Jaguarsfan's Journal

[jaguarsfan]

Long-time reader of MMM and ERE, new member. My net worth has been depressingly stagnant for the past few years. Time to put things out publicly for accountability and kick myself in gear.

About me, US born and raised. College degree in the US, graduated with no debt but only $150 in my bank account. Due to soft labor market and youthful wanderlust, pretty quickly left the US, learned Spanish in Central America, and have done this and that over the years. Married a South American woman this past year, she's pregnant now - I have no interest in returning to the US so I imagine we'll live in her country for awhile. I'm 29 now, so still pretty young, but running out of time to get to a runaway net worth before 40.

I work over the internet as a freelancer. Income is quite variable but generally about $4,000/month. I'm aiming to up this, my time management is terrible though, need accountability there. Still have to pay US tax along with a high sales tax down here... figure I pay 28% to the US federal and state combined - that will drop in 2019 once I gain residency here...

Post-tax income

$2,880/month

Expenses:

$675/month rent (includes all utilities and internet)
$400/food
$250/month health care (due mostly to pregnant wife - and this will drop once I get residency and can buy local health insurance)
$400/month travel (visits to embassy to deal with residency, visits to wife's family, etc.)
$10/month phone
$25/month gym
$50/month clothing (I spend almost nothing, but wife is pregnant)
$100/month meals out/movie tickets/taxis, etc.
$0/other transportation (no car, can walk to most things)
$20/month gifts
$50/month alcohol

$1,980/month

Net savings $900/month, 31% of post-tax.

Rent can potentially be lowered a bit by moving to a furnished place, though that comes with its own expenses. A 2br unfurnished in this city in a safe neighborhood (this city is often in the world's most dangerous 50 lists) runs at least $500/month though so not as much 3rd world savings as I'd expected. I use the second bedroom as my office. I'd like to move to a smaller town where we can rent a house for $300-$400/range but wife is uncomfortable being far from modern medicine until the baby is born.

On food, she cooks most of our meals. We could trim here some, but not sure how much without sacrificing significant quality. Our country has grass-fed beef for under $2/lb, so the appeal of moving to lentils and beans isn't so high - she's soy allergic and I don't tolerate gluten well so basing our diet around cheap beef seems logical. I've also gotten fat every time I've abandoned a low-carb eating approach.

Travel should come down, particularly once I have permanent residency here (expected later this summer). No more visa runs, hallelujah.

Balance sheet

Net working capital of internet trading/arbitrage business: $3,800*
Stocks: $2,900
Receivables (freelance work completed, not yet paid to me) $5,400
Cash: $1,500

Debts: $0

Net Worth $13,600


Assuming I can get expenses down to $1,500/month after the baby is born, that would get my savings up to $1,380/month and put away $16,500/year. Still going to take awhile to get to ERE that way. Thinking I made a big mistake moving to Latam quite so early in life, should have socked away money in the US first. But no time for regrets.

*this generates about $600/month average profit, so ROI is extremely high, but the amount of capital that can be used profitably is highly limited so this isn't too scalable.

[wolf]

Welcome Jaguarsfan to the ERE-Forum!

It's great that you have decided to start writing and indroducing you in the forum. Every new member brings a special perspective on life with a different life situation. It's supporting the variety around here. I like that. I guess you could also learn many things things from various topics here.

You got a good start with a reasonable high income in a lower cost of living country than the US or Europe. What I observed is, that some members start writing in their introduction post about a saving and reduction potential of their expenses. In the end after some years, when they followed and implemented the ERE principles to their life, they ended up with much lower costs than initially expected and with a much higher saving rate. I write that in order to encourage you! You are still quite young and that is a benefit.

Take care of yourself and your spouse!

[jaguarsfan]

Thanks Wolf, I appreciate the warm welcome!

May wrap-up

May actual Income $5,486 pre-tax. Much of that was driven by a one-time performance bonus, I'm still figuring $4,000-$4,500/month as normal.
May actual Expenses $1,835

I assume 28% tax rate, so $3,950 after tax income, $2,115 savings for the month. 54% savings rate.

June will have more expenses. May was light on travel, but this month I have to go to the capital and pay $300 for a visa. Should be able to save at least $1,000 this month regardless though. Nice adding over 10% to my net worth this month, will be fun to see how long I can keep that up before the law of large numbers kicks in.

[wolf]

I assume 28% tax rate, so $3,950 after tax income, $2,115 savings for the month. 54% savings rate.

Well done with the SR!

When I first read the sentenced I was surprised by the "28% tax rate". I didn't estimate that the tax rates would be that high in the US. I thought so, because I estimated the tax rates are much higher in Europe, especially in Germany than in US. I was wrong. I used a salary calculator for US with my numbers. After that I looked up also medicare, state tax rate, federal tax rate and social security. While doing so I learned some new things about the tax and social security system in the US.

Is it quite common to move between states in order to lower the personal state tax?

[jaguarsfan]

Yes, I think a lot of people do move to a different state to lower their personal tax. Once I become a resident in a foreign country, I will no longer have to pay state tax, so that should lower my overall tax rate a few percent. The federal tax rate remains high for self-employed people, however, because we have to pay the employer's share of medicare and social security.

[jaguarsfan]

June was a fairly difficult month. Net worth only increased to $14,050 (+450).

Post-tax income of $3,080 slightly exceeded my budgeted expectations. However my trading/arbitrage business only generated $50 of net income on the month - far below average, had to pick up the slack from my freelancing work. On the expense side, I had to spend several hundred dollars for a residency visa, plus travel costs to get to and from the capital. Going forward, this should lower my tax rate, but I will keep putting 28% of income into a reserve until I file taxes next year and see what actual costs are.

