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The Cyberspouse: September, 2003
The Frugal Foreign Service Family
As the Cyberspouse nears the end of her fifth, and likely last, overseas tour, she has been considering the financial costs and benefits of the Foreign Service.
Of course, this is no simple mathematical exercise. Each family's circumstances are different. But any experienced Foreign Service spouse knows that the financial equation is by no means as simple as "free house equals second income." The rent-free housing provided by the State Department is a considerable benefit, but it does not entirely offset the many expenses and opportunity costs of twenty-plus years in the Foreign Service.
The Cyberspouse has taken an informal poll of her Foreign Service friends and acquaintances, and believes it is safe to say that they are not really so different from "normal" families. Those who feel that they are financially "comfortable" have achieved that goal by one of three routes (or a combination thereof):
1.) They entered the Foreign Service with a financial cushion: either the proceeds from a previous career, an inheritance, or other substantial benefits from wealthy relatives.
2.) They have managed to maintain a substantial and consistent second income over the course of many years or are a tandem couple.
3.) They have employed most of the same financial planning strategies that other single-income families in the U.S. use in order to achieve their goals.
Which category will you fall into? And are you, the FSO, prepared to become the primary breadwinner for an indefinite period, possibly for the rest of your working life? Are you, the spouse, prepared to give up your salary, earning potential, and a substantial degree of financial independence? In short, have you calculated the costs of the Foreign Service versus the benefits?
These would be excellent questions for the Foreign Service examination! But complicated ones, indeed. It is nearly impossible to know exactly what your living expenses will be before you go overseas. On top of that, expenses will vary widely from post to post over the course of a Foreign Service career, as will job opportunities for spouses. Every family will consider different items to be essential to its quality of life, and every family will face different medical, educational, and employment challenges.
It is possible to discuss some general issues, however. The biggest and most obvious cost of the Foreign Service is the spouse's career and income. Now, many Foreign Service spouses do find a way to work, both at home and abroad. But the Cyberspouse knows as well as any other Foreign Service spouse that raw employment figures do not tell the full story. Very few spouses in fact earn as much as they would in the U.S., and once you take into account the constant interruptions due to transfers, officer training and home leave, even fewer actually have what qualifies as a professional-level income. One might even argue, with some justification, that packing and unpacking a family every two to four years while simultaneously learning new languages and navigating new cities constitutes an unpaid career and leaves no time for more profitable pursuits. There may be many rewards to being a "trailing spouse," such as the increased ability to stay home with children, but money is not generally one of them.
Clearly, most Foreign Service spouses, a highly educated, energetic, and capable lot, could be earning close to, if not more than, their officer partners if they remained in the U.S. and followed a traditional career path. But, for various reasons, they have chosen to take a different road. Meanwhile, the children still need food, clothes, braces and educations--and you don't get a discount for serving your country! How, then, to bridge the gap?
Well, Foreign Service families do enjoy free housing while posted overseas. Many point to that as a substitute for the spouse's income. But how much is that free house really worth? Let's say that if you lived in a single-family home in the Washington D.C. area you would be paying $2,500 per month in rent or mortgage, plus utilities, just to keep it simple. $2,500 x 12 = $30,000. So, you're earning the equivalent of $30,000 per year post-tax by agreeing to come overseas and live in a free house. Sounds good when you are in your twenties, or if you intended to stay home with your kids anyway. But when you're 35? Or 45? Or 55? What would you be earning by that point had you continued with your own career? How much would you have stashed away in your own retirement fund, or accumulated toward your own pension?
Given that a second professional income and pension is highly unlikely, many hope to boost their family's net worth by investing in real estate. Most Foreign Service families eventually purchase a home, often in the Washington DC area and derive tax benefits, (hopefully) increasing equity and (hopefully) rental income. While the rental income benefit is interrupted by tours in the Washington area during which one's family must live somewhere (and again, does not receive a discount for serving one's country) over time it can help bridge the gap between one and two incomes.
