7 Steps to Build a Strong Financial Foundation For a Life of Travel
Learn How to Prepare Financially to Become a Digital Nomad Today
You dream of traveling around the world.
You want freedom.
Freedom to live and work anywhere on your own terms.
You see Instagram posts of people living out your dreams. They’re traveling to places you’ve always dreamt of visiting.
You want to turn your dreams into a reality. You’re ready to become a digital nomad.
Whether your goal is to visit beautiful countries in the Mediterranean like Greece, Italy, or Turkey. Or to explore major cities in East Asia like Hong Kong, Tokyo, or Seoul.
Becoming a digital nomad provides you with the freedom to travel on your terms.
But before you begin your dream adventure, your finances should be taken care of. Without a proper budget, your dream lifestyle can quickly turn into a nightmare.
Without a solid financial plan, it’s easy to rack up debt at the end of your travels.
On the other hand, a solid budget will help you thrive financially while you check off your bucket list.
If you’re feeling lost when it comes to finances, you’re in luck today. I am a copywriter specializing in finance who happens to love traveling.
I’ll guide you as you prepare financially to become a digital nomad.
All it takes is 7 steps to build a strong financial foundation to support your life of travel. So what does it take financially to become a digital nomad?
Let’s find out.
1. Track Income and Expenses
Start with how much you make and spend. Knowing your income and expenses is the best place to start. This is budgeting in a nutshell. Use a budgeting app like Mint to make this process quick and easy.
While you prepare to become a digital nomad, begin tracking your monthly cash flow with a budgeting app. This will help you create a baseline for your budget.
You can then take this information to create your budget on a month-to-month basis.
By raising awareness of your net income (how much you earn minus how much you spend), you’ll get a better grasp of how much money you’ll need for your travels.
2. Create a Budget
After you’ve used Mint to track your earnings and spending, it’s time to create your budget. If you’re totally new to budgeting, try the 50/30/20 Rule of Thumb.
It’s a simple budget that separates your after-tax income into three categories:
- 50% on Needs
- 30% on Wants
- 20% on Savings/Investments
So for example, if you’re earning $4,000 after tax per month, you’d allocate your money in the following way:
$2,000 on Needs (50%):
- Rent
- Utilities (Electricity, Water)
- Groceries
- Insurance (Travel and Medical)
- Cellphone/Internet Data
- Travel Visas
$1,200 on Wants (30%):
- Dining Out
- Entertainment
- Travel
- Lodging
- Souvenirs
$800 on Savings/Investments (20%):
- Savings Account
- IRA
- 401K
- Stocks/Bonds
In many cases, you’ll realize that you can save more than 20% of your income. Just remember that the 50–30–20 Rule is a guideline to help you stay afloat financially.
You’re more than welcome to increase your savings rate to meet your personal goals.
3. Plan Long-Term Stays
Think of your budget as a boat that will keep you afloat during your journey. Depending on your income and spending habits, some of you will have larger boats than others. Some people are on small fishing boats while some are on yachts.
But no matter how large your “boat” (income level) is, your ship will sink if you continuously spend more than you make.
The cost to fly from country to country can rack up quickly. It’s more cost-effective to stay in one country for several months at a time. If you’re on a tight budget, strategize your stays around countries with lower costs of living.
European countries are known for higher costs of living in comparison to most Southeast Asian countries. But you can still plan your trips around countries in Eastern Europe with lower rent prices.
For example, if your goal is to visit all the major cities in Europe like London, Paris, and Barcelona, consider staying long-term in a country with a lower cost of living.
Living in countries like Croatia, Romania, and Turkey will help you save on rent and plane tickets. This gives you a flexible budget and more time to explore Europe- even Northern African countries like Egypt and Morocco!
4. Save 6 Months’ Worth of Income
Life tends to throw a wrench in our plans from time to time. The best policy is to hope for the best but also prepare yourself for the worst. Unexpected events can happen and put you over your monthly budget.
For example, you might have to fly across the world to attend a funeral. Or maybe an unanticipated sickness might rack up a large medical bill.