On the living front, my wife and I moved to her family's town so that she can give birth with her family's support system there. Additionally, we should be able to save on rent, as places appear to be about $550/month including utitilies, opposed to the $675/month we were paying previously for a similar-sized space. On the downside, this town is quite small, and has few expats or much interesting in the way of culture. But, I'm putting my nose to the grindstone to increase income anyway, so a lack of diversions may not be a bad thing. (If you get the idea that rent is basically free in third-world countries, think again!)

Our old landlord is still fighting us about giving back the deposit for our last apartment, so that's close to $700 in limbo ... hopefully there will be a nice jump in net worth if we are able to resolve that favorably... though I imagine I'll be out $500 or so in deposit for a new place so it is largely a wash. We're crashing at a family's house until we find something, so that's a nice savings for the time being.

[slowtraveler]

I love these expat journals. Good luck man. I started spending $100/day less than a year ago when I followed my Wanderlust and this month, I'm at under $20/day for this month so far.

Which Latin American countries do you recommend? I've seen the southern and eastern coast but I hear Colombia is nice.

[jaguarsfan]

Thanks for stopping by slowtraveler.

On taxes, my income comes from US employers that send me 1099s. I don't think the FEIE applies due to that. I'd love to be wrong though.

As far as Latin America, for long-term living, stable political countries with decent governments, so Mexico, Colombia, Peru, or Chile would be near the top of my list. Places like Argentina are fun for a vacation but I wouldn't want to set up my life there permanently. I've traveled everywhere in LatAm except Brazil and lived in four countries here for at least six months, happy to answer more questions if you have them.

[jacob]

Panama (which has the pensionade visa and a bunch of others) and Costa Rica tend to score high in expat reviews. Any opinion/experience for those two?

[jaguarsfan]

Panama only has one real city, its capital, which is brutally hot. Fine place, and pretty good quality of life, but I can't take the weather. Most of the expats there seem to be really old folks that live in small towns out in the mountains. Which is fine, but probably not what most folks here want. Bocas del Toro would be a fun place to live on an island and there is fun local culture there, but it is pretty isolated from civilization.

Costa Rica I personally view as seriously overrated. Quite expensive compared to anywhere else in Central America. San Jose isn't very nice. Living on one of the beaches could be nice, but once again, no big cities out there, so you have to enjoy rural living.

Both CR and Panama probably have an easier adjustment/learning curve compared to South America for older expats, but I doubt they'd be at the top of the pile for most of the folks on here who are younger and more inventive.

Visas aren't difficult to obtain in much of Latin America if you have passive income or buy a local property. I wouldn't make that the main criteria for picking a country.

[slowtraveler]

The good news is you're wrong. The amazing news is, you can pay less taxes now and past returns are amendable for a few years. There's a form you can file with your employer to make yourself exempt from further federal tax withholding somewhere on the IRS site, I believe it's Form 673 Statement For Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion Provided by Section 911 from the link in my last post. Below is some information to convince you that you owe 0 federal taxes.

Income must be foreign-earned. And where you earn your income is the source of your income. This depends on where your services are physically performed. The quote below is from an irs page *
"income you receive for work done in France is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City."

So, are you going back to the states to do your work there? Or are you working from a beautiful South American country you are physically present in without returning to the states for more than 30 days a year?

If the latter, your heart may be racing.

The basic requirements and exclusion for 2017, it's $104,100 for 2018**
"
Limit on Excludable Amount
You may be able to exclude up to $102,100 of your foreign earned income in 2017.
...
If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. You don’t both need to meet the same test. Together, you and your spouse can exclude as much as $204,200."
"
Physical Presence Test
You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 days don’t have to be consecutive. Any U.S. citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction.

The physical presence test is based only on how long you stay in a foreign country or countries. This test doesn’t depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad.

330 full days. Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. You can count days you spent abroad for any reason. You don’t have to be in a foreign country only for employment purposes. You can be on vacation.
You don’t meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time."

Long quotes included because this can be hard to believe at first glance, it lets you copy past into the links to check for yourself the most relevant information. You meet the physical presence test and your income is foreign sourced.

I recommend reading the whole publication ***

*https://www.irs.gov/individuals/interna ... ned-income
**https://www.irs.gov/publications/p54#en ... k100047432
***https://www.irs.gov/pub/irs-pdf/p54.pdf

[jaguarsfan]

Slowtraveler ... this is amazing, a lifesaver. Thanks - you're right, my heart is racing. I'm trying to amend my filings through Turbotax but it appears to be a bit complicated for their system. Perhaps I should find a CPA.

[slowtraveler]

You're welcome Juguarsfan.

You could use a CPA for one year and then once the return clears, use that return as a framework to guide the other 2 years you can amend, assuming you have 3 eligible years.

You could also try another software, maybe freefillableforms by the IRS can do it*.

Taxes for expats are pretty good with their information but relatively expensive. It'll still get you back way more than the cost. I actually just realized I was eligible for the last quarter of 2017 if I use a tax year starting at the end of September. I emailed them and they emailed back relatively quickly that it's okay but I'll get a prorated amount so I'll likely use Taxes for Expats to make the amendment later this year. I've done a call with the CEO there and she answered a ton of questions which was helpful, I had a projected return done which wasn't as helpful since the call confirmed everything I'd learned from the return done and more.

*freefillableforms https://www.irs.gov/e-file-providers/be ... able-forms

[jaguarsfan]

I have a family member who is closely involved in a Christian ministry, and she found me a CPA there that is used to doing taxes for missionaries and thus doesn't charge Wall Street rates. Looks like I'll still owe self-employment taxes but the overall take will be ~12% rather than 28%. Huge savings. Thanks so much for inspiring me to look into this further!