Last Updated on February 26, 2023 by hassan abbas
Financial Practices for Digital Nomads 2023
Digital nomads have come a long way. From a tech-savvy group of millennials who left their 9-5 jobs to work online from anywhere in the world, the digital nomad community is now one of the largest and most diverse in the world.
There are now digital nomads of all ages and backgrounds, from all over the world, working in a wide variety of industries. And as the community continues to grow, so do the questions about how to best manage finances as a digital nomad.
Driven largely by the rise of remote work during the peaks of the COVID-19 pandemic in 2020-21, the previously niche world of digital nomads has become more mainstream. And as more people are looking to adopt the digital nomad lifestyle, it’s important to have a clear understanding of the financial implications.
The most successful digital nomads understand that, however much they might love their lifestyle, it comes with real financial risks and challenges.
So, in this guide, we’re going to explore some of the key financial considerations for anyone thinking of becoming a digital nomad. Whether you’re a seasoned pro or just beginning to explore the possibility of working as a freelancer, this guide will give you the financial tools and knowledge to get you one step closer to your nomadic dreams.
The Reality of the Digital Nomad Lifestyle
A digital nomad is someone who uses technology to make it possible to live and work from anywhere in the world.
Digital nomads are usually self-employed and use online tools and services to manage their work, communicate with clients, and collaborate with team members. Many digital nomads are also freelancers or consultants.
The digital nomad lifestyle is often portrayed as glamorous, and it can be. But it’s important to remember that it’s still a lifestyle, with all of the same pros and cons as any other way of living.
Yes, digital nomads can:
- Earn more money than they would in a standard 9-5 job
- Save on living expenses by moving to cheaper countries
- Be their own boss
- Enjoy a lifestyle that can only be described as “cool”—traveling to new places, working from anywhere, and meeting interesting people from all over the world.
Sure, you can blend your leisure and work times into one glorious, globe-trotting whole. But you can also rack up some serious debt, have difficulty finding health insurance, and have no place to turn to once your work-from-home gigs dry up.
Avoiding Common Digital Nomad Traps
There are several traps that new digital nomads often fall into. Here are three of the most common:
Being too engrossed in your gross income
There’s nothing like seeing the large numbers in your bank account after a month of freelancing to make you feel like a boss. But those numbers are far from the whole story.
As a digital nomad, it’s important to remember that your gross income is not your net income. When you’re used to being paid a salary or an hourly wage, it can be easy to forget that as a freelancer, you now have to pay for your own healthcare, retirement savings, and taxes.
Skimping on health insurance
Because digital nomads are self-employed, they are not eligible for employer-sponsored health insurance. If you’re lucky enough to live in a country with government-sponsored health insurance, great. If not, all it takes is one serious health issue to send you into a tailspin financially.
Failing to plan for the future
Let’s be honest: the digital nomad life is pretty sweet. A few great months back-to-back can make you feel invincible—like you could do this forever.
But the truth is, digital nomads need to plan for the future just like everyone else. That means saving for retirement, even if it feels like a long way off. It also means having a plan B in case your income dries up or you get sick and can’t work.
What You Can Do: The 9 Best Financial Practices for Digital Nomads
Now that we’ve covered some of the financial traps digital nomads can fall into, let’s talk about what you can do to avoid them.
Understanding the “why” behind your finances
Before setting out on your digital nomad journey, it’s important to understand your financial goals. What draws you most to it? Is it to save money? To earn more money? To have more freedom and flexibility?
Your answer to this question will shape the way you approach your finances as a digital nomad.
If all you plan to do is carve out a steady income stream and save as much money as possible, you can probably get away with a pretty simple financial setup.
But if your goal is to earn more money so you can travel more, you’ll need to be more strategic about the way you manage your finances. You’ll need to find ways to invest your money and grow your income so you can reach your travel goals.
Get a budget up and running
Creating a budget is where your financial journey as a digital nomad truly begins.
