Thankfully, my good friend Hiro, a native of Japan, was nice enough to sit down and talk about how he sees personal finance. We discussed credit card use in Japan, retirement accounts, and who’s responsible for teaching money education.

I’ve lived in Japan for almost 11 months and was surprised by a lot of the comments Hiro made about personal finance.

If you have any questions for Hiro about Japan, personal finance, or Pikachu leave them below in the comments on this post. He’ll get back to you soon with an answer.

[If you can't view click here to go to the video page]

[:25] –  Meet Hiro

[:49] –  His credit cards and the popularity of plastic in Japan

[2:37] – Banks, ATMs, and debit cards in Japan.

[3:19] –  Similarities in retirement accounts between U.S. and Japan

[5:32] - What Hiro thought about using money in America

[7:30] – Where Japanese people learn about money

Don’t forget to leave your questions for Hiro in the comments below!

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I met Chris Kridakorn in 2007 when we both were part of our college’s China and Japan study abroad program for 15 weeks. Since then he’s been all around the globe, not just visiting, but claiming residence and studying.

Today, Chris is living in the heart of Bangkok, Thailand with his parents and we recently caught up over e-mail. In this exchange Chris talks about his journey, the cost of living in Bangkok, working at a Thai restaurant in Yokohama, the political problems in his country, and why he and his Dad don’t speak Thai to one another.

I really hope you enjoy this look at Chris’ life.

Austin: You’ve traveled and lived all over the world, but how did you end up in Thailand?

Chris: I was born in Naperville, Illinois (Austin note: where Chris and I met at college) and after I turned 5 my family moved back to Thailand. My family was originally living in Atlanta. We moved to Naperville because my dad got a job offer there. I attended school here in Thailand up until my sophomore year afterwards I moved back to the U.S. to attend high school and college. I had originally planned to work in the United States, but my parents wanted me to move back Thailand so I did.

I am a dual citizen of both Thailand and the U.S. I am a U.S. citizen by birth and a Thai citizen since both my parents are of Thai ethnicity and also hold Thai passports.

A: How did all of the moving affect learning to speak different languages?

C: English is actually my first language and Thai is my second. When I first moved to Thailand I began to forget English almost immediately. So in order to help me not forget English my Dad would always speak English to me, even today we still speak English. If he hadn’t done so I probably would’ve forgotten English completely within a year. I was 5, maybe 6 years old at the time.

I attended a lot of English classes and had several English tutors throughout elementary school. Once I got to junior high my parents decided to place me in an international school where everything is taught in English. When I moved back to the U.S. only my brother and I moved back. We lived with our legal guardian who took care of us.

A: After college you ended up living in Japan for a year. What brought you to Japan?

C: I was in Japan from September 2008 to December 2009. It was roughly one year and 3 months. After our China/Japan trip (Austin note: our 3 month study abroad program in 2007) the year before I had always wanted to come back and learn some more Japanese. So I searched for a Japanese Language school and enrolled for 5 terms of 3 months each.

During my stay in Japan I worked part-time at a Thai restaurant in Yokohama near where I lived. Life in Japan can be a little tough for a foreign student who speaks limited Japanese. I had a lot of trouble understanding people and understanding the language. Everything felt really expensive and overpriced, but it was fun nonetheless. I would love to go back to Japan one day and get a job, however at the moment I don’t have any plans to move anywhere domestically or internationally.

A: What was it like working at a Thai restaurant in Japan?

C: I really enjoyed working at a Thai restaurant. There were several Japanese people working there but the majority including the kitchen crew were all Thai. It wasn’t easy finding employment. I had looked around before getting the job at the Thai restaurant. I applied at TGI Fridays and Star Bucks but at the time my Japanese wasn’t strong enough. I ended up working at the Thai restaurant because I had a friend who was working there already. I had a pre-college visa which allowed me to work no more than 24 hours per week.

It was definitely an interesting and fun experience. It was my first time working with both Thai and Japanese people. The Thais people who spoke Japanese had to translate Thai for the Japanese people, and the Japanese people helped the Thais to communicate better with the customers. It would definitely be a very hard job if you didn’t speak either language.

A: Back to Thailand, what are the prices like for some average expenses like food, travel, and internet?

C: The currency in Thailand is called Baht. The current exchange rate is around 32-33 baht per dollar. I don’t think anything in Thailand is particularly expensive, food though however is relatively cheap. Your average meal at a street vendor or at a shop is no more than 100 baht ($3). A small bottle of water is about 10 baht (30 cents) a liter of milk is about 50 baht and a dozen eggs is about 60 baht.

Nicer restaurants cost more but usually no more than 300 – 500 baht per meal. Really nice restaurants are priced the same as restaurants in the US, around 10$ for a plate of something.

