Save for Retirement As a Digital Nomad

Become a Digital Nomad are freelancers, independent contractors, and consultants who satisfy their wanderlust by traveling the world while working online. Some also get temporary day jobs in countries where they can legally work. This carefree lifestyle typically doesn't come with a lot of stability, but it still is possible to save for retirement as a digital nomad. You must budget carefully and consolidate your finances, while making accommodations for a variable income.

Steps

Building Your Budget

1. Track your expenses carefully. When you're traveling to exotic locales, it can be tempting to spend extravagantly so you get the most out of the experience. However, if you intend to also save for retirement, you must have a good idea of how much you need to spend to survive.
   • Start by writing down your regular expenses – those that won't change regardless of your location. For example, if you have a mobile phone bill that is always $100 a month, budget that expense and any other similar expenses first.
   • Once you have the expenses that don't change down, take a look at what you've spent on food, lodging, and transportation in the past two or three months. If you haven't left home yet, you'll need to come up with a reasonable estimate for these expenses. Consult other digital nomads to get a good idea of how much these things will cost you in the places you want to go.
   • Average everything out to come up with a good daily spending figure that you can use for budgeting purposes.
2. Pay down your debts before traveling. It's not the best idea to start a digital nomad lifestyle when you still have significant debts, such as a student loan, that require monthly payments. Ideally, you should have as few debts as possible before you set out.
   • If it's not going to be possible for you to eliminate your debts, at least try to pay off your consumer credit, such as credit cards, before you go. Leave one credit card open to use on the road, and plan on paying it off every month.
3. Find ways to cut costs. It can be tempting to live more extravagantly when you're on the road, especially if you've just come off of a grueling journey. You'll get more bang for your buck if you stay in hostels and cheaper accommodations rather than hotels.
   • Use your accommodations solely as a place to sleep, and look for free public Wi-Fi where you can do your work. If you need a more secure internet connection for your work, get an unlimited data plan and tether your mobile phone.
   • Rather than eating at restaurants, look for open markets and street food vendors, where you can eat more cheaply. You also might consider buying groceries and cooking your meals if you are staying in a place with a communal kitchen.
4. Account for currency exchanges. If you're getting paid in local currency, make sure you know how that amount will be converted to the home currency you're using for your savings and other financial accounts.
   • Digital nomads often are drawn to locations, such as Southeast Asia and Latin America, that have a relatively low cost of living. However, this low cost of living also frequently translates into lower pay.
   • Keep in mind that just because you can live comfortably off of the local pay in one of these areas, that may not necessarily translate into significant savings if the local currency has significantly less value than your home currency.
5. Maintain sufficient insurance. Particularly if you're young when you start the digital nomad lifestyle, you may not think insurance is necessary. However, difficulties and accidents can happen. Insurance makes these issues less of a catastrophe when they occur.
   • Look into health insurance, life insurance, and liability insurance, as well as insurance for your personal property. You also may need non-owner automobile insurance, depending on where you're planning to travel and whether you anticipate leasing a car at any point.
   • Keep in mind that in less developed countries, medical treatment may not be available at the same level of quality that you've come to expect, especially if you are from North America or Europe.

