Financial Planning for a Digital Nomad Life

A few weeks ago, Sarah and I had a pretty frank discussion about what we would be doing right now if we didn’t have children. She has, at various times, expressed some interest in teaching English as a foreign language in other countries and I, being a writer who submits all of my work electronically, could effectively work anywhere.

We could effectively be nomads, in other words. Sarah could work almost anywhere where English is a desired subject. I could work almost anywhere where there is a reasonable internet connection as the work I do is essentially location independent. We could easily move on an annual basis, if not more frequently, if we so chose. We could settle in one area for six months or a year or two years, then move on.

The modern world has made this kind of nomadic life much more available to a much wider group of people. Anyone who deals in information and has a broad skill set can effectively be a digital nomad, for example, and when you mix that in with other career paths that offer some freedom and flexibility for travel (such as being a teacher of English as a foreign language), you open the barn doors wide to a life in which you’re not truly settled in any one place for your entire adult life.

That type of life creates an entirely different set of financial challenges than what most Americans face. The lifestyle offers some very clear benefits – the sheer joy of exploring the world – with some interesting restrictions, such as a lack of a permanent home and serious constraints on possessions. It’s a balancing act, and one I want to explore a little bit today.

I spent some of the time between that conversation with my wife and the writing of this article getting ahold of a few people I know who are effectively nomads. They tend to move around frequently and have jobs or businesses that enable them to continue working with a relatively high income as they do it. I asked them for the best “money tricks” they’ve figured out, and this is a compilation of those things. I intentionally excluded ideas that really only work in specific areas and specific career paths, instead sticking with stuff that works for most people who would attempt such a lifestyle.

First of all, let’s look at some of the financial benefits of being a nomad, digital or otherwise.

Minimal investment in physical goods: In order to be prepared to move constantly, nomads rarely accumulate a significant amount of stuff. If you know that you might move from Raleigh, N.C., to Kyoto, Japan, one year and then move to Barcelona, Spain, the next year and then move to Lima, Peru, the next year, you’re not going to want to deal with hauling a lot of possessions around the world.

Thus, most nomads tend to try to live out of one or two suitcases and a carry-on bag. They don’t accumulate many clothes or many possessions. That means that they don’t have to invest much of their money into nonperishables. They have no reason to own a television, for example; if they decide they want one, they’re likely to rent it, because there is a huge personal drawback to owning one, or they’ll figure out another solution to watching the programming they want to watch.

Related: The Small Bag Experiment

Small apartments: If you don’t have a lot of possessions, you don’t need a ton of space, so a small apartment works quite well for a digital nomad. If all of your possessions fit in a couple of suitcases, why exactly do you need thousands of square feet (or even hundreds)?

If you’re using small living spaces, then it’s likely that you’re paying very little in rent, too. You’re in a position where it’s almost impossible for buying a home to make sense, because the overhead of even a small house – insurance, property taxes, and so on, let alone the maintenance and other such costs – is going to be far more expensive than that of a small apartment.

Access to low cost of living areas: If you can work from anywhere, you can thus choose to live in places that have a low cost of living. For example, I can very easily work in most small towns in America, especially those that have internet access at the library. I could work in many cities around the world, in particular ones in countries with a lower cost of living than the United States.

By being an actual resident of those places, a nomad wouldn’t be facing “tourist” costs, for the most part. They could move in and avoid the tourist areas, paying much lower costs by doing what the locals do because, well, a nomad is effectively a temporary “local.”

At the same time, being a digital nomad has a bunch of drawbacks as well.

Internet access is an absolute requirement: A digital nomad submits his or her work via the internet and almost always uses a ton of digital tools to create that work, most of which use the internet in some capacity. Thus, in order to maintain a career, you have to always have access to the internet, and that means you’re often paying for it (like at a coffee shop where you are expected to buy the product they sell) or doing a ton of footwork to find free access (like at a library).

If you’re regularly working in coffee shops or restaurants, the cost of internet access is going to really add up.

Work is slow and it’s tough to “grow” a career: Unless you’re able to work really efficiently in constantly changing environments at different times with different noise levels and different internet connection qualities and different cell phone signal qualities, often without things like scanners or printers at easy convenience, you’re going to find that your productivity is much lower than if you have a true permanent (or semi-permanent) home office or desk job where all of those things are strongly established. These factors cut into your daily productivity, which makes it harder to grow a career or a business (though you can definitely maintain one).