My internet which is 3 MB is 600 baht ($18) per month. For the maximum speed available which is 16 MB it’s a little over 2000 baht ($60) per month.

The cost of phones here is generally the same as the U.S., but can be more expensive in certain cases. I believe an iPhone right now costs a little bit more here than it does in the U.S.

Traveling in Thailand can be pretty cheap depending on your preferences. There is plenty of cheap lodging around Bangkok area hotels can be as cheap as a few hundred baht per night. The nicer hotels such as Sheraton, Hyatt, or Mariott are at least 3,000 baht per night. Although I’ve been told that the service here is just as good if not better than the hotels in the U.S. Transportation varies, if just in Bangkok taxi meters start at 35 baht ($1) the Sky Train and Subway tickets range from 15 – 60 baht and bus fares start at 8 baht the cost of bus fares depends on the type of bus and how far you travel.

A: What personal finance accounts do you have?

C: I currently have a savings account that earns less than 1% interest semi annually. I do not have any money invested at the moment but I have been thinking of investing money as soon as I have money to invest. I also don’t have any credit cards at least not yet. Also to give you a perspective on money your average college graduate here in Thailand earns about 15000 baht ($470) a month.

A: We’ve all seen a lot of news about the political issues, protests, and troubles Thailand is having right now. What’s life like around you?

C: (Sun. May 16th) As of today the government had declared martial law and now we have curfews. The demonstrations started about 2 months ago and the intensity of the protests increased with every passing week. It started to become dangerous to go out at night and people started going home earlier earlier. Sometimes I can’t go to work and sometimes it’s hard to come back after work.

This past Friday all the trains stopped at 5 P.M. instead of the usual 12 A.M. and many people were stuck at work. There are parts of Bangkok that are more dangerous than others including the protest sites. With every minute that passes by Thailand moves closer and closer to a civil war, it has never been this bad before. It definitely is scary with the violence going on around you.

When I watch the news it’s usual countries in Africa somewhere fighting and bombing, but now when I look at the news I see shooting and bombings in places that I’ve been to. I do feel like it’s somewhat dangerous to be traveling Bangkok right now. So I would suggest tourists looking to move or work here to stay away for a bit. However, other provinces in Thailand apart from Bangkok are still safe to go to.

(Tues. May 18th) The situation here is pretty bad and I’ve been unable to go to work for the past 2 days. Also I just found out that they decided at the last moment not declare martial law. I’ve noticed that people are stacking up on food and water, and gas stations are running out of gas. Gas trucks are unable to enter the city due to fear of being hijacked along with closed streets making it harder to move about. There are also people who are stuck within the war zone without food and are just afraid to leave their houses. I am just about to ask my boss for permission to stay at home another day and wait it out.

A: What are the differences between living in Thailand, America, and Japan?

C: I’ve been asked numerous times about life in Thailand vs. Japan vs. America, and its very hard to say for me since I have come to love all three countries. I love how Japan is rich with culture and history along with its delicious delicacies that I never get tired of. Japan is also a very clean country but at the same time it is very congested and the cost of living is very high. My dorm room was literally the size of a closet.

When I was living in the U.S., I had all the space I needed. I lived in a house with my own room. I had my own car and while many things can be considered expensive it was still cheaper than Japan. My life in the U.S. wasn’t really that different from your average college student. I went to school and I had several part-time jobs throughout my college career.

Thailand however, is very different from the U.S. and Japan. While Thailand might not be as clean as Japan, nor as big as the United States, I’ve always found my life here to be the most complete, partly because I have relatives here. The cost of living in Thailand is very cheap and the food here is just as good as anywhere else. However, much like many other developing countries Thailand has constant political uprisings. Furthermore, the cheap cost of living also means that wages here are also very low in comparison to Japan and the United States.

A: Thailand is a popular destination for vagabonders, vacationers, and foreigners looking for temporary employment. Is there a need for foreign ESL teachers in Thailand?

C: There is definitely a need for English teachers however, the demand here isn’t nearly as high compared to Japan. Unlike many Asian countries such as Japan, China, and even Korea; Thailand has many English speaking people. Generally the foreigners who come to teach English in Thailand are older with more teaching experience who teach at internationally schools.

There are also many tourists who are staying in Thailand and tutor English for extra pocket money. However, I’ve seen very few foreigners our age (23-25) that come to Thailand to work. Most foreigners our age come to travel. I had assumed that the idea of teaching English in Thailand isn’t as attractive as teaching in Japan for people our age.

