thinks that you are not following this blog to hear my rants about the GOP. I recognized this when we lost a bunch of subscribers, the day I published my rather restrained comments on the events of 6 January 2021. But geez oh man. While fricking Rome is burning, and you are unwilling to vote for funds to fight the fire, the most important legislation you can bring forth would be to lift the inheritance tax ceiling? A bill that would “help” only 2500 people a year. Stop the insanity! And while it continues, I recommend you subscribe to Heather Cox Richardson’s column.