How to fund your year
During our year away, one of the areas where we had to be very organized was in managing our finances. Every family or couple manages this differently depending on their circumstance but it is one area that you want to have planned well as you do not want to be worrying about your finances while on your big adventure.
For us, we were lucky that my husband was able to take long service leave at half pay for nine months then worked remotely from Spain to Australia for the remainder. I took a year’s leave without pay from my employment and we rented our home in Sydney, which covered the mortgage as well as our rent in Granada. Rent in Spain is generally quite affordable compared to most international cities.
Saving money or living off assets
Some families save for years to be able to live in Spain for a year or sell some key assets to live on while others are able to work remotely from Spain and still earn an income to fund their time away. Some live off the rent of their home or properties back home.
Everyone does it differently however the general rule is, the cost of living in most parts of Spain is less than most parts of the UK, USA, Canada, Australia or New Zealand, provided exchange rates don't fluctuate too dramatically.
Cost of living in Spain
From our general experience, we found that housing, food, services and activities were all accessible and affordable however electricity, fuel and transport costs were higher.
Here is a summary of cost of living in Spain from Numbeo. This provides a detailed picture of the cost of daily items.
Budgeting with fluctuating exchange rates
One obvious area of our finances that we hadn’t taken into account was the fluctuating value of the Australian dollar during our time away. We had based our entire budget on the value of the dollar at the time of departure, which happened to be unprecedentedly strong. Half way through the year, the dollar dropped in value by 15% and subsequently gouged a hole in our budget. I recommend doing some contingency budgeting, which we unfortunately wished we had done.
Paying taxes back home
Another interesting facet of our financial preparations was that we had to pay tax on the rental income of our home in Sydney. The fact that our annual income was less than half of what it usually was, meant that the tax on the rent was nominal however for other people this may not be the case so keep in mind any tax implications of renting out your home or living abroad.
Avoiding international transfer fees
Since we were earning money in Australia but living and spending it in Spain, we had to find the best way to transfer it overseas. We knew that international bank transfers were costly and time-consuming so we researched alternatives. Our solution was a credit card and separate debit card that incurred no international currency conversion or transaction fees. We used the credit card for most of our purchases while the debit card allowed us to withdraw any amount of cash from any ATM machine without incurring fees. We paid our credit card bill in full on a monthly basis to avoid paying interest and we ensured the separate debit account always had sufficient funds to be able to withdraw cash whenever we needed it.
Fee-free credit and debit cards
An excellent debit card which is free and can be used in Spain is N26. What I like about this card is that you can link it to transferwise, apple pay and google pay and use it freely in Europe. You can use it as a credit card or to withdraw money. Find out more here.
For Australians one of the best Australian credit cards for overseas travel is 28 degrees issued via GE Money which is one of the few cards on offer with no overseas transaction fees or currency conversion fees when purchasing items using the credit card. Do not use this to withdraw cash as there are significant fees for this. For cash withdrawals Citibank offers a debit card from which you can withdraw cash at any ATM overseas with no international conversion or transaction fees however you must have money in your account. For Americans, here is a list of overseas fee free credit and debit cards available in the USA.
When we couldn't avoid having to do an international bank transfer we discovered the great new efficient and cheap service called Transferwise. It is an excellent service to avoid exorbitant bank fees and low exchange rate.
Opening a local bank account
There were a few transactions in Spain that required us to have a local Spanish bank account (e.g. Direct debit payments for the children’s school costs and lunches) so we opened a local bank account for those purposes. As foreigners, we had to jump through a few additional hoops and pay higher administration rates to open the account but once we accomplished that, we deposited one large sum of money into the account and progressively used the funds throughout the year.
In order to open a bank account in a local Spanish bank you will initially have to open it as a foreigner which will cost more in monthly fees and will have to take out an expensive insurance policy. However, once you become a resident and have your NIE number, you can change your account into a resident account which will reduce the fees significantly.
There is another bank called Triodos which has branches in the major Spanish cities and a few other popular locations. This bank has a much easier process for foreigners to open a bank account as they do not require you to buy any type of insurance (unlike Spanish Banks), you can open an account with just your passport or your NIE card, there are no ATM fees, and they conduct international transfers from overseas accounts without any hassle. In addition, they use the money they're holding to invest in sustainable endeavours and third world start ups.