Taking the plunge into a digital nomad lifestyle can be overwhelming. Where do you start? How much money will you need? How will you know how much you need to earn to sustain yourself? Being a digital nomad requires planning. Before you leave, you should start tracking and analyzing your budget, and figure out a basic plan for the first several months of traveling. Being spontaneous is good, but only after you have a basic framework in mind. It’s very important to understand how to manage your finances as a digital nomad.
When I quit my job to travel three years ago, I had no intention of working at the same time. My budget and calculations were only based on startup costs and travel costs. Since I wasn’t planning to work at that point, sticking to a budget was even more important for me. I started planning about eight months in advance.
If you’re just starting to consider the digital nomad lifestyle, you should start by figuring out your budget for the first several months to a year of working while traveling. The planning stage should happen several months before you plan to leave. Here’s how to start planning in order to make the digital nomad life a reality!
How to Manage Your Finances as a Digital Nomad
Figure Out Your Budget
How should you manage your finances as a digital nomad? The first step is figuring out your costs and how much money you’ll need. Here’s what I did to prepare for my first long-term trip, plus a few extra considerations for long-term travel while working.
1. Analyze and Reduce Monthly Spending – I got rid of many recurring charges that I would not need traveling. I stopped getting take-out for dinner all the time. I got rid of expensive memberships for the gym, Costco, and Hulu. I stopped buying expensive tickets for concerts, events, half marathons, and weekend trips. I also stopped shopping for anything new that wasn’t related to my long-term trip. I didn’t stop living before I left, but I opted for less expensive options that really added up.
2. Sell Your Stuff – Owning stuff costs money, whether it’s kept in an apartment or a storage unit. I started selling my stuff about two months before I left. I could have done it in two weeks but I wanted to get the best prices possible. I earned a few thousand dollars selling most of my furniture and appliances. I mostly used craigslist and OfferUp. Selling clothes and other items on eBay and Poshmark are good alternatives as well (use promo code CROSSEDTHREADS on Poshmark for $10 free credit).
If you have a free place to store your car that’s great, but remember that you’ll still be paying insurance and other costs while you travel. I kept my car during my first long-term trip, because I didn’t know exactly what I’d do next. I called my insurance company and had my rate reduced for the year since I wouldn’t be driving, so I was able to minimize that cost. It wasn’t until my second longer trip that I sold my car. Becoming a digital nomad isn’t all or nothing. Doing it in stages may be the smartest option for you.
3. Figure Out Your Card Strategy – You’ll need a credit card and a debit card with no international fees. The credit card should earn you some kind of travel reward like miles or points. I opened a Chase Sapphire Preferred about eight months before I planned to leave. With this card I earn points that can be transferred to airlines or hotels. This card is the best option for me because I can transfer to United and Southwest, which are both major airlines that fly into my home airport in San Francisco.
Most travel rewards cards require that you spend a certain amount ($3000 – $4000) in the first three months in order to get the sign-up bonus, so it’s important to open this card when you know you have some large expenses to pay off.
Once I earned my initial startup bonus I was able to purchase the major international flights using United and Southwest miles. I started with a Southwest flight to Belize, then went from Belize to Peru on United points. I waited a few months longer to earn more points before buying the most expensive leg of my flight, from Santiago, Chile to Auckland, New Zealand. I wanted to do this around Christmas time, and many flights required that I fly through the US, so I was able to purchase two separate legs to connect through San Francisco. I did all this with credit card points!
The best travel rewards card will depend heavily on which airline services your home airport, and where you plan to travel as a digital nomad. One of the best things about using frequent flier miles is that sometimes you can find cheap deals between regions even when the cash price is super expensive. The other benefit is that you can get reasonable deals on one-way tickets that won’t be available when paying with cash. I have recently upgraded to the Chase Sapphire Reserve, which has a higher fee but also offers VIP airport lounge access. There are many websites that discuss the whole process of credit card points travel, so you can find an option that works best for your needs.
You’ll also need an ATM card with no international fees. Many digital nomads use the Schwab Bank High Yield Investor Checking Account because it has no international fees. It’s a good idea to have a lower balance travel cash account that isn’t linked to all your finances at home, just in case you get robbed or forced to withdraw money. I’ve also had great experience with their customer service while abroad. Sometimes foreign ATMs will just run out of cash even when you’ve been charged for the withdrawal. Schwab has done a great job getting that money back to me in situations when I’m hundreds of miles away from the offending ATM.