Travel costs are high: Even if you’re settling in a new area for a year at a time, you’re still moving once a year. That means finding and paying deposits on a new apartment and perhaps new utilities. If you’re traveling internationally, that means paying for visas and other travel-related costs. If you’re staying for longer periods, then you’re not really a nomad any more and you’re settling in. If you have reasons to ever travel back home, that’s going to also add to your travel costs – it turns out that family ties are quite expensive when you live on the other side of the country or of the world.

If you travel internationally, money management can be tricky: You’re going to have to learn about transferring money from country to country and what the rules are for banking within another country. Typically, you won’t be able to just keep using the same bank you always have and the same accounts you always have, and moving money across the border can be challenging.

Given these factors, here are some strategies for financial planning for people who are digital nomads or are considering becoming digital nomads.

Build a career or a business that allows you to be location-independent.

If you don’t have this as a ground floor, you’re not going to be able to be a nomad unless you’re willing to accept entry-level work wherever you go. What the internet provides, really, is the possibility of a job that pays well without location dependence, which is what makes a nomadic lifestyle really work today. Without that kind of established career or business, you’re going to be relying on entry-level work wherever you go, which provides no financial security at all. You can do that, of course, but it’s not going to provide you with a viable long-term financial future. When you’re older and much less able to get around, what will you have?

Building a business or a career that gives you location independence and enough income to spend significantly less than you earn gives you a great deal of freedom. You don’t have the weight of an uncertain future around your neck while doing this because, eventually, you’ll be able to rely on the money you’ve saved and no longer need to work, which is a destination that eventually everyone reaches as they age. You also have the financial flexibility you need to get up and move when it feels right to do so.

How do you do this? Well, you need to either move into a career path that allows for total telecommuting or build a business that gives you the same freedom. In terms of careers, many IT and computer programming jobs allow this, as do many different sales jobs and some jobs in the medical and health related fields. Some design jobs allow this, too. As for businesses, things like running a YouTube channel or blogging or podcasting can allow for being a digital nomad, but it’s going to take a lot of work to build these things before it’s sustainable. If you have a career to piggyback on, you may find that a consulting business can work well for being a nomad, too.

Establish a ‘home country’ where you intend to live when you’re finished.

This is the country where you should have your primary savings, particularly retirement savings. It’s the place you’ll go to when your years of being a nomad come to a close. This also gives you a basis by which to study the laws and understand how funds can be transferred into and out of that country. You’ll mostly want to be sending money into that country. You’ll likely want to retain citizenship there and also want to understand the travel restrictions for citizens living abroad.

So, let’s say you choose the United States, but you’re now thinking of living in Thailand for a year. You’ll then need to study travel and banking relationships between Thailand and the United States. How long can you stay there? What documentation will you need? How easy is it to transfer money from Thailand to the United States? How will taxes work?

One big advantage of having a singular “home country” is that most of the knowledge you pick up is transferable. Many of the relationships that one nation has with other nations are the same between all of those other nations, so you’ll quickly learn how to be a U.S. citizen abroad or a Canadian citizen abroad or whatever you may choose.

You may find that a different home country suits your needs later on in your travels, depending on the relationships that you build, and that’s fine, but that’s a bridge you can cross later on.

Keep most of your accounts in that home country, along with things like insurance.

In general, you’ll want to do all of your financial planning within your home country. You’ll want to find out how insurance coverage works when you’re abroad, particularly health insurance. For example, if you’re a U.S. citizen living in Thailand, what are your health care options?

You’ll definitely want to have retirement accounts in the country you intend to wind up in, because it will make your retirement years much easier. You don’t have to worry about the nuance of moving retirement accounts across borders, because you’ll likely be hit with a large amount of taxes when you attempt to do so. Even if you choose to reside abroad for a very long time, it may still make sense to leave the accounts in your “home country,” whichever it may be.

If at all possible, keep your actual pay within that country as well and only transfer out your living expenses as needed. If you can get paid in your home country, put money into retirement in that country, keep your primary banking in that country, and only transfer funds into your current living area as needed, it keeps everything much simpler.

Open local accounts as necessary for your work, but close them out when you leave.

In terms of paying the bills and covering expenses where you happen to be living, nothing beats the convenience of local banking options. Just open an account at a local financial institution, transfer money in from your “real” bank in your home country to live off of, and then empty out and close that account when you’re leaving the area. It’s that simple.