If you have decided that Thailand is the place for you then there are several ways you might be able to work here. Especially right now Thailand has many international schools that demand not only English teachers but math, history, science, and etc. However, they generally tend to hire older and more experienced teachers to ensure the quality of their education is maintained. Thailand’s market at the moment is somewhat unstable due to political protests that have dragged on; and whether that has effected the English teaching market or not I am not sure.

There is a website that I’ve seen called www.ajarn.com that routinely posts teaching jobs for foreigners.

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A huge thanks to Chris for the interview. We all hope him and his family will be safe as Bangkok figures out their problems.

If you have any questions for Chris about life in Bangkok, duel-citizenship, Japan, or anything else feel free to ask in the comments below and he’ll get back to you.

Photos: Chris Kridakorn, laurinkofler, and Christian Haugen

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One request I’ve had is to make the site easier to navigate so that people who are here for money related posts can avoid stuff about living abroad. I’ve started to do that with the spiffy new menu bar above and I’m re-working the categories in the right sidebar to make it easier for readers to find posts that relate to their interests.

Since I’ve been in Japan for almost 10 months, I thought it would be beneficial to put together a post with links to the post popular Japan/living abroad posts to catch new readers up on my situation.

Enjoy!

August

Paid to Travel the World and Other Reasons Teaching Abroad Has Taken Off After I talked with a friend about the insurgence of teaching abroad for college grads, I dug into the reasons so many people are moving across the world to find their first job.

Do I Send Money Home? – Dealing With Exchange Rates This is a topic I still struggle with personally, and I’ve actually broke my rule discussed in this post. Money decisions always seem to become more difficult when you’re starring at your own money.

September

Vacation Abroad? – Prepare Your Financial Accounts For Stress-Free Living Part 1 in a series that looks at how you should prepare your bank accounts, money, and credit cards if you’re going to voyage to another country.

How to Simplify Your Financial Life to Move Abroad Part 2 in the series that shows you how to handle your finances if you’ll be moving abroad for a long period of time.

Comparing Grocery Prices in Japan to America One of my favorite and most popular posts about a study I did comparing my local grocery store’s food prices to the average price of food in America.

November

Cost of the iPhone 3G in Rural Japan Corinne bought an iPhone for the map capabilities and drum kit app (oh, that was why I wanted it) so I did my best at deciphering the bill to find out the true cost of the phone.

Buying a Car in Japan Our best purchase so far. This post is an insider’s look at what it’s like for a foreigner buying a used car in Japan.

December

4 Japanese Personal Finance Gripes Proof that if you put “Gripes” in your post title, people will read and argue your opinions. A fun post that included some interesting discussion on the comments.

Daily Life of an Assistant Language Teacher in Japan What my life is like here with the JET Program. There are over 5,000 foreigners teaching in Japan through this program.

January

How to Make Nachos in Japan English books, wide roads and Mexican food are on the list of things any foreigner misses living in Japan. Luckily, we figured out a way to make nachos that will hold me over until I return home.

March

How to Save for Retirement While Working Abroad With no 401ks and IRAs available, foreigners who live abroad have to look at some other options for their retirement savings.

Foreign Savings Accounts and CDs (Not Just For Those Abroad) Diversifying savings across currencies has become popular as of late. Here’s a look at what that means and how to get started.

April

How to Improve Your Credit While Living Abroad It’s important to keep your credit going, but without access to credit card the options are limited. Here’s how to keep the score going up so when you get home you’ll interest rates will be in your favor.

Photo: Norman B.

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Credit is the most underrated money word out there. Not many people realize the importance of a good credit score, but it has a huge impact on the 2 big purchases in any one’s life: a car and a mortgage.

(If you don’t know what your credit score is, click here for a briefing)

Part of the problem for young people and their credit is that they just don’t have enough credit. Many of us only have a few years with a loan or a credit card under our belts, and thus, low credit scores because our credit history is low.

If you don’t have any credit card debt, your credit score should start picking up around your mid-twenties, as you start to have more experience with loans and add on years to your credit history.

But what about people who are abroad? How do they improve their credit while they’re abroad?

Well, since it’s difficult to get a loan as a foreigner in most countries, the ability to raise your credit score is tied back to America. Meaning, what you do in America with your credit will affect your credit score which you’ll use to buy a car or house in the next 10-20 years.

There are just a few, simple ways to improve your credit while abroad.

Pay off any and all credit card debt

A lot of people carry some credit card debt from month to month. This hurts your credit score because you’re using card utilization, which makes up 30% of your score, is probably high.

If you’re abroad, you probably have some sort of employment, so start actively paying off your credit card debt. Not only will it improve your credit score, but it’ll save you money in the long run on interest tied to your credit card.

Rotate small purchases on credit cards

Keeping cards active is important in today’s credit crunch climate. Companies occasionally shut down inactive cards, but you want your card to stay open so your credit history grows.

