How Exchange Rates Can Impact You When Living Abroad

If you’re thinking about living abroad, you’re probably going to be looking at exchange rates at some point. After all, you’ll need to pay for things in your new country, and you might not be able to do that with your home currency.

Before you go, it’s important to understand currency exchange rates and how they can affect your budget. Even the slightest fluctuations can have a big impact on your finances, making it harder to manage everyday expenses. And if you rely heavily on your home currency to get by, you could end up spending far more on exchange rates — and possibly foreign transaction fees — than you planned.

If you’re ready to move overseas, learn more about how exchange rates work, how they can affect you when living out of your home country, and how to deal with currency fluctuations.

How Currency Exchange Rates Work

An exchange rate refers to the cost of converting one country’s currency into another. A higher rate means you get more currency when you make the exchange, while a lower rate means you get less.

Say, for example, you’re moving from the United States to the United Kingdom. As of July 2024, the current exchange rate from the U.S. Dollar (USD) to the British pound sterling (GBP) is about 0.79. That means you’ll get £0.79 per $1 you exchange.

Your exact rate depends on where and when you make the exchange. Some locations might offer better rates than others, so it’s wise to shop around before converting currency.

Rates can also change from one day — or even minute — to the next. This is because the foreign exchange market — Forex — runs 24 hours a day, five days a week. This means that rates could change even outside of traditional banking hours. When exchange rates change, the value of one currency drops while the value of another rises.

These fluctuations might be so minor that you don’t even notice the difference when converting money. But they can also be significant, which is why it’s important to keep an eye on exchange rates before and after moving overseas.

Generally speaking, there are two main types of exchange rates:

• Official exchange rate: This is the rate you get when swapping currencies at places like an airport, bank, or hotel. It’s officially recognized by the government.
• Unofficial exchange rate: Sometimes called the “black market” or “street market” exchange rate, this rate isn’t officially recognized by the government. It’s generally considered illegal or unsafe, which is why it’s better to stick with legitimate locations when converting currencies.

What Causes Currency Fluctuations?

Currency fluctuation risk is a very real concern for many expats and migrants. Rates can change quite a bit, especially for those making a long-term move. This can lead to a higher cost of living.

While you can’t necessarily control the factors that affect your currency’s value, it doesn’t hurt to know them.

The value of one currency vs. another tends to fluctuate based on global market activity and related factors. The U.S. Dollar, for example, can rise or fall depending on things like economic conditions, inflation, interest rates, and supply and demand.

It’s also worth knowing that currency exchange rates can be floating or fixed.

Floating exchange rates are the most common type of exchange rate. They fluctuate based on changes in the foreign exchange market — like supply and demand. If the currency is in high demand, its value will increase, and vice versa.

Fixed exchange rates are tied to the value of a specific currency — like the U.S. Dollar or euro. This means you’ll always get the same price when converting those two specific currencies, regardless of external factors. Fixed rates are set by the government’s central bank.

An example of a fixed exchange rate is the United Arab Emirates dirham and the U.S. Dollar. One UAE dirham is always equal to 0.27 USD. This means that $1 always equals 3.67 dirhams.

Planning for Currency Exchange as an Expat

As an expat or migrant, the better prepared you are, the easier your transition into a new country will be. A big part of this, of course, requires understanding and planning for currency exchange before — and even after — you go.

Here are some of the best ways to manage your budget and navigate currency fluctuations when living abroad.

Research and Compare Exchange Rates and Fees

Exchange rates for foreign currency don’t just fluctuate over time — they can vary by location, too. Before anything else, do some research to compare exchange rates and conversion fees. Otherwise, you could end up spending more money than you needed to.

Compare rates at officially recognized locations like banks and international remittance services like Ria. Even if the difference is relatively minor, you could still save quite a bit of money this way.

You can also compare rates using information on the Federal Reserve’s website. Or you can download a currency conversion app that gives you real-time alerts for rate changes.

Exchange Currency Before You Go

Many expats ask themselves: Is it better to exchange currency at home or abroad? The answer depends on you, but you might want to do it before leaving your home country. Chances are, it’ll be more convenient and potentially cheaper that way.

You should be able to convert currency at your local bank or credit union. These locations generally offer the best exchange rates. You may still need to pay a conversion fee, but your overall costs will be lower than if you were to wait until after the move.

Another option is to convert money at a local currency exchange kiosk or online. These options may charge more fees or offer subpar rates compared to your bank or credit union. However, it doesn’t hurt to check what’s available.

