What is a digital nomad? They are freelancers, independent contractors, bloggers, and employees who prefer remote work to an office. If you become a digital nomad, it means you want to have the freedom of having a career without sitting in an office.
While there are many obvious benefits of working remotely, you should also make some significant financial considerations when you decide to live on the road.
Upgrading your financial literacy by getting free finance-related insights on different free platforms, such on Fit My Money can be the first step to that.
So keep on reading to find out the next steps for being financially ready for the digital nomad lifestyle.
Are You A Digital Nomad?
Now that you know the digital nomad meaning, it’s time to ask yourself whether you are this type of employee. Maybe you would like to try this lifestyle and start living on the road full-time.
When bloggers and freelancers begin working remotely, they don’t usually focus on their personal finances. Most people start making extra money as a side hustle. However, your main goal is to earn more funds in the long run and turn it into a full-time job.
In 2022, the main benefit to working remotely worldwide was the ability to have a flexible schedule with 67 percent of respondents naming it as the biggest advantage of remote work, according to Statista. The flexibility to work from any location ranked second, as you can see from this chart.
While your monthly income as a digital nomad starts to go up, you will understand the importance of managing your money. From paying taxes to saving and establishing an emergency fund, these are the main financial tips for digital nomads.
Budgeting for Digital Nomads
Everyone needs a budget. There are plenty of digital nomad jobs these days. Every employee needs to have a monthly budget to help manage personal funds and avoid overspending. When travel expenses account for a major chunk of your monthly and your paycheck isn’t regular yet, budgeting can help you significantly.
Two main elements comprise your budget: what you make and what you spend. Many digital nomads don’t know what their precise monthly income is as their earnings aren’t consistent.
You may calculate the average income for the last 12 months or utilize the lowest income you’ve had during this period. Why is budgeting beneficial? It helps people plan their expenses and prevent the risk of overspending.
You need to calculate your monthly essentials – this is what you have to pay for each month including rent, insurance, travel costs, groceries, and mobile phone or internet expenses.
Remember that if you have any crediting obligations such as student loans, personal loans, or credit cards, you also need to include debt payments into essential expenses. Saving is another priority to keep in mind.
Making an emergency fund is important especially when your monthly income fluctuates. Any unpredicted costs will be easier to cover using your own emergency fund.
Financial Planning Tips for Digital Nomads
1. Save Cash Before You Leave
Firstly, you need to take the life changes seriously. If you are about to leave and start living on the road, you need to set some funds aside. Establish a solid savings account to help you overcome temporary difficulties and have enough money to cover at least three months’ worth of living expenses.
This is a general rule for all digital nomads including bloggers and freelancers. While you plan to travel a lot, you never know what unforeseen costs might expect you there.
2. Avoid Debt
It may be tempting to spend more than you earn especially when you are always traveling. You need to avoid debt and make sure you spend your own finances to cover all the expenses.
People may be tempted to dip into their savings account or emergency fund each time they want to make a big-ticket purchase. However, you need to understand that parties and brand new jeans might not qualify as an emergency.
If you already have some type of debt including credit cards, personal loans, or student loans, you should try to consolidate it and make it low interest.
Concentrate on repaying high-interest debt before you go on the road. Create a budget and stick to it so that it becomes easier to manage your finances without getting into debt.
3. Remember About Retirement Fund
Many people underestimate the importance of making a retirement fund as soon as you start working. While your savings account and emergency fund will help you cover planned or urgent expenses, your retirement fund is meant to help you retire comfortably.
You need to think about it in advance. If you are an independent contractor or a freelancer, you won’t have a regular 401(k). You will need to save cash on your own and be more self-organized. You may want to try a solo 401(k) plan, a SEP, or Roth IRA.
These are affordable options for easy retirement savings that provide some tax benefits as well. Return to your monthly budget and calculate a portion of your income that can be set aside for the retirement fund.
If you are thinking of becoming a digital nomad, you need to remember about your financial responsibilities. Being away from home and regular full-time work means you take full responsibility and become more self-organized to deal with financial disruptions and obligations.
Living on the road still requires you to think about financial aspects of your life and keep on saving and setting cash aside for your retirement fund.
Traveling and living in foreign countries will become a great experience for you if you plan your personal finances accordingly. Also, you may request a credit card with no foreign transaction fee to help you save on daily expenses.
Make sure you have a budget and avoid overspending to remain financially afloat and put yourself in a great position for the future.