A recent article in The Guardian noted: “Global debt has grown by $57 trillion to reach $199 trillion in the seven years following the financial crisis – a 40.1% rise, according to a new report.”

What this translates into is that global debt is now 286% of the world’s Gross Domestic Product, or GDP. GDP is the monetary value of a country’s (or in this case the world’s) finished goods and services that have been produced in a given time.

While these figures reflect the economic situation of governments, individuals too can be expected to feel the crushing impact of what is, obviously, an unsustainable debt load.

Under these circumstances, becoming an expat and owning property abroad is more than just a sound investment hedge against this economic shadow; it is a way of rediscovering what truly matters and having the opportunity to pursue those ideals.

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Why Global Debt Should Matter to You

Global debt has many far-reaching implications that transcend the international geo-political scene. Though usually referred to by the media (both mainstream and alternative) in terms of governmental policies, this massive borrowing bubble could profoundly impact individuals’ savings, retirement, and investment portfolios in ways that seem almost unimaginable. Below are several of the major reasons that global debt should matter to you.

Haircuts Are Coming into Style

Much reporting has been done on the recent debt crisis in Cyprus and the resulting “haircuts” that savers and investors endured. However, not many people truly understand what a “haircut” means.

In simple financial terms, a “haircut” means taking a loss on an investment i.e. to receive or accept less than the face value of what is owed.  An example of this concept would be if a government borrowed money from institutions and was not able to pay it back. Instead, the government offers to pay only $0.25 on every dollar owed.  A bond, with a face value of $1000.00 (the purchase price), would now only be worth $250.00. Investors who “loaned” money (in the form of purchasing government bonds), would have to take a “haircut” of $750.00.

The recent situation in Cyprus is a prime example of how “haircuts” can dramatically impact individuals. There, the government ordered that bank accounts, in excess of 100,000 Euros, would have to take a haircut of 37.5%.

Put another way, if someone had a banking account with 100,000 Euros, the cash value of that account (the amount that could be withdrawn) was reduced to 52,500 with the remainder being made up of shares in the bank that could only be sold at whatever the market value would be.  In practical terms, 37.5% of those accounts is now gone and the remainder will be subject to the whims of the marketplace.

As global debt continues to grow, other governments, including the U.S. and other European nations, may consider similar approaches to make up their monetary shortfall.

Freezing Assets and Other Chilly Prospects

Imagine walking into your bank to make a withdrawal and being told that you couldn’t because the government was freezing all accounts. That is exactly what happened in Cyprus.  In order to “stabilize” the financial situation, the Cypriot government essentially prevented depositors from taking any money out of the banks.

When money is deposited in a savings account, the bank agrees to pay interest on those funds in exchange for having those sums available to the bank; in a real sense, savings accounts are a kind of “investment.” What happened in Cyprus was that the banking system ended up “owing” more to the depositors than it had. As a result, the only way to avoid total collapse was to keep all the money.

Similarly, other investment options, such as stocks, are also vulnerable to rising debt. Purchasing stock is giving money to a company with the promise that, at a later date, those stocks could be sold for a higher price than they were paid for. If a company’s debt becomes too high, dividend payments (like interest in a bank account) may be withheld or cancelled and, in a worst case scenario, the stock becomes worthless and the whole investment is lost.

Money, Currency and Wealth – Three Different Things

Though the terms “money,” “currency,” and “wealth” are often used interchangeably, their actual meanings are vastly different. When talking about global debt, these differences matter a great deal.

Money can be basically defined as a medium of exchange between buyers, sellers, producers, and consumers of material goods. Currency refers to a particular monetary system used within a country or other political unit.

Wealth is, by far, the most nebulous of these three items. It is defined as the measure of valuable items. Wealth can also be extrinsic (money in the bank, personal property, etc.) or intrinsic – the actual value of something, not just its price tag. Global debt has created only extrinsic wealth that consists of numbers on a ledger. Those numbers often cannot be supported by actual value when investors want their return paid out.

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The Expat Advantage – Owning Property in Paradise

Aside from the opportunities to live abroad, immerse yourself in a new culture, live healthier, and rediscover yourself, there are real economic advantages to buying property in Latin America. Here are a just of few of those benefits:

Real Estate Is Both Real and Finite

There is an old saying that the reason property is so valuable is that they’re not making any more of it. As a result, land ownership carries a permanent value. Since it is a real, tangible asset, investing in it can be a real hedge against the growing debt crisis. Also, real estate has an intrinsic value; it exists, and it can be your paradise and security. Those are measures of wealth that far surpass anything on a balance sheet.

Central America Welcomes Expat Investment

Central American countries have actively created environments that promote expat investment.  The rights of foreign property owners are, in many cases, identical to those held by a country’s own citizens. Favorable residency laws, discounts, and lower tax rates also make buying and living here a desirable alternative to staying in the U.S. or Europe.

There Are Bargains and Opportunities to Be Had

As the trend towards development sweeps through Central America, the affordability of property (especially parcels that are undeveloped or underdeveloped) is still quite good. For investors, this is an ideal situation where a lower initial outlay of funds can be expected to result in a good return on investment.  Importantly, buying real estate in these tropical destinations carries much less risk than other options, such as stocks and bonds.

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Taking the First Step

Like any investment, buying and owning property in one of these tropical destinations does have challenges and some risks. Being an expat is not necessarily for everyone. Daring to reinvent oneself and rediscover the joys of learning a new culture and lifestyle may seem overwhelming.