To keep your history going, rotate any purchases you may have at home with your credit cards. For example, I ordered a camera battery from Amazon last week and that $21 charge on my credit card is good enough to keep it active and thriving.

If you don’t charge anything back home while you’re abroad, consider some small charitable donations with your credit cards. This kills 2 birds with 1 stone: keeps your credit card active, and makes you feel good about donating.

I have 3 credit cards that I rotate purchases on. Make sure you don’t use the same card with every purchase because before you know it, you could have 9 months without any purchases on a card. Don’t give the companies any reason to shut down your card because you’ll lose the history you’ve built on it.

Continue (or start) paying off student loans every month

An important part of a lot of twenty-somethings credit scores are student loans. If you have them they show you are credit worthy, and if you pay them off on time every month, they show you’re a trusted lender.

Continue paying them off every month and do whatever you can to never miss a payment. One late or missed payment will show up on your credit score and cause it to drop.

A $30 late payment may not seem like a big deal, but it could cause your score to drop from a 700 to a 660. This could cause a mortgage rate to rise from 6% to 6.3%. Once again, doesn’t seem like a big deal but on a 30 year mortgage for a $250,000 house it’ll end up costing you $17,478 in extra payments.

Now can you see why credit is the personal finance underdog?

Have you had experience living abroad and dealing with credit? Share your story in the comments!

Photo: B. Sandman

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This week we’re celebrating spring in Japan and the beautiful sakura (cherry blossoms) which are the hit of the season.

I hope you enjoy some sakura pictures and facts, and of course, some insightful money stories from over 20 great bloggers!

Most Japanese schools have a sakura tree on grounds for good luck

Life Tuner - Why Healthy and Young Need Life Insurance

The Writer’s Coin - Becoming First Time Homebuyers

PT Money – 5 Ways the Library Can Save You Money

Personal Finance Analyst – It’s the Grocery Game and I’m Actually Interested

The Japanese enjoy Hanami in the spring with friends and family; the custom of enjoying the beauty of flowers

The Life of a Insurance Salesperson – Worst Salesperson Ever, Strikes Again at Verizon

Young and Thrifty – Cohabitation Agreements and Living Together Common Law: What you Need to Know

Balance Junkie – 2010 Financial Plan: Q1 Update

The Dough Roller – I Was Audited by the IRS!

Sakura start blossoming in Okinawa in January and arrive north in Hokkaido by the end of April

The Bigger Pockets Blog - Manslaughter and a Crackhouse: How My Husband Became a Real Estate Investor

The Orange Paper - 10 Money Tips for a Holiday Abroad

Free Money Finance – Gold Dollar Coins Not Treated as Cash Advance on My Credit Card

Frugal Dad – How I Saved $2,500 By Ignoring My Inner 5-year old

The Japanese Meteorological Agency tracks the path of the sakura for the public

Good Financial Cents – How to Make Interest on Your IRA

Funny About Money – Hidden Costs of Illness or Injury

My Dollar Plan – Which Is Your Favorite Discount Broker?

Budgeting in the Fun Stuff – Want a Raise? Got These Traits?

Japan gave the U.S. 3,020 cherry trees in 1912 as a sign of friendship

Learn Save Invest – Benefits of a Pension Plan

The Digerati Life – Does the Economy Affect How You Save Money?

Personal Finance By the Book – A Prisoner Raises the “Serving Others” Bar

Dinks Finance – You Don’t Have To Be Ready – Just Go

There are over 200 varieties of sakura in Japan

Budgets are Sexy – Your Take: Who Pays the $200?

Christian PF – Buying Groceries in Bulk: The Hidden Dangers

The Consumer Boomer – How to Choose the Best 0% Balance Transfer Credit Cards

Money Help for Christians – Credit Cards vs. Cash: Do I Really Spend More With Credit?

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That’s it for this edition of the Carnival of Money Stories. If you’re interested in hosting a future Carnival of Money Stories, submit your site today.

Remember, submissions for next week’s carnival at Buxr are due Sunday at 5 EST.

Thanks to the blogs for some great content and the readers for hanging out and enjoying the scenery!

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Well, diversification is a positive in almost every category of life, and currency diversification is something that has become a hot topic lately. The term currency diversification refers to spreading money across multiple currencies in case 1 currency (i.e. the dollar) were to someday lose a lot of its value, or even worse, fails.

Foreign savings accounts that spread money across multiple currencies around the world are becoming more popular for people who are interested in keeping their money safe.

Everbank is a popular online bank for those who are interested in diversifying their money across multiple currencies. Their accounts should also be of  interest to anyone who lives abroad or has to consistently deal with multiple currenciess (i.e. ESL teachers or location independent workers).

