Ok, let’s talk about money today. Although there are so many advantages of a digital nomad lifestyle, money matters can, in fact, be a little bit complicated. As a perpetual traveler, you will face a lot of financial issues that can be annoying, time-consuming and quite expensive if you don’t handle them the right way. Not knowing about certain things, for example, taxes can cause you much trouble. That’s why it’s important to learn more about this topic so you will be able to manage your finances as a digital nomad without any difficulties or unnecessary expenses.
Before You Start Your Digital Nomad Life
To be completely prepared, you should start taking care of your finances before you leave. Here is what’s important now:
1. Get Rid Of Your Debts
I know it sounds harsh. But you should really try your best to get rid of your debts or at least minimize them as much as possible, before you start your new lifestyle. This new beginning can be hard enough and you will have to deal with so many issues and things you have to take care of. The last thing you want is to have the additional burden of a huge study loan or mortgage.
Most people start a new career when they decide to become a digital nomad. That means finding a new job and you never know how long that can take. In case you want to work as a freelancer or start your own business, your income is never guaranteed. Your income situation will most likely not be as stable as it is now.
In addition, you travel around a lot. You move to different countries and want to explore the regions. Yes, traveling can be very cheap, especially in popular regions like Southeast Asia. But of course, you want to enjoy that new and exciting life and don’t want to constantly restrict yourself because of your debts.
So do yourself a favor and sort out your debts before you leave.
2. Save Enough Money
I know, getting rid of debts AND saving money at the same time seems to be impossible. But as already mentioned, your upcoming lifestyle will be very unstable. Especially in the beginning, when you have to settle in, find your own rhythm and find a way to generate enough income. That can take a while.
That’s why I recommend saving enough money so you can live without any income for at least 3-6 months. Your money should cover at least:
- Travel expenses, e.g. flights, buses
- Entertainment, e.g. day trips, museums, festivals
- Travel Insurance
In another blog post, I have talked about this in more detail. So if you want to find out how much money you have to put aside EXACTLY before you start your new lifestyle, click on the linked article.
3. Find a Location-Independent Job Early
This might be one of the best pieces of advice I can give you: Find a location-independent job before you leave. This will make your life so much easier!
Of course, you can simply quit your job, book a flight a find a way to make money online once you are traveling. But it will be harder. First, you have to manage two things at the same time: Traveling and looking for jobs. That means you will be busy all the time with planning and organizing trips or places to stay and looking for jobs.
And second, you always have the pressure that you don’t earn money right now and that you need to find a way to generate income online asap. This takes away a lot of joy. You just won’t be able to enjoy your new lifestyle.
That’s why it’s best to take care of that part before you leave. When you are still living at home and have your secure job and income, you can easily start looking for potential opportunities after work or on the weekends. Build your portfolio, start networking, look for clients and get your first few jobs so you get experience and good reviews.
You don’t need to juggle two full-time jobs at the same time! But if possible, you could start your location-independent job with a few hours a week and switch to full-time once you have quit your old job. This will make things so much easier, trust me!
While You Are On The Road
You are also going to approach a lot of financial issues once you have started your trip and move from one country to another. Here are your main struggles and what you can do about them:
1. Paying Taxes in your Home Country
Definitely one of the most annoying parts of being a nomad is dealing with taxes. Many people assume that they don’t have to pay taxes in their home country anymore, once they have left. Unfortunately, it is not that easy.
Some countries will give you a tax exemption when you prove that you are now a resident in another country and pay your taxes there. Other countries might not require a new residency somewhere but they won’t allow you to keep any ties in your home country, for example, a second home, bank accounts, or close family members. And if you are from the USA you will have an even harder time getting out of the national taxation system.
Since there are too many factors involved which all depend on your home country’s regulations, I can’t give any specific advice here. The only thing I can tell you is: Do your research and make sure that you really don’t have to pay taxes anymore in your home country before you get yourself into trouble.
Get advice at your local tax office and check out Facebook groups such as Tax and Residency Solutions for Digital Nomads to exchange with people in a similar situation.
2. Paying Taxes in the Country You Are Traveling To
Yes, it gets even more complicated. Regardless of the fact that you have to pay taxes in your home country or not, you might also be liable for taxation in the country you are currently living in. But this differs from one country to another, too.
