Managing your finances is a task that not everyone enjoys, but is absolutely necessary if you want to get your things together. More so if you’ve chosen to become a digital nomad. Matters that involve money can be a little tricky once you’re living the digital nomad lifestyle.
You may have the freedom to constantly go on your dream travels anywhere in the world, taking along your work with you, but that also makes you more vulnerable to financial challenges.
For instance, you have to think about how to compute and pay your taxes back home while you’re in another country and also worry about having to comply with that country’s tax laws. On top of that, you also have to think about how to manage your income so you can travel to your next destination and keep up the digital nomad lifestyle.
If you’re not careful, something can go wrong very quickly. And your digital nomad dreams may be put into an abrupt stop. But don’t worry, taking charge of your finances is not actually that hard once you get the hang of it. You just have to be more aware of your incoming and outgoing money, know your priorities and familiarize yourself with your financial legal obligations.
Also, technology is your biggest ally. Since almost anything financial can now be done online in a nearly instantaneous timeframe, managing your finances no matter where you are in the world has become so much easier.
Here are some of the steps you can take to effectively keep track of your money and reach a healthy financial status. By taking these steps, you can continue working and earning while pursuing your passion to visit different countries and still live comfortably.
1. Establish financial stability by settling your debts
First thing’s first. Before you decide to quit your office job to become a digital nomad, you need to ask yourself whether it’s the right time to do so. And how do you know if it is? The safe answer to that is when you’re already financially secured for it. But you can’t be financially secured if you’re covered with unnecessary debts from head to toe. You’re going to have to work hard and save money so you can pay your debts. Don’t just stop by settling your debts, you also need to set aside money for your savings fund. You’re going to have to hustle. And you probably have to do side works to achieve this, but by doing so, you got one thing less to worry about while you’re traveling and it can potentially save you thousands of money.
2. An emergency fund is a must
Bouncing from one country to another means you’re constantly out in unfamiliar places. You’re exposed to different risks and challenges. God forbid you get caught in an accident or lose your money on the way. You can never be too careful. That’s why digital nomads need to have emergency funds. Having a pool of money you can use in case of emergency mitigates all those risks. Just to be safe, set aside six months worth of expenses before you go on your digital nomad escapades.
3. Figure out a financial game plan
Having a financial game plan even before you start out the digital nomad life is going to give you a bird’s eye view of what you’re setting yourself up. Being a digital nomad, you’re constantly on the move. Many unexpected things can happen while you’re on the road. By knowing your expected income, how you’re going to make that income, and what your living expenses are, you prepare yourself for the unexpected. It’s even better if you can go specific and figure out how much you’re going to charge your clients, what your forecasted tax is, and how much you have to spend on your trips.
4. Learn how to create a budget and stick to it
After figuring out your financial game plan, it’s time for you to create your monthly budget. The costs of living may change from country to country so you need to do some research beforehand. Allocating money for your future expenses can make you feel a little bit squeamish, especially when you have to let go of some of the luxuries to acquire the necessities. But as a digital nomad, you gotta be wise with your money, now more than ever. Of course, it goes without saying that you need to stick to your budget plan.
5. Open two separate bank accounts for your personal and business finances
You probably already own a bank account. And if you don’t, then open two accounts immediately. Why two? Because you’re going to need separate accounts for your personal finances and your business transactions. Having the same bank account for both can prove to be a disastrous choice. In the long run, your personal and business expenses are going to be muddled up. Figuring out which is which can be confusing and not to mention time-consuming. So save yourself all the hassle and just open two separate accounts right from the get-go. It helps you organize your finances and simplify your already hectic life.
6. Find a way to have cheap and quick currency exchange
If you’re going to be traveling, it’s very likely that you’re going to be spending money in different currencies. If you rely on bank-to-bank transfers, it usually costs more and takes several days. If possible, avoid it and just find a reliable, cheap, and quick way of currency exchange. Luckily, there’re plenty of virtual financial options that can give you these services. PayPal has been around for awhile and is your best bet when it comes to quick and easy currency exchange. You can also use it for a quick and easy way to bill your clients and receive payments. It gives you several options to do this, all are guaranteed to be hassle-free.
7. Digitalize your money system
Your lifeline as a digital nomad is in the digital world. Your clients may be coming from different parts of the globe. It’s important that you can do online banking so you can bill your clients and they can easily send their payments over to you. Your credit cards also have to be online so you can pay your bills wherever you are.
8. Create an excel spreadsheet of your finances
If you’re really serious about tracking your expenses, creating an excel spreadsheet is going to be a great help. List down all of your finances. Include how much money comes in and out of your business, how you’re earning the money, and how much money you’re spending. Cataloging your flow of funds puts you on top of your finances and also gives you a clear perspective of what your spending priorities are. Maybe you’re spending too much on expensive coffee and only realized it after studying your financial spreadsheet. Aside from that, if you ever need to review your business expenses and income for tax purposes, the spreadsheet can definitely give you a much smoother time. As an alternative to an excel spreadsheet, you can also install a bookkeeping software.
9. Keep the receipts
When you’re recording your finances, keeping the receipts saves you the hassle of remembering your every purchase. Not only does it help you with your bookkeeping, but you also have the receipts to back up your claims if you want to avail for tax reductions.
10. Pay your taxes when traveling
Taxes are already complicated as it is, but when you become a digital nomad, your taxes can get even more complex. You may be out of the country of your residence for long periods of time but that doesn’t mean you’re free from your tax obligations. You also have to check if you’re legally obligated to pay taxes in the country you’re currently staying. It differs from country to country, so make sure you’re well informed.
The shift from an office day job to a digital nomad lifestyle is pretty life-changing. It comes with its own set of hiccups along the way, but if it’s truly what you want, then you have to make adjustments and must exercise the resolve needed to maintain the lifestyle. Money is definitely going to be an issue but with careful planning, disciplined attitude, resourcefulness, and thorough research, the task of managing your finances can be stress-free and you can pursue your wanderlust without anything holding you back.