Everbank offers a couple of cross-currency products that are of note:

World Currency Access Deposit Account (Savings Account)

This account offers just a $2,500 initial deposit and you can put your money into a currency of your choice to hedge against a depreciating dollar. The account allows you to easily transfer between currencies and earn interest in 1 of 17 currencies.

The account charges no fee and the money is still FDIC insured.

The major benefit of this account is the flexibility to move your money around to different currencies. Instead of doing a money order or sending money through a post office, you can easily transfer money from one currency to the next with this account. This would be especially beneficial for anyone who lives or works in a country outside of the country they call home.

Everbank claims a competitive currency exchange rate – within 1% of the available market rate for a currency. I would still be weary of exchange fees, but this account is definitely intriguing for people who live in another country, or for those interested in diversifying their savings into another currency.

World Currency CD – single currency

Also pick 1 of 17 available currencies to deposit your money into a certificate of deposit.

You’ll receive interest payments based on the currency you choose to invest in, and you’ll also get an affordable currency exchange rate to change your dollars to the currency of choice.

The single currency CDs are available in 3, 6, 9, and 12 month terms; but, unfortunately for most people the minimums are a little out of reach at $10,000.

Regardless, the single currency CD is becoming more and more popular as the dollar declines. There are no monthly fees and your funds are still FDIC insured up to $250,000.

You’ll receive the option to find higher interest rates in another currency and this could be something to keep in mind for the future when your funds have a little more bulk.

World Currency CD – multiple currency

For a more diversified look, Everbank offers CDs in multiple currency “baskets” of anywhere from 3-6 different currencies. The specifics of this CD mirror that of the single currency, but the minimum is bumped up to a hefty $20,000.

These baskets are really fascinating as you can choose to keep your money in a certain area of the world or a sector. For example, the World Energy Basket CD is made up of 4 non-middle eastern energy producing countries – the Australian dollar, the British pound, the Canadian dollar, and the Norwegian krone.

These CDs are available in only 3 or 6 month terms, and I could see these becoming more and more popular with the index-fund loving investing crowd.

Have you had any experience with a foreign savings account or CD? Leave your tips in the comments!

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Luke and I got to talking and I quickly realized he had a fascinating story that I needed to share.

On a whim, he left his hometown in England to travel to Japan.

He loved his time in Japan, ended up meeting and marrying a Japanese woman, and now he’s living in Kyoto and finishing up a documentary movie called, Wonderland – a look at synchronicty coming out this summer.

I asked Luke some questions over e-mail and he was a gentleman and sent them back.

Enjoy the interview and see what you can take away from Luke’s amazing story.

Austin: What’s your name and where are you from?

Luke: Luke Hancock and I’m from England.

A: How did you get to Japan?

L: Towards the end of my degree in University in the UK I had a growing intuition that I should go to Japan, which was based on nothing.  I’ve had enough tuition from life to teach me that one must pay attention to one’s intuitions.  So as big and scary a move as it was, I picked up my bags and left…

A: What was your initial attraction to Japan?

L: I didn’t really know a lot about it.  It just felt like the right thing to do.

A: What was the hardest part about moving to Japan?

L: Initially lonliness and the language barrier.  And then later visas.

A: What did you miss about England?

L: People I could talk to and relate to easily.

A: What’s your favorite experience from your first year here?

L: Huge synchronicities that kept popping up, which made me felt to me like confirmation that moving to Japan was the right thing to do, despite the fact I kept asking myself over and over “WHAT THE HELL AM I DOING HERE???”.

Like for absolutely no reason at all spending 3 hours listening to Informer, by Snow, reading his wikipedia page and generally wasting time.  Then finally randomly deciding to go outside, get on a bus, and get off at a random stop and see what happens.  Well I did that and walking straight into a Lawson convenience store and that song is playing, loudly.  Lawson don’t even play music in their stores, so it was a bizarre one, but there were many others like it.

A:  How long have you been in Japan?

L: Getting on 3 years.

A: Where did you meet your wife?

L: Outside Nanzenji temple in Kyoto.  She was studying the streets for her new job as a jinriksha and was lost, so I helped her out and it went from there…

A: What did her family think of her marrying a person from another country?

L: Her parents are pretty liberal and cool people.  Despite the language barrier that remains, we have a good relationship.  Her grandparents are a bit more old-school and I’m sure must inevitably harbour some remorse, but don’t show it and are incredibly friendly.

A: Has she been to England?

L: Yes.  She came to meet my family before we got married. It was a fun trip.

A: What’s the most difficult thing about marrying someone from another culture?

