I’ve been asked by a couple of people that are looking at working in Mongolia and they have asked about the savings potential. Savings potential is sometimes listed on school profiles. Here is our truth about the “savings potential” that might be available in various places while working overseas.
First is the tax burden — or lack thereof. US citizens must pay income tax even on foreign earned income if they spend more than 30 days in the US that year. That’s right, just 30 days in the US and suddenly you’ve got to pay federal taxes on that income. There is another qualifier – the bona fide residency test. We are exempt from taxation because of that rule. We have nearly our entire collection of worldly possessions here in India. We moved here with a two year contract but with an indefinitely time span in mind. Be very aware of your federal tax status. Friends of ours that have lived and worked overseas and qualify for the bona fide status but still are careful to not remain in the US for more than 30 days had to get a $10,000 loan from their employer to cover an unexpected tax liability because of collecting on a US based retirement account. I’m not a tax professional, so please seek a professional for clarification about these issues.
Second is the standard of living you intend to keep. We had a friend in Mongolia that almost always used the public bus instead of getting a taxi. She was saving up to ten dollars for every trip to the city she took. Not that much when you get the comfort of a guaranteed seat, no pickpockets, and other benefits of being in a taxi. But it adds up. Just a couple of times a week would have added up to $500 or more in transportation charges. Her same frugality made her eat out very infrequently. She doesn’t drink. She cleaned her own apartment. Her cost of living must have been very low. We, on the other hand indulged in our favorite restaurants regularly (they were less than in the US at least) and needed a ride to and from the school each day because we lived off campus. We had a woman clean our apartment twice a week for $120 a month. We didn’t live an extravagant lifestyle, but it was more expensive than our friend. We have friends here with $1,000 a year memberships at the most exclusive gym/spas and then they spend well over that on meals and massages. They get a slice of heaven but pay for it. Other friends have used auto rickshaws for a year and a half for all of their transportation needs, though they finally have decided to purchase a car yet plan to drive it themselves.
Third is travel. A coworker said to me the other day “that potential savings bit is really bullshit, isn’t it?” Well, with the travel that he’s done, yes, it’s hard to achieve. It’s important to realize that teachers working overseas seem to almost all travel for breaks. A week off for fall break, three weeks off for winter break, a week for spring break… flights, hotels, dining out, tours… that’s not cheap. We’re on our second winter break of staying home. It saves us money, we get plenty of rest. If we were really wise, we’d even stay in India for the summer. Our school is willing to give money worth the value of our return ticket instead of booking it for us. If we skipped returning to the US each summer, our family could save $8,000 per year on flights!
So, when looking at the savings potential you have to keep in mind your own choices. Will you stay overseas to meet tax requirements? What standard of living do you want? How frequently will you travel far? I think that often the advertised potential savings is accurate if you’re on the frugal side of those choices.