Countries with territorial taxation, e.g. Panama or Singapore, only demand income taxes if your income is sourced in that country. If you live there but earn money online and not in this country, then you won’t have to pay income taxes there.
Then there are countries with residential taxation, which means you have to pay income tax on all income no matter where it is sourced. However, many countries, for example, Spain, only see you as a resident for tax purposes if you are staying 183 days or longer in the country. This means, if you want to avoid income taxes in that country, don’t stay longer than half a year.
(Note: These rules are, of course, simplified. In reality, there are a few more factors involved. This is only to give you an idea.)
If you want to learn more about how you can optimize your tax situation as a digital nomad, check out the linked post.
The first thing that pops in my head when I think of banking as a digital nomad is the fact that you might not be able to keep your current bank account. If you decide to not stay a resident in your home country anymore, many banks won’t allow you to keep your account there. You should double-check the fine print in your contract and ask your bank.
Either way, it is probably a good idea to get an international bank account. There are some banks out there, for example, N26 or Revolut, where you can apply for an account online (they don’t have local branches, it’s all online). If you end up with a good one, they won’t charge you a monthly fee and, super important, no fees for withdrawing money at ATMs around the world. It might only be a few dollars each time, but trust me it will add up to A LOT!
I’ve been using N26 for a few years now and LOVE it. Check out this review on N26 and learn how you can save money using their bank accounts while traveling.
4. Transfer Money
When you travel a lot and maybe have bank accounts in several countries, you will sooner or later have to transfer money from one currency to another. Only problem: This is usually super expensive and takes a couple of days.
That’s why I don’t recommend using a normal bank transfer. Look for other transfer companies, that can send your money cheaper and quicker.
My go-to service for a couple of years now is Wise, formerly TransferWise. They are super-fast (usually within a day or two) and use the real market exchange rate, so the exchange rate that banks are using. There are no hidden charges or anything. To me, it is simply the best solution for money transactions and I can only highly recommend Wise.
If you want to find out more about this money transfer service, check out the review I wrote about Wise.
5. Getting Paid
Now this one is fairly similar to the money transfer issue. When you work in one country and your clients or employers are based in another, they have to send you your payment somehow.
Often they want to use PayPal, simply because it is commonly used and very easy. However, PayPal fees are ridiculously high. You don’t want to pay that in the long run.
One way to avoid this could be an international bank account, as mentioned above. Maybe you are lucky and there are only a little or even no fees when you receive payments on this account. Check out what rules apply.
Another way is again using a money transfer company. Instead of using PayPal, ask your clients to send you your payment via e.g. Wise. It is very easy and quick to use and will save you so much money.
Did you know that Wise also offers bank accounts? And at great conditions, too! With that account, your clients can make a normal local transfer in USD, EUR, AUD and GBP and you don’t have to pay any fees. Head over to their website to check out their bank account options.
6. Keeping Track of your Money
Especially in the beginning when everything is new and you have to get a bit of a routine in your new lifestyle, your income and expenses will be super chaotic. To not lose track of it, you should track your flow of funds.
The easiest way would be an excel sheet where you write down what you have spent on a daily or weekly basis. You should list everything from accommodation, to food, transport, insurance plan, internet, or entertainment.
To keep your budget and savings in mind, also make a plan for what you can spend on a maximum each month without ending up broke. This helps you control your finances until you have a better feeling about your new lifestyle.
Also, don’t forget to list your business expenses and income. This might also help you later in case you have to pay income taxes.
Make The Most of Your Finances as a Digital Nomad
As you can see, there are quite a few financial things you have to take care of when you are a digital nomad. It’s not only about saving enough money, reducing your debts and finding a location-independent job before you leave.
You should also make sure you have your tax situation sorted. Know which countries you have to pay taxes and where you are exempt from income taxation.
Get an account with a bank that doesn’t charge fees for international withdrawals. When you have to transfer money from one country to another, use specialized services, such as Wise, formerly TransferWise. You can also use these services to get paid if you want to avoid high PayPal fees.
In addition, make sure to keep track of your expenses. Especially at the beginning of your new lifestyle, everything will be slightly chaotic. So until you have settled in and have a better feeling for how much you can spend on what, find a way to keep an overview.
Yes, it might sound complicated but I promise managing your finances as a digital nomad is not that bad. Once you are living this lifestyle for a while, everything will be easier and you know how to deal with the common difficulties.