How Do I Minimize FX Costs?
So, as a full-time traveler, how do you minimize the risk of major changes in foreign exchange rate (FX)?
- Start by recognising that FX rates change by the second
- Good rates vs Bad rates are your interpretation only. They may not have any significance for you.
- Ensuring you have enough money to have a decent lifestyle in a foreign country is the key
- If the FX rate is volatile, and you have time, you might want to start buying the foreign currency when it's cheaper
FX Rates Change by the Second
The first thing to recognise is that foreign exchange rates change by the second.
When looking over a period of months they could be 10%, 20% or even 50% different.
That change could be better, or it could be worse for you.
At the time of writing this KB Article the US Dollar has dropped 10% against the Euro in 6 weeks.
Which means that if you were travelling Europe but earning USD your money your costs were 10% higher this month than a few months ago. However if you were earning Euro and traveling countries that use the US Dollar then your costs were 10% lower recently.
If Rates are now 'bad' what does that really mean?
People in everyday conversation to refer to FX rates being 'good' or 'bad'.
Usually this means that from their point of view their preferred currency either buys more or less in another currency.
It's a perception thing based on their opinion from another point in time.
But really does it mean anything for your travel decisions?
Will you actually change your plans based on changing FX rates? Many people won't. They might grumble a little about not grabbing the opportunity to go to a particular country earlier but ultimately we find most people that change their plans solely on different FX rates.
So recognise it’s a reference point in your mind.
Build Up Your Foreign Currency Reserves Ahead of Time
It sounds a little like a corporate giant or a Government Treasury department but the idea of buying foreign currency when its 'cheap' and storing it until you need it is a sound strategy.
You could find your costs of living come down 20%, or more. over a year before landing in a new country.
Multi-currency bank accounts are now quite common and cheap to maintain. Major international banks (HSBC, Citibank etc.) will let you open free accounts in currencies foreign to your home currency.
Neo-banks (Wise, Revolut, Payoneer, et.) made a name for themselves in recent years with easy debit cards and loads of foreign currency accounts available instantly online.
Buying and selling small amounts of foreign currencies is now quite simple and instant.
Notifications from your bank when FX rates hit your desired price range are also common now, which helps your time the purchases easier.
NB: Just be wary that some neo-banks don't offer 'insurance' on your accounts so may not compensate you for any fraud or hacking.
Also be aware of the 'FX fees', the charges your bank will hit you with for the service of allowing you to buy and sell foreign currencies.