How to discover if becoming a property owner in one of these tropical locations is right for you? Check out the kinds of residences, lots, and properties that are on the market. Above all, do some research and, if a country interests you, go there and visit – maybe more than once. You may discover that you don’t have to find paradise – paradise may find you.

With all the excitement involved when getting ready to become an expat, it is important to keep in mind a few “must know” tips to help with the transition. Making and following a checklist ahead of time can prevent issues during the move and make your arrival a time of celebration and exploration.

The transition to expat status is also a transition from your stateside existence to a different way of being. Understanding how much you will need to live on and other financial considerations is an important aspect to moving abroad.

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Top 8 Must-Know Tips Every Expat Needs

There are a number of tips that can really make your arrival as an expat much easier and much less stressful (and, yes, there will be some stress!!). Below is a list of the top 8.

1.  Have a Plan

Doing your homework ahead of time can help you select which Central or South American location is the best fit for you. Research online, interact using social media with expat groups, and learn about the culture, geography, etc. of those countries and/or regions that interest you.

Be realistic in terms of how much it will cost you to make your move and maintain the kind of lifestyle you are thinking of.  All budget-related matters should be done before – not after – your arrival.

The number one reason that becoming an expat may fall short of your expectations is if you end up having to face the harsh reality of “too much life left at the end of the money.” While this kind of monetary examination may cause you to put a hold on your plans, it can also provide both the knowledge and incentive to help you reach your paradise in the future.

There is no substitute for actually visiting the place you are thinking of calling home. If possible, make a number of visits to explore various parts of the country. Being there can help you decide whether you want a beach lifestyle, the tranquility of the mountains, a rustic village, a larger city, or something in between.

2.  Explore

Once you arrive, start exploring your new environment. Learning where the locals like to shop, eat, visit, etc. can help you immerse yourself in the daily routine of your expat existence. 

Part of this exploration should involve finding out your options for your utilities (water, heat, electricity, and garbage) as well as amenities such as phone, cable/satellite, and internet service. You will quickly discover that getting these items is a lot different than what you had come to expect in the states.

3.  Experience the Seasons (All of Them)

Hopefully, you did look into the various climates and seasons of your Central or South American destination beforehand. While most countries have two basic seasons (rainy and dry), there are a number of micro-climates that also have unique variations. You may have the opportunity to experience everything from a dry desert climate to a tropical jungle. Be prepared (in terms of clothing, etc.) for all of them. 

While entertaining, these locations are not a true representation of daily life. Once you have fully settled, you’ll have plenty of time to visit and experience these options, if you wish.

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4.  Avoid Tourist Traps

With tourism a major industry in many Latin American countries, it isn’t surprising that any number of “tourist traps” (those areas designed to cater to the casual visitor/vacationer) can be found. Since your purpose in moving is to make this a new home, you should avoid these “tourist-centric” areas, at least initially.

Another area of discovery that should be an important part of your exploration is to learn what is required to establish a local bank account. Banking rules differ from country to country (and things have been made even more difficult with the increased impact of FATCA on foreign accounts), so it is important to learn what is and isn’t available to you. Additionally, it may be necessary to research what options can be utilized to access your funds from the U.S. or Europe while abroad.

5.  Eat Like a Local

There is no better way to quickly immerse yourself in the culture of your new home than to eat like the locals eat. Shop at the local farmers’ markets, choose the specialties from restaurants that the locals go to, and, if you have an interest, learn to prepare those dishes at home.

This is also a great way to begin to learn Spanish (assuming that you do not already speak the language). Food truly is a universal language and, as you learn the names of fruits, vegetables, and dishes, you’ll find that you are also learning to speak with the locals as well.

Becoming part of the culture where your tropical paradise is located is an incredibly important part of the expat adventure. Remember this is not just a vacation, this is the place you have chosen for the next phase of your life.

Your tropical escape will have its ups and downs; not unlike anyplace else. However, when you fully commit yourself to becoming part of your Latin American world, the potential is limitless.

6.  Keep an Open Mind

Keeping your mind open to the possibilities of expat life can expand your viewpoint in ways that could astound you. Perhaps the hardest thing for expats – even those who have been in their chosen location for some time – is being patient with the pace of life. It’s important to remember that the more relaxed approach to things, like appointments and bureaucracy, was one of the things that you found attractive about the idea of relocation.

The trade-off is that you cannot (and should not) expect that things will be done “immediately” or “on time.” To put it another way:  Don’t sweat the small stuff.

It’s also important to remember that your cultural references will be different from the locals around you. You are a guest (even if a permanent one), in their country; be respectful and willing to learn those differences. You may be pleasantly surprised at the results.

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7.  Tie Up Loose Ends

Just because you’ve made the move, doesn’t mean that you can forget about matters back home. Driver’s licenses, medicines (and related medical issues) are other important aspects that can have a direct effect on your expat plans. 

Get confirmations that everything that you put in place prior to your departure is correct and in order. The last thing an expat needs is to discover that something they thought was resolved now requires additional attention. Keeping the lines of communication open is always an important expat safety net.

8.  One Final Tip

Becoming an expat is an experience like no other. Allowing yourself to truly look forward and to accept that the unknown can be an exciting and wonderful adventure can be the best tip of all. Begin the journey today; go online and read the experiences of others. Tomorrow is but a mouse click away.