Let's assume that, one way or another, you've managed to purchase that rambler or Cape Cod in suburban Washington, DC. You've transferred back overseas and rented it out, possibly for a cash profit. For various reasons, however, you may decide that additional income is necessary, to pay off debts, save for college, establish your own retirement fund, get by a post with a very high cost of living, or even just to travel, which is, after all, one of the main reasons you live overseas in the first place.
There is probably some job for you at the Embassy, which has some benefits regarding future federal employment, though it is unlikely to pay very well, and it might be less intellectually challenging than the job you had in high school.
Alternatively, you can strike out on your own. Telecommuting and internet-based businesses can be a great way to integrate interesting work with a modest income. One big plus to working for a local employer, or working on contract for the Embassy (say, as post newsletter editor) is that your pay can fall under the overseas earned income exemption. This could make every dollar of your check worth quite a bit more than if you earned it in an EFM (Eligible Family Member) position.
There's another factor in the Foreign Service financial equation: the cash costs of a roaming existence. Playing musical cars, furniture and appliances; paying for weeks of housing and car rental during home leaves and R and R; mail-ordering everything from food to books to clothing; and living in countries where necessities are outlandishly priced can make substantial dent in a family's ability to save and invest.
Because the costs of the Foreign Service weigh significantly against the benefits, the Cyberspouse believes that the majority of Foreign Service families should be considered as single-income families, facing most of the same challenges that single-income families face everywhere. They must also employ most of the same strategies to "get ahead." In the absence of a true second income, taking measures to minimize the impact of the "cost of the Foreign Service" can be the best way to achieve financial goals.
Over the next few months, the Cyberspouse will point out some common expenses, both expected and unexpected, of Foreign Service life, and suggest ways of limiting or offsetting their financial impact. In some countries and in some situations, the spouse may well find herself "earning" more by saving or investing money than she could earn in the local workplace. At the very least, every non-tandem Foreign Service spouse should certainly educate herself as to the financial implications of giving up a career, and make sure that her retirement, credit, and insurance needs are addressed.
Please use the resources below to research financial planning for single-income families, and stay tuned to this web site for more money-saving tips and tricks for the Frugal Foreign Service Family!
Your purchases from amazon.com through links on this site result in a sales commission that helps fund AAFSW's activities and services!
Books:
Realities of Foreign Service Life This book, published by AAFSW, contains a lot of practical information on living overseas. A chapter on Divorce in the Foreign Service by Foreign Service spouse Ruby Carlino gives an overview of measures that every Foreign Service spouse should take to ensure her own financial well-being in the event of separation, divorce, or widowhood.
How to Raise a Family on Less Than Two Incomes. The Complete Guide to Managing Your Money Better So You Can Spend More Time With Your Kids. By Denise Topolnicki. Written by a former editor of Money magazine, this book should be required reading for all Foreign Service couples. Good advice, especially in the area of establishing financial security for the lower-income or no-income spouse.
Mr. Cheap's Washington D.C: Bargains, Factory Outlets, Deep Discount Stores, Cheap Places to Stay, Cheap Eats, and Cheap, Fun Things to Do The high cost of living in the Washington DC area is one of the chief financial hurdles for Foreign Service families.
Related articles on this site:
10 Survival Tips for Living in DC on One Income. Compiled by the parents of the AAFSW Playgroup, this article gives some insight in what life is like on Washington tours for families with small children.
Click here to discuss the "costs of the Foreign Service" on Livelines, AAFSW's email list (Foreign Service only.)
Websites:
http://www.fool.com The Cyberspouse's pick for best all-around plain English advice on personal finance. Online calculators cover questions relating to single-income families, among many others.
http://www.kiplinger.com/ Another excellent financial planning resource.
The Cyberspouse is contributed by Kelly Bembry Midura, website designer, freelance writer, stay-at-home parent, and veteran Foreign Service Spouse. Click here to read more "Cyberspouse" columns. Email Kelly at kelly@aafsw.org.