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Hello, 26 year old American expat teaching in Abu Dhabi, UAE!
Old 12-08-2011, 11:17 AM   #1
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Hello, 26 year old American expat teaching in Abu Dhabi, UAE!

Hello, FIRE fellows!

I'm a 26 year old young woman teaching kindergarten in the UAE. I work for the government and teach at a public school here. I live on a tiny little island in the Arabian gulf and go into the city once a month to stock up on groceries and visit with friends.

I spent 2010-Spring 2011 in Korea teaching at a private school. It was a stressful job with incredibly long hours, but I managed to pay off my consumer debt and start my new life in the UAE debt-free and loving it!

I've been on this little island for four months now. The education council provides my housing and pays for my car rental. Utilities are subsidized by the government and average $15 USD per month for both water and electricity. I'm making $3500 USD per month in wages. There is no taxation in the UAE and I pay NO US taxes. It is grand!

I am saving $2500 to $3000 USD per month.

This is only my 2nd year teaching so this opportunity is great for my teaching career and will help my chances of landing a decent teaching position when I decide to return to America. It is also financially beneficial.

I am debt-free and beginning to save a nest egg. I am fortunate to have no student loans. While friends have squandered savings on expensive partying in the city, I've netted 7k free and clear.

Here's my financial breakdown as of today:

$1000--12 month fixed-rate CD (with USAA)
$1000--9 month fixed-rate CD (with USAA)
$2000--savings account (through USAA)
$3000--checking account (local bank)
$500--Vanguard Roth IRA (100% invested in VFINX)

Unfortunately, I am not allowed to make contributions to my Roth IRA while I am working overseas because the money is not taxed in the USA.

My employment contract is for 2 years. The first year is probational, of course, but I am in very good graces with my bosses and their bosses thus far. I am doing my best to keep it this way.

I am single, no children, and have no plans to marry, or have children any time within the next five years. This is the time for me to build my assets.

My immediate goal is to have $10,000 in savings by the end of December. By August of 2012, I will have $25,000 in savings and investments. Basically, $50k by August 2013.

It has been recommended to me that I establish an emergency savings fund. I feel that 10k is a good amount for me to keep aside. I will meet this goal by January and can move on to investing.

I'd like to start investing for retirement after the first of the year...probably by February. I've been advised to look into the Vanguard Total Stock Market Index and also, the Vanguard Target Retirement funds.

Very happy to have found this forum. Looking forward to learning from you all!
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Old 12-08-2011, 11:52 AM   #2
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Welcome! I watched a Househunter's International TV show about a teacher in Abu Dabai last year and it looked very interesting culturally.

Good luck with your investing. I can't offer any advice on specific mutual funds since I don't use them anymore. They are a great place to start building your portfolio.
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Old 12-08-2011, 11:56 AM   #3
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Unfortunately, I am not allowed to make contributions to my Roth IRA while I am working overseas because the money is not taxed in the USA.
Huh? Roth is after taxes. You still have to file in the USA and you still have to 'pay taxes' in the Land of the Rich and the Home of the Slave. Only earned money can go into a Roth, and you earn and pay taxes (technically) on those earnings.

Are you getting good advice?

Regardless of that, you are doing great!

Learn how to invest. (I don't like VFINX anymore. Put something in VWINX. Tell Uncle Mick I sent you. ) Set goals. Set a fat goal: $1MM US pesos.

You can always invest outside of a tax-protected account. And (if the cockamamie advice you have is good), one day you can return to our benighted country and stick 5k a year from your savings into a Roth. As long as you earn more than 5K per year, you can do this.

More unsolicited advice: NEVER give your good present/past financial information to a significant other. (Unless one has a financial disaster in ones' past--obviously does not apply to you--in which case, disclose everything early.) Do not co-mingle your assets. Tell him (OK, her too) that you are stone broke and take it from there. Tell him you spent it all on chocolate and Paris. Start fresh from Day One. DO NOT mix love and money. If things work out, fine. You can retire early and live well. If not, you have protected yourself. Sadly, 'not' happens too often, and women are victims.

Now, what are you doing for dinner tonight?
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Old 12-08-2011, 12:04 PM   #4
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Originally Posted by thatgirlmjl View Post
Hello, FIRE fellows!

I'm a 26 year old young woman teaching kindergarten in the UAE. I work for the government and teach at a public school here. I live on a tiny little island in the Arabian gulf and go into the city once a month to stock up on groceries and visit with friends.