Whether you’re an entrepreneur or a remote employee, you could lose your income for various reasons. Your business may slow down or a sudden layoff can happen anytime.
When you’re in a crisis, having 6-months of income saved will give you some extra breathing room. Whether you end up using your emergency fund or not, learning how to save money now will help you transition smoothly into your new nomadic lifestyle.
5. Sell Things You Don’t Need
Living as a digital nomad will mean that you won’t need most of your possessions. This is especially true if you’re planning to move homes to a foreign country.
If that is the case, selling your possessions makes sense, especially if you don’t have a way to keep them without having to pay for storage. It’s also a good way to add some extra money.
Sell your items on reliable websites like eBay, OfferUp, or NextDoor. Or you could even host a garage sale or sell them at a local swap meet. You’ll feel liberated after selling everything that no longer serves you.
After all, the point of choosing a nomadic lifestyle is to trade your resources for the accumulation of experiences.
Rather than living in pursuit of material possessions, find meaning and purpose through the experience of traveling around the world.
6. Set Up Banking and Credit Cards With No Foreign Transaction Fees
When living overseas, using the wrong bank accounts and credit cards can accumulate foreign transaction fees. Avoid extra costs by setting up accounts with banks that have no foreign transaction fees.
Banks like Charles Schwab do not charge extra foreign transaction fees for withdrawals made overseas.
The same is true for credit cards. There are credit cards like Chase Sapphire Reserve that do not charge foreign transaction fees when used overseas.
If you haven’t already, consider getting a travel credit card. It will help you rack up travel points quickly. Just imagine having the option to fly to your next destination for free.
7. Consider Living In a Tax-Friendly Country
Tax always impacts your income. Choosing your tax residency in a country with lower tax rates helps make more room for your budget. Although simply leaving the U.S. doesn’t exempt you from taxes, there are still tax benefits for living overseas.
For example, the Foreign Earned Income Tax Exclusion allows you to exclude your foreign earnings up to $112,000 (as of 2022).¹
This means that if you set up a tax residency outside of the U.S., you won’t have to pay taxes up to $112,000 of income.
For example, if you decide to stay in Bulgaria for 183+ days in a calendar year, you’ll be subjected to a flat tax rate of 10%. If you’re making $60,000 per year as a remote employee, you’d only be liable for the taxes in Bulgaria.²
Staying in one place for 6 months straight might feel restricting. So you might want to plan your stays between different seasons.
You can keep your tax residency as long as you stay for a total of 183 days within the same year. So if you’re planning to make Bulgaria your tax home, you can do this by:
- Staying in Bulgaria for 3 months at the beginning of the year
- Living outside of Bulgaria for the next 4 months
- Coming back to Bulgaria for another 3 months
- Living out the rest of the year in countries outside of Bulgaria
With all this said, you should always consult a tax professional before setting up a foreign tax residency. There are many ways you can save money on taxes as a digital nomad. Meet with a professional so that you can legally reduce your tax liability.
Helpful Resources for Digital Nomads
1. Digital Nomads for Dummies by Kristin M. Wilson
Digital Nomads for Dummies will help you transition into your new life of travel. Learn how to come up with a relocation plan and grow your income no matter where you’re at.
With over 20 years of traveling experience, Kristin shares the wisdom she gained from living and traveling to over 60 different countries. She’ll teach you how to embrace the challenges of your new life as a digital nomad and enjoy your journey.
2. Offshore Citizen
Filing taxes while living abroad can be tricky. Planning ahead will help you avoid unwanted surprised when it’s time to file your taxes. Get help from tax professionals like Offshore Citizen which specializes in helping expats legally lower their tax liability.
Consult with a professional and receive expert strategy on how you can maximize your tax benefits as an expat.
You Have What It Takes to Be a Digital Nomad
Becoming a digital nomad takes some hard work and planning. But once you’ve built a strong foundation, you’ll experience a seamless transition into your new life as a digital nomad.
Now that you know how you can prepare yourself financially, which places around the world do you look forward to traveling to the most? Let me know in the comments below! Wishing you happy travels!