L: Learning the subtle nuances inherent in their culture that are lacking in our own, which translates to me being an accidental barbarian infront of her friends and family and not even knowing it.

Simple things like interrupting in conversation – in Western culture finishing another’s sentence and cutting into what they’re saying is good, because it means you are listening.  Here in Japan that’s a heinous crime, and is incredibly rude, but somehow I can’t stop doing it because it is deeply rooted in my cultural programming.

Yeah all that, and of course the Dolphin issue.

A: Do you plan on staying in Japan for a while?

L: She’s got a job with JICA, so we’re off to Nepal pretty soon, but I wouldn’t object to being here longer.

We just got back from a 6 week honeymoon in Mexico, and it was striking to see how grey and concrete Japan is by contrast.  Not just physically, but emotionally and energetically also.  But at the same time it is paradise here, because people are so incredibly respectful, and it feels safe, which are things that feel conspicously absent in the rest of the world once you’ve been in Japan for a while.

A: How has life been different in Japan, since you married a Japanese woman?

L: I stopped having to spend time being upset that it is so difficult to find a like-minded woman here who speaks good English who could become a partner.  They’re rare gems, but they sparkle bright and stand out in the crowd.

A: Any last bits of necessary info. my readers should know?

L: If you’re new in Japan, or are thinking about coming, then you’ll most likely first experience the Giant Ice Wall that stands between you and the culture around you.  It’s not like other countries where people are friendly and can easily be approached in the street and talked to.  They freak out here when you do that.

Anyway, if you feel you’re supposed to be here then you most likely are, and so with a bit of persistence the Ice Wall melts. Learning the language helps a great deal. If I have one regret it would be that I didn’t put more effort into the language, and after 3 years still feel quite inept in conversation.

That and follow your intutions and look out for synchronicity. It helps the process of moving country a whole lot easier.

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A huge thanks to Luke for a fascinating look at his life in Japan as a married man.

For those who want to know more about synchronicity, you can check out Luke’s film in progress at http://www.synchronicityfilm.com/

Also, head over to the movie’s forums to learn more and share stories about synchronicity.

Photos: Luke and laszlo

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*Update 5/24/2010*

A reader recently e-mailed me and told me about her troubles opening up an account with Vanguard since she was a foreigner working in Singpaore. It appears it is incredibly difficult for Americans who live abroad to open taxable accounts with brokerages and banks.

I’ll be updating this topic this week with new information. I apologize for the misinformation below.

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On Thursday we took a look at why Americans working abroad can’t invest in a Roth IRA and how to avoid double taxation on foreign income.

We learned you don’t have to pay taxes on your income while working abroad. Great! But how do you save for retirement without access to tax-deferred accounts like 401ks and IRAs?

Unfortunately, you’re hands are tied as a foreigner working abroad – at least compared to our friends in America with access to 401ks and IRAs.

You still have the option of investing your money in taxed accounts in America through a broker like Vanguard, Schwab, E*trade, or Zecco but you don’t receive any tax benefits and have to pay taxes on your gains and dividends.

These accounts don’t require you to be in America so you’re more than willing to set one up to start your retirement savings.

Retirement seems far away, but the sooner you start, the easier it is to properly save. Don’t let the absence of tax-efficient accounts scare you away from starting your retirement savings.

A taxable account can be a great start for your money and then when you eventually return home, you can take your progress and continue on with a IRA or 401k.

Here’s what you should know before you invest, and some options if you choose to take the plunge into investing for retirement.

Look Into Your Crystal Ball

It’s important you have a plan with your money before tying it up in stocks or index funds. A tanked market can really do a number on your short-term savings plans, so it’s better to be safe than sorry when it comes to money you’ll need in the next decade or so.

Here’s some questions to ask yourself before you start investing while abroad.

Do you need the money in 5 or less years? Look at your short and long-term plans. What are you planning on doing if or when you return home? Are you going to go back to school soon? Want to move out on your own, or are you ok with moving back in with your parents while you get your American feet back.? If you don’t have a clear answer for these question, then keep your money out of the stock market until you find some clarity in your immediate future

What’s your debt situation like? If you’re young and carrying credit card debt, that should be your first financial priority. If you try to invest and carry credit card debt you won’t get anywhere fast. Pay off your consumer debt with your foreign income and then you can move on to preparing for the future with retirement savings.

Student loans? Money in the stock market is fairly liquid – meaning you could have access to it by selling off stock, but it’s vital to have enough money to cover your bi-weekly or monthly student loan payments. Defaulting on your student loans is an ugly situation and one that should be avoided at all cost if there’s any concern of it happening.

Emergency Fund? Jobs abroad are just as volatile as jobs in America. A healthy emergency fund of at least 3 months living expenses will allow you to sleep peacefully in case your job happens to be terminated for whatever reason. Depending on your living situation in America, the size of the emergency fund can vary, but it’s wise to start one.