Start by looking at your income, expenses, and goals to start shaping your budget. Make sure to account for both your fixed and variable expenses, as well as any one-time costs you might incur (like getting a new computer or phone).
Once you have a handle on your budget, the next step is to start tracking your spending. This will help you identify any areas where you’re overspending and make adjustments to your budget accordingly.
There are many different ways you can track your spending, but one of the easiest is to use a budgeting app like Mint.
Never stop investing in yourself
At its core, the digital nomad lifestyle isn’t too far off from the traditional entrepreneurial lifestyle. In both cases, your biggest asset is you.
That’s why it’s so important to keep investing in yourself, even after you’ve left the 9-to-5 world behind. You may have hated being forced to undergo mandatory training at your old job, but now that you’re a digital nomad, those skills are your bread and butter.
Make sure you’re always learning new skills and keeping up-to-date with the latest trends in your industry—making you more valuable to old clients as well as more attractive to new clients. If you’re worried about money, you can check out free online resources as you work on upskilling.
Watching your health
You already know how important health insurance can be, but if that’s out of reach, you have to pay special attention to your health.
On that note, don’t forget to set aside some time (and money) for leisure and recreation. The digital nomad lifestyle can be pretty demanding, so make sure you give yourself a chance to relax and recharge every once in a while. The time you spend here doesn’t have to be a net loss—you can even earn extra cash through online games or fun surveys while you’re at it! There are fun games and easy surveys online or through your mobile phone that you can try.
All companies know that increasing employee morale increases productivity and profits. Since you’re the only employee, it’s doubly important to make sure you’re happy and healthy!
It’s common for freelancers to submit invoices at the end of the month. One slip-up can easily lead to a missed invoice, which can in turn lead to a late payment.
To avoid this, set up a system for organizing and tracking your invoices. This could be as simple as creating a spreadsheet where you track the date each invoice is due, the client’s contact information, and the amount owed.
There are several different ways to track your finances, but one of the simplest is to use a spreadsheet. This can be as simple as creating separate tabs for income and expenses and tracking everything manually.
For a more automated solution, you can sign up for online accounting software. This will allow you to track your finances in real time and generate monthly reports with the click of a button.
Automate your finances as much as possible
With everything on your plate, it can be hard to put in your best work day in and day out.
That’s why we’re big advocates of automating your finances. This could be as simple as setting up automatic payments for your bills and transferring a set amount of money to your savings account each month.
It’s just one less thing you have to think about, and it can make a big difference in your financial health.
Build your safety net
One of the biggest challenges of being a digital nomad is that there are no safety nets. If you get sick or injured and can’t work, your income will dry up. And if you run into financial trouble, you’ll have to find a way to solve it on your own.
Aim to save three to six months of living expenses so that you know you have a cushion to fall back on if something goes wrong. You never know when you might need it, but it’s better to be safe than sorry!
Scrutinize conversion charges and other transaction fees
When you are living or working abroad, it is important to be aware of the fees associated with converting your money into the local currency. Many banks and financial institutions charge high conversion fees, which can eat into your earnings. In addition, many credit cards also charge foreign transaction fees. These fees can add up quickly, so it is important to compare different options and choose the one that is right for you.
We suggest procuring a credit card with zero foreign transaction fees, as well as a bank account that does not charge for currency conversion. This will help you keep more of your hard-earned money.
Opting for online banks
Several online banks cater to the needs of digital nomads. These banks often have low or no fees, and they offer a wide range of services, such as international money transfers and mobile banking.
Paypal remains a popular choice for digital nomads but the platform’s fees have increased in recent years. As an alternative, you may want to consider using TransferWise. This platform offers low-cost international money transfers and has a user-friendly mobile app.
The digital nomad lifestyle is far from a fairy tale. It takes a lot of hard work, dedication, and organization to make it work. But if you’re up for the challenge, it can be an incredibly rewarding experience.
By following the tips in this article, you can build a solid financial foundation that can unlock the full range of opportunities that come with being a digital nomad.