Setting Up Your Savings

1. Decide where you want to retire. You know you're not going to be a digital nomad forever. Before you start saving for retirement, you need to have a good idea what country you will live in when you do retire, so you can maintain your savings in that currency.
   • If possible, you also want to set up your savings and investment accounts in that country, so they'll be easier to access once you do retire.
   • Most digital nomads plan on retiring in their home country. Don't choose another country unless you are certain you'll be able to immigrate there when you're ready to retire and settle down.
2. Set aside six months' expenses. You want to have an emergency fund separate from your retirement savings. Look at your budget and determine how much your expenses will be, on average, for at least six months.
   • This money will protect you and enable you to survive as a digital nomad if, for example, you lose a contract or have a hard time finding work in one location.
   • You also may want to include sufficient money for a plane ticket, so if you get into a difficult situation somewhere you can quickly bail out and return to your home country or somewhere else where you feel safe.
   • Keep this money in a basic savings account so it will earn interest, but you can access it quickly if you need to do so.
3. Work with a financial planner. While life as a digital nomad may seem carefree and simple, your finances typically will be anything but simple. Look for a licensed or certified financial planner who has experience working with digital nomads.
   • You don't necessarily have to keep a financial planner on retainer long-term, but it's a good idea to at least consult someone when you're setting up your savings and investment accounts.
   • Ask the financial planner about sound investment strategies, and put the framework for your savings and investments in place. You also want to ask about tax strategies.
4. Consolidate your accounts. Having too many financial accounts can be difficult to keep up with when you're traveling, especially if you have accounts scattered across several different countries. While this sometimes can be unavoidable for digital nomads, you want to try to have as few accounts as possible.
   • For example, if you settle in one country for a longer period of time and take a day job, you may need to open a local bank account. When you move on somewhere else, close that account.
   • Try to have a specific purpose for each account you have. For example, you might have a retirement savings account, a checking account for daily expenses, and a basic savings account for your emergency fund.
5. Avoid unnecessary fines and fees. When you're traveling, it can be relatively easy to rack up significant fines and fees, as well as facing significant tax consequences, if you're not careful. Work with a professional financial advisor to build a sound strategy.
   • You typically will need at least one credit card, but try to pick one that has the best rewards for you as you're traveling, as well as the strongest purchase protection. Choose a card that doesn't have an annual fee. If you have any credit cards that do have annual fees, you may want to close those accounts before you start traveling to avoid those fees.
   • Check with your bank or financial advisor to choose the retirement fund or investment vehicle that has the most favorable tax status in the country where you plan to retire. You also may want to review tax penalties for early withdrawals, in the event of a significant emergency situation.
   • Carefully review the tax laws in your home country regarding money earned in other countries, or speak to a tax expert. Make sure you're not going to end up paying any fines or penalties for not filing taxes appropriately.

Managing a Variable Income

1. Create a percentage plan. The easiest way to save for retirement as a digital nomad is to look at your budget and allot a certain percentage, say between 5 and 10 percent, that you will put towards your retirement savings every month.
   • The benefit of using a percentage rather than a fixed amount is that you can easily fit it into your budget regardless of your income.
   • This works especially well if your income varies widely from place to place, or if you plan on traveling extensively.
   • To choose the correct percentage, think about your ultimate goal of how much you want to save, then divide it by the number of years you plan to save (depending on your current age and the age at which you'd like to retire).
2. Keep all your finances in one country. You may need to set up temporary local accounts from time to time, especially if you get a day job somewhere. However, all of your savings and your main checking account should be located in the same country.
   • Keeping your accounts in one country also means your money is not as vulnerable to exchange rates, because you're only transferring foreign currency once and it is kept in your home currency.
   • If possible, try to set up all your accounts in the same bank. That way you can easily transfer funds from one account to another without incurring unnecessary fees. This also makes multiple accounts easier to manage.
   • Many banks also offer various discounts or incentives, such as a better interest rate, if you have multiple accounts with them.
3. Set up automatic transfers to savings. Based on the percentage of your income that you've chosen to save for retirement, automatic transfers either weekly or monthly from your checking or other payment account to your savings account mean you don't have to think about your savings.
   • If all of your accounts are being managed through the same financial advisor, or using the same bank, you also may be able to set up automatic transfers directly into an investment account or other retirement savings vehicle.
   • Automating at least some, if not all, of the saving process will greatly increase your chances of success.
4. Open a slush fund account. When your income is widely variable, you may benefit from a third savings account that allows you to skim off the excess when you have a high-income month so you can get through particularly lean months.
   • For example, if you normally make around $3,000 a month, but one month you make $5,000, you could take the extra $2,000 and move it to a savings account where it will earn at least a little interest. Taking it out of your checking account helps you control your expenses and keeps you from splurging on unnecessary luxuries. That way, you'll have that money if you had an extraordinarily lean month, such as if you only made $500 one month.
   • You may want to simply add this money to your emergency fund, or you may want to create a separate account that you can dip into so you don't risk disturbing your emergency money.
5. Review your plan at least once a year. If you're saving for retirement based on a percentage plan, you need to make sure your contributions, especially automatic transfers, are consistently in line with that percentage as your income and expenses change.
   • Take the opportunity to review your budget and make any adjustments to your average expenses as necessary.
   • Keep in mind that even though you're saving for retirement based on a percentage system, your weekly or monthly automatic contributions will typically be a fixed dollar amount. You may have to adjust that amount based on your actual income.
   • For example, suppose that based on savings of 10 percent each month, you were contributing $200 of your average income of $2,000 a month. However, when you review your income you find that in the entire last year you have never made less than $3,000 a month. You should up your contributions to $300 a month.

References

See also

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