At first, try saving $100 a month and grow it from there. Like student loans, don’t ignore an emergency fund and move on to taxable investing. That’s like skipping middle school and hoping you’ll be okay in high school. You may survive, but every day could be a potential disaster waiting to happen.

How long will you be abroad? The length of your stay abroad will affect how you view retirement savings. If you’re only going to stay abroad for a year or less, don’t worry about taxable investing for retirement savings. You’ll be back soon and you can start savings using a 401k or Roth once you (hopefully) find a job.

If you’re looking to stay more than 2+ years then you need to consider your retirement savings options. It’s easy to do nothing and say you’ll worry about it later, but waiting too long to invest will kill your chance to excessively grow your money with compound interest.

If you’ve confidently answered all of these questions about your money and life and you have some excess cash and would like to get started, then taxable investing is your best choice for retirement savings while abroad.

Investing Options

If you’re new to investing, I along with anyone in the personal finance community, would suggest reading some books first. I have a couple of books listed on the Foreigner’s Finances Amazon store (affiliate) that I read when I first started thinking about investing. It’s vital you know what you’re getting yourself into before you go and make ignorant investing mistakes like I did.

Here are some options you have when you’re looking to invest.

Index Funds

Index funds are best for the passive or novice investor. My retirement savings are in an index fund and I feel comfortable knowing the fund is spread out across thousands of different stocks – negating risk.

These funds require a higher minimum investment (sometimes $3,000) but there are some options like the Vanguard STAR Fund which starts out at $1,000.

Individual Stocks

Buying individual stocks holds more risk than an index fund since a company could fail any day and your investment would be lost. On the flip, buying individual stocks can also provide a higher reward.

If you decide to go this route, choose what you know. Don’t pick a stock because you heard your dad talking about it or you saw it on a CNBC stock ticker once. You need to know the company inside and out before you invest not only your money, but your future in the company.

Lending Club

I’m new to Lending Club this year, but I’ve loved my time with the company.

At LC you can make loans to other people who are in need, and they pay you back over a certain amount of time . LC takes 1% of your return, but their average return is 9.65%!

So far Lending Club has helped fund over $91,000,000 in loans so they’re a trustworthy company that is doing a good thing for people.

Check out Debt Free Adventure’s extensive review for more info on investing with Lending Club.

If you’re interested in signing up for an account, use this link (Lending Club) and you and I will both receive $25.

Savings Accounts Are Always the Safest Bet

If you’re unsure about taxable investing, it’s wise to steer away.

If you’d like to start properly saving for your future while abroad, then periodically sending money to your home country to put in savings accounts or CDs is your best bet.

A lot of people will say, “the dollar’s weak, keep your money abroad!” In reality, they have no idea where the dollar will be tomorrow, next month, or 3 years from now.

Every 3-6 months send money home to hedge against the fluctuating exchange rates. You won’t gain 24% in a year like the yen got on the dollar over last year, but you won’t be on the losing end of it either (losing 24%).

ING Direct has my vote for best savings account.

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It can seem like a lot to handle, but there are a ton of resources available to help guide you through the process. Ask questions, read everything you can, and make a decision. Waiting 5-10 years could cost you hundreds of thousands of dollars in your life.

How do you manage retirement savings while working abroad? What suggestions do you have for those looking to get started?

Photo: Horia Varlan

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The other day I received a question from a reader, Jack, on my 5 Minute Intro to Roth IRAs video post.

Jack asked:

A question for those of us abroad, or rather a request for clarification: I was of the belief that foreign-earned income which qualifies for the foreign-earned income exclusion cannot be used for a Roth IRA. You make no direct reference to this. Can you clarify at all?

Jack is correct. If you are working abroad and have no income in America, you cannot invest in a Roth IRA for the year(s) you are gone.

So why is this?

No U.S. Income? No Roth.

The Roth IRA is the governments way of helping you out with retirement savings by saying you don’t have to pay tax on your investment gains when you withdraw your money in retirement.

It’s kind of like a parent leaving a book about safe sex on their teenager’s bed. They won’t force you to do anything, but they’re subtly trying to nudge you in the right direction.

If you aren’t making income in America (a.k.a. not helping out the government by paying taxes on income) then they have no reason to allow you to take advantage of this tax haven for the period of time you are working abroad.

Therefore, you can’t save for retirement in a Roth or Traditional IRA when you’re working abroad.

How to Avoid Being Taxed Twice

Jack also mentions the “foreign earned income exclusion” in his comment. What is this?

Well, as a permanent citizen of America, you are required to pay tax on all income – even if you’re working abroad.

