transatlantic flights with a toddler
Tomorrow we leave for an eighteen day trip to visit my husband’s family in London. But first, we have to endure an eight hour flight with our 16 month old. Yikes! I can barely keep M entertained for 20 minutes while we wait for the pediatrician. M likes wide open spaces to run, climb and destroy. I’m a little anxious about trying to keep him in such a small space for that long.
Last year, we flew when M was 6 months old. He was not really mobile but it’s hard to entertain a 6 month old. His favorite activities included nursing or being bounced by mom or dad walking up and down the aisles. This was not too much of a problem except for takeoff. For which, he pretty much screamed the whole time. We tried nursing, singing, toys to no avail.
In addition, most tranatlantic flights are overnight. Last year’s flight left at M’s bedtime and it wasn’t until dinner was served and cleaned up that the lights in the cabin were turned down. M did not sleep until this point. And then even when he did sleep it was in 20 minutes bursts. Needless to say, we were all exhausted.
This time we are taking one of the rare daytime flights. I really feel that this should improve the experience significantly. The return trip last year, which was also during the day was so much easier and calm.
So for tomorrow, I have spent weeks preparing. I researched and bought several activity toys that will hopefully entertain M for more than 15 minutes such as this. I bought new books. I’m going to Target tonight to buy trinkets and snacks. I downloaded Sesame Street and Dora onto my iPhone. I’m as ready as possible.
Lastly, I’ve been repeating to myself over and over again that a roll-with-it attitude on my part will make a huge difference to everyone.
I will let you know how it goes. Any last minute tips?
Tracking my spending
Mrs. Micah at Finance for a Freelance Life is challenging her readers to manually track their spending in February. This is something I’ve been meaning to start up again. A couple of years ago, I read “Your Money or Your Life” by Joe Dominguez and Vicki Robin and it really changed how I look at my finances. I tracked my finances manually for several months and learned a ton about where my money goes. I know for a fact that my biggest weakness in eating out. I’ve cut way back on dinners out but still have a terrible time bringing my lunch from home. With all the changes we have coming up, I feel like this would be a useful exercise to help prioritize our spending for the baby and a possible mortgage.
Currently, I’m using Mint to keep track of my expenses. I like how easy it is to check in on my finances. My favorite feature is the trends analysis. Mint creates a pie chart of your monthly expenses broken down into major categories and then you can drill down into each category to see all your expenditures. There are several drawbacks to Mint though. It doesn’t keep track of how much I save each month in relation to the other categories. In addition, because we have many accounts that we transfer funds between, it really screws up the tracking in Mint.
I truly believe that tracking and analyzing spending by hand is the most powerful way to understand where your money is going. Once you have that understanding, then you can start making significant changes.
So here goes.
Feb. 1, Sunday – total $140.80
Breakfast and to-go bagels from Einstein Bros $17.70
Last purchases at Babies’r'us before baby arrives $123.10
Feb. 2, Monday – total $27.12
Drinks and snacks at CVS $4.86
Lunch at Potbelly $6.69
Dinner at Boston Market $15.57
Join in at Where’s my money going?
Adjusting to huge changes
When I started this blog, my husband and I were just a few short months from moving to London after living in Washington, DC for 4+ years. While I knew the move was going to wreak huge changes in our lives and be very expensive, I was still looking forward to it. London is an amazing city and I was also planning to make a professional move that I’ve wanted to do for some time. A sort of fresh start. It was going to be hard, but worth it in the end.
After the holidays, my husband told me of the reservations he’d been having about the move. Bear in mind that our first child is due to arrive in 6 weeks, so we have a A LOT going on right now. Given that we both have stable jobs in DC and a network of friends, he feels it would be irresponsible to move a few months after the birth of our son without definite jobs, place to live, etc. I completely agree that the plan to move so soon after having a baby was never going to be easy and possibly a tad irresponsible, but I was ready and willing to do it. After all, we saved up plenty of funds for the move and months of living expenses, planned for over a year, and begun to wade through all the paperwork.
So we’re staying. It makes sense. But I’m having a hard time adjusting. I’m a planner. It’s hard for me to recalibrate when we’ve already gone so far down the path. In a lot of ways, I’m relieved. The move, a new baby, new jobs, new city was going to be tough. It’s much easier to stay. But I’m also disappointed. Granted, it was far more exciting for me. I didn’t grow up in London, so it still has an exotic appeal to me.
The weirdest thing, though, is that I don’t feel comfortable making the same big changes in my life now that we’re staying. I have a very secure and well-paying job in DC. I’ve been wanting to change careers for several years, but could never bring myself to take the necessary huge pay cut. By moving to London, I was starting fresh anyway, and thought is was the perfect time to enter this new field. I know this is ridiculous, but I just can’t bring myself to cut the ties yet. Plus everyone keeps telling me that starting a brand new job as a first-time mother is a recipe for disaster. I still can’t help thinking that I’m letting fear hold me back.
And lastly, I started this blog thinking I would be juggling savings, investments and taxes on both sides of the pond. It’s now going to be several years at least before that happens. Do I keep writing on the topic? It seems to be of interest to a lot of people or do I refocus given my changed circumstance?
How much of a house do you need?
I’ve been out of town for the holidays and haven’t had a lot time to write. However, being away did inspire this post. Due to the nature of my family – divorced parents and grown-up siblings – we’ve stayed in several homes this visit.
