Embarking on the digital nomad journey is exhilarating.
There is an unquestionable allure to traveling the world and working remotely, but it comes with its own set of financial challenges. Battling with various tax laws, slamming against national bureaucracy, and knowing how to save for uncertain futures can sound like insurmountable challenges––they’re not.
Our ultimate guide for digital nomads will help you navigate these financial intricacies of the nomad lifestyle. No solopreneur should ever feel trapped or worried in their world-spanning workcation.
What is a digital nomad?
Digital nomads take their tech with them as they travel through various countries, traveling and working simultaneously. A reliable internet connection is a nomad’s best friend. These working wanderers prioritize flexibility and freedom over traditional office-based work arrangements, and may choose to live in locations with lower costs of living, rich cultural experiences and desirable climates.
At its core, the concept of digital nomadism is about using technology to enable location-independent work and lifestyle choices.
💡 See what Xolo digital nomad Jordan Bishop has to say about his life on the road
6 finance tips for starting your digital nomad journey
All this freedom and inconsistency can make or break an unseasoned digital nomad. Some nomads may have a steady job, while others may work with clients and turbulent income. Either way, knowing what to expect and how to budget for the unknown is every nomad’s key to unlocking peaceful freedom.
1. Start by finding the right place to stay
Every digital nomad begins their journey by selecting a cost-effective destination. While €2 margaritas and cheap accommodations are tempting, a variety of other factors may weigh in more than rent and food prices:
- Accommodation: Look for affordable, comfortable places to stay.
- Utility bills: Ensure good internet and mobile connections remain a priority.
- Food: Compare local dining and grocery costs to your baseline income.
- Coworking fees: Find reasonably priced coworking spaces if you’re looking to rent a desk.
- Domestic travel: Taxis, car rentals and public transport can make or break your daily commute.
- Healthcare: Review what your insurance covers and what you'll need to pay out-of-pocket.
- Leisure: Research the cost of doing what you love where you live.
- International travel: Budget for flights and other travel expenses in/out of the country.
- Digital Nomad Visas: Investigate the costs and requirements for staying in your chosen destination.
Popular regions like Southeast Asia, South America and parts of Europe are great for digital nomads due to their affordability and vibrant communities. Use resources like Numbeo and Nomad List to compare living costs.
2. Take essential insurances built for nomads
Insurance might not seem crucial if you’re young and healthy, but it’s essential for avoiding unexpected expenses. There’s more to insurance than just your physical well-being. Here’s what to consider:
- Travel and medical insurance: Ensure your insurance covers emergencies, natural disasters and specific needs like pre-existing conditions or equipment.
- Destination requirements: Some countries may even mandate travel and medical insurance.
- Business insurance: Consider this if you’re running a company on your own.
Look for comprehensive coverage, reasonable premiums and clear terms that suit your travel patterns. Having a back-up in the case of unexpected incidents can be the difference between going home and staying nomad.
3. Create your digital nomad budget
Creating a budget is crucial for managing your finances on the road. Taking into account all that traveling and working has to offer means you’ll know your monthly baseline for income. Here’s how to get started:
- Citizenship expenses: Everything from national insurance requirements to storage.
- On-the-road living: Cost-of-living, rent, food and transit costs in each country you visit.
- Travel costs: Flights, local transportation and emergencies.
- Visa fees: Costs associated with permits and visas in each country.
- Insurance premiums: Consider the costs of various insurances while traveling.
- Work-related expenses: Tally your subscriptions, equipment and possible replacement costs.
- Taxes: Look ahead and set aside upcoming taxes for each season.
Estimate your average monthly income and adjust for high or low-income months. Include all income sources, such as freelancing, business activities, and passive income from investments. Always budget for savings and taxes.
You’ll want to be saving for those low-income months, and times when traveling between locations adds extra time and costs. Before starting out, and during your journey, consider:
- Saving in advance: Start saving 6-12 months before you go.
- Extra income: Consider a second job or freelance gigs to buttress your normal pay.
- Cut your costs: Reduce daily expenses, cancel unnecessary subscriptions, and sell items you won’t need.
Being a digital nomad is a constant scale of what’s most important to me vs. what’s not necessary. Figure out your priorities and budget around them consistently.
4. Registering a business as a digital nomad
Some digital nomads forsake the regular employment or client work and decide to found their own business. Various nations have different laws surrounding business incorporation, taxes and other related items. It’s important to consider a few things before starting or moving your business abroad:
- Economic and political environment: Stability is key when you choose the country to do this in.
- Taxation: Consider domestic and international tax laws, as well as expectations on your income.
- Costs: Consider the cost of registration and operation.
- Language and banking: Ensure ease of communication and transaction with your partners abroad.
Platforms like Xolo Leap can help with e-residency and business management, providing tools for invoicing, expense management, and compliance support.
5. Invoicing and getting paid while abroad
Compliance when sending invoices, ease-of-use and low fees can make or break your invoicing system. Platforms like Xolo Go can make invoicing on the road a breeze, but we’ve also lined up some helpful tips to keep you on the straight and narrow:
- Separate finances: Keep personal and business finances separate always.
- Pay yourself: Transfer money from your business account to your personal account regularly.
- Good banks, great cards: Look for low fees, robust card features and rewards with your partner.
- Security: Use secure networks for online banking and be vigilant with ATM usage.
💡 Discover how to invoice internationally (like an absolute pro)
6. Managing taxes as a digital nomad
Tax management can be rather complex for digital nomads. Across the EU, residents and citizens amy find things a bit simpler, but not always. It’s vital that you read local tax laws, and check relevant forums, to see how people are handling taxes in your countries of choice.
- Tax residency: Determine your tax residency based on where you spend most of your time and where you have legal obligations.
- Multiple jurisdictions: Be aware of potential tax liabilities in different countries, including your home base of operations.
- Professional advice: Consult with accountants in your home country and your destination to ensure you have the tip-top know-how on tax liability.
Xolo recommends setting aside money for taxes regularly, and consider hiring an accountant to manage your tax filings.
Wrapping up the finances of a digital nomad with Xolo
Starting your journey as a digital nomad requires thorough financial planning. By addressing these financial aspects, you can enjoy the freedom and adventure of the digital nomad lifestyle without financial stress. For more detailed advice and resources, visit our Xolo Blog.
Xolo is here to assist freelancers, digital nomads and entrepreneurs of all kinds with their day-to-day admin and finances. Send invoices, manage expenses, file your taxes and know what to expect when you take your digital nomad lifestyle on the road with Xolo.
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