Budget Early and Be Flexible

Having a budget is essential when you’re moving abroad. Your budget should ideally include before and after expenses — from flights and movers to long-term accommodations and food. But it should also leave some wiggle room in case something happens.

If the value of your local currency becomes stronger, for example, it can cause the overall cost of living to increase. If you have a flexible budget, you can adjust your spending habits to accommodate this.

Leave some wiggle room for miscellaneous expenses, too — like foreign transfer fees and currency exchange fees. Doing this can also help you deal with currency fluctuation risk.

Have an Emergency Fund

If possible, save up for an emergency fund before moving abroad. While the exact amount you should have in your fund depends on your circumstances, it’s generally wise to set aside at least a few months’ worth of living expenses. That way, you’ll be covered in case something unexpected happens — like a major currency exchange rate fluctuation.

Use Travel Money Cards

Cash isn’t the only thing affected by currency fluctuations. Your credit card can be, too. Not only that, but some credit card companies also charge foreign transaction fees whenever you use your card in another country.

Foreign transaction fees can be expensive, often ranging from around 1% to 3% of the transaction amount. The more you can avoid these fees, the better off you’ll be.

One solution is to use travel money cards. These are a type of prepaid debit card that you can load a specific currency onto and use while abroad. With a travel card, you can lock in a set exchange rate and avoid foreign transaction fees.

Plus, travel money cards make it so you don’t need to carry large sums of cash. This can also lower the risk of theft while living abroad.

Be Strategic When Withdrawing Money

If you plan to live abroad for a long time, you’re probably going to need to withdraw or exchange currency while overseas. The exception is if you get a job that pays in your new country’s currency and covers what you need.

Exchange rates overseas might not always be the best, especially compared to what you could get back home. But being strategic about how you convert money can prevent excess fees.

Avoid airport kiosks and exchange centers located in areas with lots of tourists. These options generally charge higher fees and rarely offer the best currency exchange rates.

If you do need to convert money while overseas, opt for an ATM instead. Many major banks have in-network ATMs in other countries. While you’ll still generally need to pay some kind of foreign exchange or transaction fee, you could avoid out-of-network fees. Some banks will even reimburse you for international ATM fees — usually up to a certain amount.

Use Credit or Debit Cards

While credit cards can still come with pesky fees, they also have their advantages. Many come with fraud protection, meaning your money is safe against theft. You can also set real-time alerts notifying you each time your card is used to make a purchase.

Some credit cards also come with minimal to no foreign transaction fees. Along with this, you may be able to get a rewards travel credit card that earns points whenever you make a qualifying purchase. This can offset some of the costs associated with higher exchange rates.

Your debit card might also offer the same types of benefits. Before using it, check what kinds of foreign transaction fees it incurs — if any. Also, see if you can get a cashback debit card that earns money on qualifying purchases.

Stay Informed About Current Market Conditions

It helps to keep up to date on what’s going on in the global and local economy. Keep an eye on the financial news so you know when exchange rates change. Then, make your own financial decisions accordingly.

If the rates are less favorable and the cost of living goes up, you might need to cut back on spending while overseas. If the rates improve, that might be an opportunity to save more money or replenish your emergency fund.

And if you need to exchange currencies, try to time it when your home currency is at its peak. That way, you’ll get the most out of the exchange.

Sending and Receiving Money Abroad with Ria

Having a secure, fast, and convenient way to access your money while living abroad is essential. That’s where Ria comes in.

With Ria, managing your finances isn’t complicated. You can make international transfers in more than 190 countries and territories around the world — all at affordable exchange rates. Not only can you send and receive money, but you can also pay bills, do mobile top-ups, cash checks, and more. Ria is also compatible with certain mobile wallets.

Ria also makes it easy to see and compare exchange rates between different countries. For example, you can select different currencies and see which countries have the best exchange rate for U.S. dollars.

Learn more about how Ria works or sign up for a free account today.

Managing Currency Risks and Your Finances Abroad

As an expat or migrant, you’ll already have plenty to do as you get settled into your new home. Learning how to navigate currency fluctuations and currency exchange risks is just part of the journey.

The good news is that you can protect your finances while traveling and living abroad.

Before you transfer money to or from home, research the current exchange rates overseas and have a plan in place. If you haven’t left yet, convert some currency at a local bank or credit union at home to get the best rates. While you’re at it, calculate how much it costs to live abroad, create a flexible budget, and be strategic with your withdrawals and transfers.

And if you’re already living overseas — or if you just want to be prepared — consider Ria. Ria offers a convenient, secure way to send or receive money, all at great rates.