6 Steps for Budgeting Life as a Digital Nomad
Think about this before budgeting
This is part II of our series "Designing Your New Life Abroad" Check out part I here.
Okay, so you’re fully committed to building a nomadic life. You're now scouring Google Maps for a country to explore. What is the first real thing you can do to get yourself on the road?
Reflect on your purpose
Enjoying your time as a nomad, or in any endeavor, is about balancing expectation vs. reality. This particularly pertains to your new life abroad. Here are the things you should ask yourself before you start planning your journey:
- Can I travel with my current job? If not, what are my options for reliable income?
- Can I really sustain this nomadic lifestyle?
- Can I part with my possessions? Can I afford to store what I keep?
- Can I travel without living in "vacation mode"?
- Do I possess the right physical and financial tools to travel?
Be brutally honest with yourself. You need to contemplate the answers to these questions truthfully before you set out on your nomadic journey. Most of these questions revolve around funding your trip, so that's why we've put together this guide to figuring out your budget.
Ahh the b-word. Nobody really likes to budget, but to be honest, it can be a lot more fun when you're planning a flight to Rio or booking a flat in Glasgow. First, you need to do a few things before you start researching the fun stuff.
Ready? Let’s get right into it.
1. Secure a reliable income stream
There are a million different ways to fund your travels, but we live and work on the road. If you’re planning to make money while traveling like us, first and foremost, you need to make sure you have a flexible income stream.
Whether you own your company or you’re an employee, you’ll need freedom of movement and flexible working hours. If you're traveling in New Zealand but your team regularly meets remotely from San Francisco, you'll be taking work calls from 3AM to the late morning hours. This defeats the purpose of having the freedom to travel full-time. The last thing you want to do is jeopardize your income stream, especially when it comes to your ability to realistically manage your work obligations.
2. Find the differences in your expenses
The best-case scenario for any explorer is to save money while living on the road. Breaking even, in this case, means having the same disposable income as before and after the jump to nomadic life. Spending a bit more is OK for some, but hard to sustain for most. You're not on vacation, remember that. Here's how we figured out that we could make this work:
- We added up our monthly expenses, both fixed and variable, as well as savings goals, and compared it all month over month.
- We found our average cost of living, which in San Diego was exorbitant, and extrapolated out that average over a year.
- Just to be safe, we rounded up and included a buffer for unexpected expenses.
Sounds simple enough, but the devils in the details. Leave no stone unturned.
Next, we tried to predict our nomadic financial future. We researched comfortable and affordable AirBnBs near our desired destinations. This usually means getting a place 15-30 minutes outside the city center to save money, because that fits our travel style. Your style may be different. It's wise to factor in the cost of daily transportation into your monthly "rent". After averaging the price of accommodations in different cities, plus the price of our one-way flights and transportation costs from one city to the next, we were able to calculate a rough estimate of our monthly expenses.
So what's next?
We cut the cord on cable. We ended our lease, utilities, comprehensive car insurance, and a few other bills we weren’t going to need anymore. It was liberating. While we could eliminate some fixed costs, we had to account for unexpected new ones, such as daily transportation and our travel insurance premium.
Now we had our estimated expenses for nomad life. To our surprise, the math worked out in our favor, even considering currency exchange. We were now on our way. We even had about 40% of our expenses to spare, which is perfect for the next step.
3. Start saving and selling now
Did the math work out for you? If not, don't fret, you could always sell some stuff. Making a lifestyle change like this provides the opportunity to downsize and revisit what is really important. As we've mentioned before, we started collecting experiences not things, so our things became expendable.
Once you commit, start saving. Put a little bit away at a time and sell things you don't use anymore. Tools like Craigslist, Facebook Marketplace, and LetGo have worked wonders for us. By building up a "nomad fund" you'll be able to create a backup in case you get in a pinch. By doing so, you'll see more, do more, and you won't be in a financial bind.
4. The 25% rule
Whatever nomadic expenses you've calculated, add 25% and budget all over again. Flights, accommodations, transportation, food costs, and currency exchange rates can all fluctuate, so a substantial financial buffer is a necessity. In the travel industry, everything is taxed, and there are hidden fees galore. Consider this, and budget for unexpected costs. If you’re traveling full-time yet always in vacation mode, it is very possible that you'll spend more than your budget. If you’re not in vacation mode, like us, it’s just good life advice to over-budget and live a bit more comfortably.
5. Find a good travel credit card
Traveling without a credit card is almost impossible. Traveling without a card made for travel is just unwise. If you want to live on the road, start researching a good travel card now. We use NerdWallet and CreditCards.com to help us find the right financial tools to suit our needs.
Look for a card that waives international transaction fees, because they can really add up. Our Capital One Venture card is fantastic. We get 2 points for every dollar spent, regardless of where we spend it. We use those points to erase expenditures like flights, accommodations, and Uber rides. We also have an incredible fraud protection policy. We have never had an issue disputing charges and Capital One is vigilant in contacting us when suspicious activity occurs.
Whatever card you get, make sure it suits your spending habits and helps you instead of dragging you down with interest rates. Once you get the right card, start racking up points by getting new gear!
6. Get your gear
The most overlooked part of a budget is the gear needed to sustain life on the road. We needed new threads that fit in new backpacks, which had to be light enough for us to carry for an extended period of time. We subsidized our new purchases with the sales of our old furniture, clothes, and electronics. Out with the bulky-heavy-and-old and in with the light-tiny-and-new.
Before purchasing your new suitcases, do some serious research. Think about how you’ll travel, not just where. Backpacks have certain advantages over rolling luggage, especially if you’re going off the grid or trekking up cobblestone streets in Italy. The biggest advantage of our backpacking gear is that we have two hands-free to wrangle in our wild toddler during transition days. Don't underestimate how tough these days are. Keep these long days in mind, because having the right gear makes all the difference.
Now, it's time to get into the nitty-gritty. This is our favorite part. Even if you don’t dig late-night research, you'll appreciate our suggestions when you start preparing your life abroad. A major reason we advocate for spending a great deal of time researching is to discover savings. Saving money is just like making money.
And even if saving money isn't your priority, being mentally prepared for logsitical challenges is critical for designing your new life abroad.
Next up, how to find the right place to crash, no matter what country you're in.