I spent 2010-Spring 2011 in Korea teaching at a private school. It was a stressful job with incredibly long hours, but I managed to pay off my consumer debt and start my new life in the UAE debt-free and loving it!

I've been on this little island for four months now. The education council provides my housing and pays for my car rental. Utilities are subsidized by the government and average $15 USD per month for both water and electricity. I'm making $3500 USD per month in wages. There is no taxation in the UAE and I pay NO US taxes. It is grand!

I am saving $2500 to $3000 USD per month.

This is only my 2nd year teaching so this opportunity is great for my teaching career and will help my chances of landing a decent teaching position when I decide to return to America. It is also financially beneficial.

I am debt-free and beginning to save a nest egg. I am fortunate to have no student loans. While friends have squandered savings on expensive partying in the city, I've netted 7k free and clear.

Here's my financial breakdown as of today:

$1000--12 month fixed-rate CD (with USAA)
$1000--9 month fixed-rate CD (with USAA)
$2000--savings account (through USAA)
$3000--checking account (local bank)
$500--Vanguard Roth IRA (100% invested in VFINX)

Unfortunately, I am not allowed to make contributions to my Roth IRA while I am working overseas because the money is not taxed in the USA.

My employment contract is for 2 years. The first year is probational, of course, but I am in very good graces with my bosses and their bosses thus far. I am doing my best to keep it this way.

I am single, no children, and have no plans to marry, or have children any time within the next five years. This is the time for me to build my assets.

My immediate goal is to have $10,000 in savings by the end of December. By August of 2012, I will have $25,000 in savings and investments. Basically, $50k by August 2013.

It has been recommended to me that I establish an emergency savings fund. I feel that 10k is a good amount for me to keep aside. I will meet this goal by January and can move on to investing.

I'd like to start investing for retirement after the first of the year...probably by February. I've been advised to look into the Vanguard Total Stock Market Index and also, the Vanguard Target Retirement funds.

Very happy to have found this forum. Looking forward to learning from you all!
Hi thatgirlmjl, welcome to the forum! You have pretty clear goals, good luck. Hope you achieve them all.

Quote:
Originally Posted by Ed_The_Gypsy View Post
Huh? Roth is after taxes. You still have to file in the USA and you still have to 'pay taxes' in the Land of the Rich and the Home of the Slave. Only earned money can go into a Roth, and you earn and pay taxes (technically) on those earnings.
Gypsy Ed, she may have been referring to income that has been excluded using the FEIE and not eligible for IRA. Good advice, the rest...
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Old 12-08-2011, 12:16 PM   #5
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Gypsy Ed, she may have been referring to income that has been excluded using the FEIE and not eligible for IRA. Good advice, the rest...
Geeze, Mike, I can't be right ALL the time.
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Old 12-08-2011, 10:11 PM   #6
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Sounds like you're on the right track!

As a fellow teacher, I commend you on your frugality efforts. You'll need it, as your income potential is a bit limited!

So far your AA is very conservative, but makes sense if it's your emergency fund.

At your age, it's probably okay to be 100% or so in equities with the money you're about to start investing.

Good luck and welcome!
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Old 12-09-2011, 03:27 AM   #7
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Ed_The_Gypsy: Thank you for your suggestions. I looked at VWINX and it looks much more promising. I will heed the advice regarding significant others.

MichaelB: You are correct about FEIE. This is why I cannot make Roth contributions. I don't earn any taxable money in the USA.

Unfortunately, my only options are taxable accounts for now, it would seem. If anyone knows any different, please correct me!

Arebelspy: Yes, my AA is very conservative right now. This 10k will be my emergency fund. I'll most likely be putting the rest of my savings into VWINX.

Thank you for the warm welcomes and great advice.

Happy Holidays to you and yours!
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Old 12-09-2011, 06:31 AM   #8
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Nothing wrong with taxable investment accounts. Just need to pay attention to the taxable income they generate. Wellesley is a fine fund (we use it too) but because we too have taxable accounts our fixed income investments are much more geared toward munis.
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Old 12-09-2011, 09:08 AM   #9
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MichaelB: I cannot contribute to a traditional IRA or my Roth until I return to the states and have taxable income. My salary earned abroad falls way below the FEIE limit. I have no taxable US income. Looks like I'm stuck with taxable investments accounts for now.