Each of the three has a very different space. One has a huge finished basement where they entertain most nights. Another has a much smaller house but they use the space very well. And the last has a large house that is far too spacious but is tough to give up.
As my husband and I currently live in a one bedroom apartment outside of Washington DC, space is at a premium. Things can be tight but we make due and we don’t really need extra space right now. That’s going to change once the baby comes, but we are mostly happy in our 700 square foot apartment.
Back in my hometown, real estate is far cheaper. My little brother owns two houses – he rents one out – but his primary residence is a spacious and comfortable 4,100 square foot home. Given that my husband and I may never own a home this size, it really points out how our choices (location, occupation, etc) affect how much house we buy.
The average square footage of a US single family home in 2007 was 2,521 sq. ft. Two of the three houses we stayed in are larger than the average. It’s been over a decade since I lived in a regular home. With college, grad school and then living in a pricey locale, I think 700 sq ft is the high water mark. To us, 2500 sq ft would be luxury!
Now that we’re moving, I really want to upgrade to at least two bedrooms but three would be great. With the baby and the increased visitors, three bedrooms would provide all the space we could ask for. However, a three bedroom apartment or house in our area could easily set you back $2000/month or $24,000/year. A mortgage would be a similar amount or potentially more.
To me the increased space comes with a high opportunity cost. Paying such a high amount in rent significantly decreases the amount of saving, travel and little luxuries that we can afford. Is it worth it to have the extra space all year instead of saving for the future or nice trips? Paying high rent also delays our buying a house. Given the market conditions, I and our potential lenders will feel much better if we have a hefty deposit.
So what it really boils down to is how important are marginal space and luxuries on a daily basis versus making progress on long-term goals?
US Income Taxes for Expats – Foreign Housing Exclusion or Deduction
Continuing my mini-series on filing your US income taxes while living and working overseas, this post will focus on how and when to use either the foreign housing exclusion or deduction.
Check out my other posts on this topic:
- Basics of US Income Taxes for Americans Living Overseas
- How to Use the US Foreign Earned Income Exclusion (FEIE)
Foreign housing exclusion vs. foreign housing deduction
There’s a very easy way to know whether you should use the exclusion or the deduction.
If you work for an employer and you pay for housing out of your salary or your employer gives you a housing allowance, then you can only use the foreign housing exclusion.
If you’re self-employed, then you use the foreign housing deduction.
If you do a little bit of both – traditional employer salary and self-employed income, then you can use both the exclusion and the deduction, but you calculate the housing exclusion first more below).
Calculating the foreign housing exclusion
First, you calculate the base housing amount which is equal to 16% of the foreign earned income exclusion, so in 2008, 16% of $87,600 is $14,016. If you are living in a foreign country for entire calendar year, you use $14,016 as your base housing amount. If you’re only there for part of the year, you multiply the $38.30/day rate by the number of full (24 hour) days you lived in the foreign country.
Next, you calculate your housing limit which is typically 30% of the foreign earned income exclusion. For 2008, the full year amount would be $26,280 or $71.80 per day if you’re only living abroad for part of a year. If you live in a high-cost locale, however, the limits can be much higher. For example the London housing limit is $82,900! A list of the 2008 housing limits can be found in the IRS form 2555 instructions.
Once you have the base housing amount and housing limit amount, you can figure your exclusion. Say your housing expenses were $2000/month or $24,000 for the year. The $24,000 is under the housing limit for a standard city, so you can use your full housing costs for the calculation. Subtract your housing costs ($24,000) from the base amount for 2008 full year ($14,016) and you have $9,984 of excludable housing expenses.
A huge drawback is that the foreign housing exclusion can only be used for rented housing. You cannot exclude the cost of paying off your mortgage or any interest payments that are deductible.
Interaction with the Foreign Earned Income Exclusion
Here is where this gets a little complicated. Once you’ve figured out your excludable housing amount, $9,984 in the above example, you subtract it from your foreign earned income. Continuing our example, if you earned $95,000 in foreign earned income - $9,984 would your foreign housing exclusion and $85,016 would be your foreign earned income exclusion.
The maximum amounts of income and housing that you could exclude at the 2008 rate would be ($87,600+($26,280-$14,016) ) $99,864 at a standard rate locale. For a high-cost city the excludable amounts could be much higher. For example, in London, you could exclude up to $156,484 ($87,600 + ($82,900-$14,016) for 2008. Bear in mind though, you would actually have to be spending the $82,900 on rent – that’s $6908 per month!
If your income is more than the maximum for your city, then you will owe US taxes on the amount over your exclusions.
Calculating the Foreign Housing Deduction
Remember, you can only use the foreign housing deduction if you have self-employment income. You use the same limits as described above for the foreign income exclusion. Your deduction amount cannot be more than your excluded foreign income.
If you are self-employed and have a regular job, you would calculate the exclusion amount first then deduct the remainder of your allowable expenses. All of this would be subject to the same limits as above. One last thing to note is that your housing deduction cannot be more than the housing exclusion.
Forms
To claim the foreign income and housing exclusions, you will need to file Form 2555 (instructions can be found here). File this form with your other tax forms.
Resources
IRS Publication 54 – Tax Guide for U.S. Citizens and Resident Aliens Abroad