Finances of a digital nomad

Work and travel: digital nomads need to think about their finances in a non-conventional way (Adobe stock photograph)

I recently returned from holiday, and I keep thinking about this lovely couple we met. They were from the US but were living and working as expatriates in Doha, Qatar. As an expatriate myself, I am always interested in hearing about the expatriate experience in different countries — what expatriates like, what they find frustrating, and, most importantly, how they manage their finances and where they ultimately plan to retire.

Many countries have begun offering programmes allowing foreign workers to stay for up to three years on a work permit, with the option to renew. These countries view expatriates as valuable contributors to the economy, as opposed to the outdated perception that foreign workers steal jobs from locals.

Furthermore, since Covid-19, more and more countries are introducing initiatives like the “one-year resident permit”, allowing nomadic workers without a fixed address to live in exotic locations for a year without impacting the local job market.

It might sound glamorous to be a nomad (as opposed to an expatriate) — having no fixed address and living in exotic locations. However, most nomads are either self-employed consultants who bill for their services or work for companies with flexible “anytime, anywhere” work policies. This raises the question: what is the long-term financial outlook of these nomads?

In my research, I found little information on this topic. At first, it seems to be a relatively new concept, bolstered by the pandemic, which forced many people to begin working from home. However, nomads have been around for many years.

For example, my friend has been living this lifestyle since 2013. She is a Chartered Accountant working for an offshore accounting firm with global clients, so her schedule is based on monthly billable hours, regardless of her location. She is highly successful — making great money and travelling the world. But it makes me wonder — with such a lifestyle, how do you manage your finances and plan for the long term?

Here is what I discovered about how nomads manage their finances and plan for the long term.

Most nomads follow similar financial principles, especially the importance of generating passive income beyond their consulting “gigs”.

Often, this passive income comes from one or two rental properties. Most nomads carry mortgages on these properties, with the rent covering the expenses and providing a little extra income. Nomads typically invest in low-maintenance condos, apartments, or townhouses that require minimal upkeep (Bell, 2023).

Another interesting discovery was that traditional employee benefits are often considered a trade-off when living and working as a nomad. For example, nomads who work as self-employed consultants typically cover all their own benefits, often sacrificing comprehensive health insurance.

Many opt for basic international policies that only cover generic drugs and require high deductibles ranging from $5,000 to $10,000 for major medical non-elective services.

In contrast, nomads or another term could be “remote workers” are employed by a company will often have access to health insurance through their company’s group plan, but are required to pay the majority, if not all the monthly health premium. Furthermore, most of these plans only cover services in the country where the policy was issued unless preapproved by the healthcare provider, which poses challenges for nomads working on the other side of the world.

Most often, these nomads simply pay for medical treatments out of pocket through a special savings fund they created and earmarked for unexpected medical expenses, accepting this as a trade-off for their remote lifestyle.

However, my research also revealed that nomads recognise the long-term drawbacks of not having a pension or an employer contributory to a retirement plan. Therefore, it is especially important for nomads to be frugal with their finances, making a conscious effort to keep their monthly expenses low by setting a budget and tracking expenses to minimise overspending.

Furthermore, the emphasis on acquiring a rental property, whereby the debt and any expenses could be serviced by the rent and paid off over time, and once that occurred, the asset would be owned outright and importantly, generating positive cashflow. Overall, nomads indicated that a “bricks-and-mortar” investment is preferable, as it is less volatile, typically appreciates over time, and required less oversight and maintenance (Castrillon, 2022).

So, what is the long-term financial outlook of a nomadic worker?

If you are young, fit, and healthy, with an established career that requires only an internet connection and a desire to travel and see the world, there may be no downside to the nomadic lifestyle. You trade structure for flexibility, stable income for billable hours, and the known for the unknown — all while managing your finances to support your travels and putting some money aside for later.

If you can stick to a budget, save for your future, and have an exit strategy from the nomadic lifestyle, a job that allows you to simply “plug in and work” might be a great way to see the world and meet new people.

At the end of the day, I would not change the experience of living in different countries around the world as an expatriate. I have met so many wonderful people, worked in some very interesting places, learnt about different cultures, and discovered how business practices differ globally.

If you are younger, and don’t have too many obligations I would strongly encourage anyone to do a stint, it can be a great way to gain experience and also build a career.

References

Bell, R. (2023) Digital nomads have billions to spend. Entrepreneurs are cashing in. BBC. Available at: https://www.bbc.com/worklife/article/20231002-digital-nomads-have-billions-to-spend-entrepreneurs-are-cashing-in [Accessed: 20 October 2024].

Castrillon, C. (2022) Why the digital nomad lifestyle is on the rise. Forbes. Available at: https://www.forbes.com/sites/carolinecastrillon/2022/07/17/why-the-digital-nomad-lifestyle-is-on-the-rise/ [Accessed: 25 October 2024].

Santander (2022) How do digital nomads keep on top of their finances? Available at: https://www.santander.com/en/stories/digital-nomad [Accessed: 23 October 2024].

• Carla Seely has 24 years of international experience in the financial services, wealth management, and insurance industries. Over the course of her career, she has obtained several investment licences through the Canadian Securities Institute. She holds ACSI certification through the Chartered Institute for Securities and Investments, UK; QAFP through FP Canada; and AINS through the Institutes. She holds a master’s degree in business and management