"American citizens not residing in the U.S. may contribute to an IRA. However, they must have earned income that is not excluded by the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE). For example, an American citizen employed abroad by a foreign corporation earning $85,000 a year who is able to exclude all of her U.S. income from taxation under the FEIE will have no "non-excluded" income from which to make an IRA contribution, and therefore cannot contribute."
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Old 12-09-2011, 05:21 PM   #10
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thatgirlmjl,
I like the way you're thinking financially. And you're getting all the "seeing the world" stuff out of your system early. If you can squirrel away $50k before you head home as investment money, and leave it invested well, you'll be pretty well set before you know it. My DD is working in the US in her first job, but she wants to go overseas to work for a year or so. She mentioned the Far East. Somehow I can't picture returning home with $50000 in her account though.

Welcome aboard, and good luck...Tight
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Old 12-09-2011, 05:33 PM   #11
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Wow, very nice and good for you to be so adventuresome! Is there any chance the 2 year stint can be extended? If so and you enjoy it, I'd stay there a while.
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Old 12-09-2011, 06:56 PM   #12
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Welcome, Thatgirl -- and congratulations on getting off to such a great start! I often recommend that people in the teaching profession consider teaching in international schools if they have an interest in traveling and want to save money at the same time. You can make a very nice career and see much of the world at minimal cost by taking this path. If you have any interest in returning to Asia, you might want to look into positions at the international schools in Beijing and Shanghai. The top-tier schools like Western Academy of Beijing and International School of Beijing offer VERY good packages to expat hires (local hires get a rough deal), including solid starting salaries, insurance, housing support, airfare to home country once a year, etc. In the international schools the teaching load should be much more reasonable -- not at all like the cramschool atmosphere in Korea. Long vacations, too, which are great for exploring the region (most break for 2-3 weeks at Christmas, 1-2 weeks for LUnar New Year, 1 week for May day holiday, 8 weeks for summer, and another 1 week for National day holiday in October). If you are willing to live a more local lifestyle (comfortable apartment in more local style housing as opposed to very high-end villas/luxury apartments that many expats live in, eating more local food instead of high-priced imported and western restaurant food, etc.), you can save a lot of money here. There is a large expat community and very vibrant culture here -- yes, some restrictions on personal freedoms, but nothing like the issues a Western woman in the Middle east has to deal with. Anyway, wanted to mention it as a possible option. You would probably be an attractive candidate to many schools in Beijing after your UAE contract is up.
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Old 12-09-2011, 09:59 PM   #13
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Originally Posted by thatgirlmjl View Post
MichaelB: I cannot contribute to a traditional IRA or my Roth until I return to the states and have taxable income. My salary earned abroad falls way below the FEIE limit. I have no taxable US income. Looks like I'm stuck with taxable investments accounts for now.

"American citizens not residing in the U.S. may contribute to an IRA. However, they must have earned income that is not excluded by the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE). For example, an American citizen employed abroad by a foreign corporation earning $85,000 a year who is able to exclude all of her U.S. income from taxation under the FEIE will have no "non-excluded" income from which to make an IRA contribution, and therefore cannot contribute."
I'll be darned.
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Old 12-10-2011, 02:55 AM   #14
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Welcome, thatgirlmjl. It looks like you are doing great - congratulations.
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Old 12-10-2011, 06:09 AM   #15
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Originally Posted by thatgirlmjl View Post
MichaelB: I cannot contribute to a traditional IRA or my Roth until I return to the states and have taxable income. My salary earned abroad falls way below the FEIE limit. I have no taxable US income. Looks like I'm stuck with taxable investments accounts for now.

"American citizens not residing in the U.S. may contribute to an IRA. However, they must have earned income that is not excluded by the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE). For example, an American citizen employed abroad by a foreign corporation earning $85,000 a year who is able to exclude all of her U.S. income from taxation under the FEIE will have no "non-excluded" income from which to make an IRA contribution, and therefore cannot contribute."
I know. The thing that irritates me (just a bit) is you cannot use part of the FEIE exclusion. That is, if your income is $40K, you cannot exclude $30K, declare the remaining $10K, then use it to fund an IRA. It is all or nothing.
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Old 12-10-2011, 10:05 AM   #16
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Welcome to the forum!

You're off to a fantastic start...although I wouldn't necessarily use the extreme suggestion of telling guys that you're loaded with debt, don't have a dime to your name, etc., because the equally frugal guys like me will be using that line to weed out the spendthrift ladies.

You'll learn a huge amount of great advice, but remember that there's not a single investment or path to financial independence.

Vanguard is a great mutual fund provider. Just one caveat to keep in mind: you're a resident in a foreign country, and some mutual funds might not be able to accept your foreign address. Since you're an American citizen, you might have an easier time, but just remember that there might be a hurdle or two, which could be solved by using a relative's US address for mailings.