This allows you to keep all of your primary financial accounts in your home country where you have a strong understanding of the rules and minimizes your financial dealings in a country where you may not know all of the rules. If the local economy runs into trouble or you find yourself dealing with some other issues in that area, you’ll find it’s much better to have all of your assets somewhere else. You can leave easily and never return.

I highly recommend choosing large international banks for your local banking services. The large multinational banks are stable and are very friendly to moves abroad. You may even find that you can maintain a “local” account with them as you move around.

Establish a tight budget for yourself that ensures you spend far less than you earn in a typical month and save the difference.

If you’re choosing a digital nomad’s lifestyle, you’re going to want to keep your day-to-day expenses very low, and that means living by a tight budget. Know what you’re spending on housing, on food, on utilities, on local working expenses (like internet access and cell phones), on entertainment, on local exploration, and stick to it. Put a strong cap on all of your variable areas of spending (like entertainment) so that you have a firm grip on the money you’re transferring in and don’t need to “top it off” with extra funding.

That way, you can pretty much automate all of your finances. You can set things up so that you’re paid automatically into your primary checking account, and from that checking account you’re putting money aside for taxes, putting money aside for retirement, and transferring money to yourself locally for day-to-day use. Your budget is automatic and thus it becomes really easy.

It is a good idea to maintain a local “buffer” – an emergency fund – that provides enough money for you to survive for a few days and get a plane ticket out of the area if an emergency occurs. You don’t want to be caught empty handed in a true emergency where your job or your business is collapsing or the local economy is collapsing or a disaster is imminent. Cash is king, so make sure you have a pool of cash always available.

Borrow things instead of buying them.

If you’re only living in a place for a short while, it makes little sense to buy things to keep permanently. Instead, you should focus on borrowing things and renting things. Rent a furnished place to live, or else buy inexpensive furnishings locally that you can quickly resell when you leave. If you need tools, find ways to borrow or rent them locally. Use libraries and other lending institutions.

You’re far better off paying a little to borrow something than paying a lot to own something that you can’t take with you. Basically, view everything that’s not in your suitcase as something you won’t own a year from now and make decisions accordingly.

Know all of the local rules for emergencies and health care as soon as you arrive.

What exactly do you need to do if you have a health care situation? Who do you call? How will you pay for it? You should research this before you ever leave and one of your first tasks upon arrival is to make sure you’ve done everything you can to make these things as smooth as possible. Not doing this can result in a gigantic bill simply because you didn’t know the local rules.

Have a very clear backup plan for your career and your life.

The world changes. Sometimes, what seems like a brilliant idea one year can turn out to be a disastrous one the next year.

No matter how well a digital nomad life seems to be going, make sure that you always have an “escape plan.” What happens if your business collapses? What happens if you lose your job? What happens if you need to go back home to care for an ailing loved one? What if you fall in love? What happens if you get completely bored with your work and lifestyle (trust me, even the most exciting things can become boring as your personality changes, and vice versa)?

You should have a very clear backup plan for each of these situations, particularly the ones where your job or career or business stagnates or fails. You do not want to find yourself sitting halfway around the world with no exit plan if a pink slip suddenly arrives or if you find that your business is losing its primary revenue stream.

What does that plan look like? It should include a plan for getting back to a stable base in your “home country” and then devising the next step in your career.

Coming up with this plan will probably point you toward things you should be doing now to keep some lifelines afloat. You should be maintaining a professional network and a personal network all over the world. You should be keeping your skills sharp as they relate to your field of choice. You probably want to make sure that your name is staying out there in relation to your field, too, so that you have some things to point to if you need to find new employment or revenue streams.

Never forget one key thing: Financial independence frees you from all of the job worries.

The big thing to keep in mind, if you find that you love this kind of life, is true financial independence – meaning having enough money saved and invested so that you can continue to live your life off of only part of the returns on those investments (so the investments will still keep growing and keep up with inflation). Then you can become a true nomad, spending all of your time exploring the various places you’re living and learning about the local cultures.

It’s that attraction that usually convinces people to switch to a nomadic lifestyle, and financial independence means that not only can you continue being a nomad, but you free yourself up from another lifeline that’s holding you back from the freedom to explore.

What does that mean in terms of financial planning? Live. Cheap. That should underline everything you do as a nomad. Live in low-cost areas. Don’t spend much money. Bank everything you can. Head toward financial independence as quickly as possible. If you can do that, the world is your oyster.

Good luck.

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