However, the foreign earned income exclusion states that as a worker abroad, you may be able to exclude up to $91,400 of your income from your taxes in America.

The specifics depend on the country you’re working in, but it’s very possible that you’re paycheck abroad should not be taxed in America.

In order to take part in the exclusion you must pass the physical-presence test. This sounds like a P.E. test from 7th grade, but in reality it states that you have to be in another country, or countries, for 330 days over a period of 12 months before you are eligible for the foreign earned income exclusion.

The time does not have to be consecutive, but until you do, you don’t qualify and your income can be taxed twice – once by America, and once by the country you work in now.

A Japan Example

According to my organization, the JET Program, all Assistant Language Teachers must “request the standard overseas filing package from the IRS”. This includes the the 1040 Individual Income Tax Return that most people are familiar with, along with the 2555-EZ, or the Foreigner Earned Income Exclusion form.

Also, according to my organization overseas filers have an automatic two month extension (until June 15th).

My situation is a little different since I have been in Japan for less than 330 days. I  must file an extension on my taxes for 2009 since I have only been out of the country for 7 months. Come July 2010, I will pass the physical presence test (330 days), and then be allowed to exclude my Japanese income from my American taxes.

So, you don’t have to pay taxes on your income while working abroad. Great!

But how do you save for retirement without access to tax-deferred accounts like 401ks and IRAs?

We’ll dive into this topic on Sunday.

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For more information on this topic check out the IRS’ information on the Foreign Earned Income Exclusion.

I’m new to these rules, so did I miss any vital information? Do you have experience with taxes while working abroad, please share your wisdom in the comments!

Photo: Micky

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This is a guest post from Mr Credit Card of www.askmrcreditcard.com. Mr Credit Card used to work and live in Japan years ago and today, he is going to give us some tips on how to earn airline miles for a trip back to America.

I worked and lived in Japan a few years ago and during that time I’ve been able to get quite a few free business class flights for my vacations.

The reason is that the company that I worked with gave me a business credit card, which happened to be an American Express. Whenever I took any business trips or gave client entertainments, I always charged to the card and earn reward points. I also had a personal AmEx card and I was able to combine accounts to really boost my point earnings.

That essentially, was my little secret to getting lots of miles.

This is particularly important for expats living abroad who want to save money on trips back home or on vacation somewhere else. So below are some of my tips for earning miles when you are an expat abroad.

Get the same card as your business credit card – If you work for a corporation that gives you a business credit card that earns rewards, then you should try to get the same card (the consumer version) so that you can even earn more points. Combining the points you earn from your personal and business credit cards will turbo boost your miles.

Find out which airlines you will fly most on – Let’s take the example of Japan. If you are looking to fly back to the U.S. for your vacations, you have many choices. For example, Japan Airlines, ANA and other American carriers like Delta, Continental and United all fly to the US direct from Japan. You also have to determine if you are likely to fly just one airlines or a few airlines. That is because it will affect your choice of credit cards.

Check Airline Alliances – You should also be familiar with airline alliances like star alliance and sky team. Airline partners on the same alliance program can use their miles on their partner airlines. This is very useful information to have when you are choosing a credit card.

Research Credit Cards that earn miles – This is a fun but tedious part. There are a couple of choices to make. For example, if you fly mainly just one airline, then it is just worth getting that specific airline credit card. For example, JAL and ANA both have their own credit cards. Even American Airlines have their own cards issued in other countries like Japan. As an example, Delta has a Japanese version of their skymiles credit card, a card issued by Citibank Japan and also a JCB card. Continental has a two credit cards in Japan, one issued as a JCB card, and the other one is issued by UFJ Bank.

But what if you fly a few airlines rather than just one? Well, then you would probably have to get a credit card with a reward program that allows you to earn points and transfer points to multiple airline frequent flyer programs. Programs include the Membership Rewards from Amex, Diners Club Rewards.

Charge everything to your card to maximize your points – Japan is an extremely cash based society. Folks prefer to carry wads of cash (and if you haven’t realized – credit card debt is not a problem is Japan). But to earn the most points, it always pays to use your credit cards to earn points. Just make sure you pay off your balance in full every month.

Try not to fly during Japanese Holidays – For those who have lived in Japan before know that they have lots of holidays. It is best to avoid flying on these days as fares are obviously more expensive and it is harder to use your hard earned frequent flier miles.

Ending Thoughts – Not many folks in Japan use credit cards. But if you are an expat or foreigner living there, it always pays to do some research about frequent flier miles so you can save a lot from using your credit card. Use it for everything (but make sure you pay in full) and you can start racking up those miles for your flight back home or for vacation.

Photo: Kossy@FineDays

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