4. Research, Research, Research! You probably have some idea of where you’d like to go, right? I did. My plan involved half a year in South America, then half a year in South East Asia. I didn’t end up following this plan exactly, but it did give me a good starting place for my budget. I estimated that I’d spend about one month in each country.
Lodging Budget – I made a list of all the countries I thought I might visit. For each country I looked up several different hostels that looked promising in several cities. I figured out the average cost of lodging per night in each country.
Food – Food budget will take a bit more research on travel blogs and forums. This will vary quite a bit depending on whether you are happy with street food or want to experience more upscale restaurants. I always try to stay at hostels with kitchens or AirBnBs and buy groceries. I used my food budget in the U.S. as a starting point, then reduced it based of previous travel experience regarding cost of living in similar regions. Give yourself a little extra padding on this number.
Activities – I try to do the free or cheap options when possible, like free walking tours. I figured out one splurge activity in each country, and added that into my estimate.
Local Travel – In some countries, you can go hundreds of miles for a few dollars on cheap long-distance buses. In other places you might need to rent an expensive car to move between locations. Rome2Rio is a great website to figure out local travel options with pricing information.
Work-Related Expenses – This category will include Wi-Fi or extra SIM cards, fees for coworking spaces, VPN fees, additional monthly software subscriptions, and any other recurring fees that allow you to work while traveling. These might be combined with your lodging costs, or they might be additional charges to take into account when making your budget.
Other Recurring Fees – Health and travel insurance will be the most important recurring fee, followed by your cell phone or data plan. World Nomads generally makes you pay upfront, while SafetyWing charges for coverage on a monthly basis. Don’t forget all the other little monthly fees like Netflix. Even though they are small, they do add up!
Travel between Countries – Travel within a single country is almost always cheap. Travel between countries can add up fast, as there may be fewer international transit options. Research a few scenarios to get an idea how much you’ll need to move around.
5. Have an Emergency Fund – Sometimes, just throwing cash at the problem will make it go away. Cash is king, even more so while traveling. Emergencies will happen- natural disasters, lost luggage, injuries, and political unrest. Insurance can take a long time to reimburse you even if something is covered, so make sure you are prepared! An emergency fund includes cash on hand and cash in the bank.
6. Figure Out Startup Costs – This includes pre-paid insurance, vaccinations, gear purchases, visas, and maybe a passport renewal. Some visas require you to apply before you get to the country, while other visas may be granted on arrival at the airport. Check the U.S. State Department website to figure out what you’ll need to spend in advance.
7. Put It All Together – Once you’ve figured out all of these variables, you can put together a framework monthly budget that works for you. From here you can determine just how much money you’ll need to make while working, and how many hours you’ll need to work per week.
Managing Finances When You’re Already Traveling
Many of you are past this stage, and already working while traveling! What should you do to maintain your digital nomad lifestyle and plan for the future?
Keep Tracking Your Finances – I do everything in Excel. There are other free spreadsheet options like Google Sheets, or you can use a variety of apps like Mint to help you with this task. It’s easy to go over budget when you are constantly moving around, using different currencies, and figuring out your neighborhood every month. Take a little time each week or each month to track all your expenses, including the cash transactions.
Improve Your Income Streams – Long term, you’ll want to think about passive income streams that allow you to earn money with minimal or no work. This can be anything from selling products, books, or courses online to owning rental properties. Digital Nomad Quest already has several articles discussing this topic!
Upgrade Your Skills and Portfolio – In addition to working less, you should be thinking about how to upgrade your skills so that you can make more money per hour. You should also be thinking about keeping work samples that you can show potential clients to get bigger contracts.
Save for Retirement – Start off with saving for your emergency fund, then keep adding to your savings. At that point you should consider investing with something basic like an index fund, and/or a retirement account like a Roth IRA.
Don’t Forget Taxes – This can be tricky for U.S. citizens. You still have to file taxes every year, even if you don’t owe. If you are physically outside the U.S. for 11 months of the year, you can claim the Foreign Earned Income Exclusion credit. That said, if you are working as an independent contractor you may need to pay self-employment taxes too. Taxes will really depend on your own situation, and I am not a tax expert, so you’ll need to do some research on your own. That said, I’ve always been able to file my taxes online while traveling.
Conclusion
There are many ways to successfully start a digital nomad lifestyle. You can do it all at once, or start with a few months and gradually spend more time working remotely while traveling. Some people do this for a year or two at a time, then come back, then go back out into the world again. There’s no single way to make this lifestyle work, but the one thing that will make your journey successful is planning ahead.
Do you have any tips or tricks on how to manage your finances as a digital nomad? Let us know in the comments!