In addition to the Wellesley recommendation, I'd suggest you start off with a good concentration in equities. Wellesley has a good exposure to stocks, but at your age and your situation, I'd juice things up with a slightly higher percentage...so perhaps some in Wellesly, and a majority in some international offerings, be it emerging markets, international small cap, etc.

Remember that the growth of stocks is (over time) directly linked to the growth of earnings. There are many companies in the US that will grow over time, but the current emerging markets in Asia, Africa, Eastern Europe and (some parts of) the Middle East are somewhat similar to how the US was in the early 1900s: just starting out with their industrialization. There are always some differences (especially concerning political environments).

Of course, when you hold US companies getting some of their revenue from selling to those emerging markets, you participate in some of that growth as well....but don't underestimate the importance of having some good direct exposure to international holdings, since the US is currently only 40% of the global equity value, +/- (and will definitely shrink over time).
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Old 12-10-2011, 10:49 AM   #17
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I know. The thing that irritates me (just a bit) is you cannot use part of the FEIE exclusion. That is, if your income is $40K, you cannot exclude $30K, declare the remaining $10K, then use it to fund an IRA. It is all or nothing.
Most US citizens working abroad will use the FEIE so they have a zero US tax bill on income......but they still have to pay local taxes and tax on investment income. For US expats living in high tax places, like EU etc, it's often best not to use the FEIE and take credits for foreign tax paid. This often results in excess tax credits that can be carried forward and also you declare earned income on the 1040 so can do a ROTH etc.

If you're in a low tax place it's best to use FEIE to keep the tax bill low.

To the OP, I think you are doing great! Watch out for the balance in your local bank account as if it goes over $10k you'll have to file an FBAR form with Treasury Dept. It's not difficult, but the fines are nasty if you don't file it. Also avoid all foreign investments (looks like you are doing this) particularly foreign mutual funds that are taxed under US PFIC rules that are really nasty.

Keep investing with Vanguard! The Wellesley and Target fund are excellent places to start and many of us end up back with them too after years of buying fancy stuff that is really no better and many time a lot worse. So you have a wise head on young shoulders.
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Old 12-10-2011, 11:07 AM   #18
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Vanguard is a great mutual fund provider. Just one caveat to keep in mind: you're a resident in a foreign country, and some mutual funds might not be able to accept your foreign address. Since you're an American citizen, you might have an easier time, but just remember that there might be a hurdle or two, which could be solved by using a relative's US address for mailings.
If you already have an account with Vanguard they are ok with a foreign address. However, they won't open an account with a foreign address. Also I'll bring up the specter of FATCA which will require 30% withholding on all payments made to Foreign Financial Institutions that are not FATCA compliant starting in the next couple of years. So it's vital for US expats to use foreign banks that are FATCA compliant.
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Old 12-10-2011, 12:56 PM   #19
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Most US citizens working abroad will use the FEIE so they have a zero US tax bill on income......but they still have to pay local taxes and tax on investment income. For US expats living in high tax places, like EU etc, it's often best not to use the FEIE and take credits for foreign tax paid. This often results in excess tax credits that can be carried forward and also you declare earned income on the 1040 so can do a ROTH etc.

If you're in a low tax place it's best to use FEIE to keep the tax bill low.
Right. I would only add if you are in a low tax country with a low to moderate income, it might be best to not take the FEIE, pay US tax and then the ROTH IRA.

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To the OP, I think you are doing great! Watch out for the balance in your local bank account as if it goes over $10k you'll have to file an FBAR form with Treasury Dept. It's not difficult, but the fines are nasty if you don't file it. Also avoid all foreign investments (looks like you are doing this) particularly foreign mutual funds that are taxed under US PFIC rules that are really nasty.

Keep investing with Vanguard! The Wellesley and Target fund are excellent places to start and many of us end up back with them too after years of buying fancy stuff that is really no better and many time a lot worse. So you have a wise head on young shoulders.
+1
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Old 12-10-2011, 01:23 PM   #20
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Right. I would only add if you are in a low tax country with a low to moderate income, it might be best to not take the FEIE, pay US tax and then the ROTH IRA.
I agree. It depends on the differential tax rates and how important you feel the ROTH is to your planning. Interestingly the ROTH is a big part of my retirement planning as gains and distributions are tax free in the US and also in the UK thanks to the tax treaty. I plan to spend my low tax ER years in the US and live off after tax savings doing IRA to ROTH conversions up to the top of the 15% tax bracket so most of my income is tax free in both countries when I move to the UK.
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