So you could live your “best” life as a world traveler
Cafes in Paris. Beach bungalows in Phuket. Libraries in London. Cabins in the outskirts of Costa Rica. Imagine that this is your life. Your reality. You wake up to this scenery every single day and you don’t have to worry about brushing past morning traffic just to get to work. For you, each day is like a blank canvas to which you have the freedom to create whatever you want.
This is the general conception that people have when they think of digital nomads. But in reality, such cases are not the norm. In fact, when asked about misconceptions to a group called Digital Nomads Around the World, most people stated they aren’t supportive of the stereotypical images of them always vacationing. Yes they are location independent, but that doesn’t mean they don’t have work to deliver to employers or customers. They hold just as much pressure as any normal 9-to-5 office worker. And most, if not all, prefer to maintain an orderly day-to-day schedule.
Traveling around the world and having a remote work with steady income is a dream come true for many people. But digital nomads have just as much of a need to maintain a good financial health as any other working person in the world. Essentially, for world nomads, savings and investing are vitally important. They not only hold a nest egg in case of emergencies, but they also keep the digital nomads accountable for safe financial practices.
Best Investing Practices
Plan your retirement (early if possible)
The earlier you start planning for retirement, the bigger your funding will be. With the magic of compounding, you can save quadruple amount of what you had originally set out from the start. Look into reputable programs and start saving for retirement each month. As a digital nomad, an employer’s 401(k) isn’t an option so you may want to look into alternative ways to save money. You can try a traditional or Roth IRA. Traditional IRA allows for tax-deductible contributions while Roth IRA gives you tax-free withdrawals at the time of your retirement. Depending on your preferences, both are viable options. Most importantly, make sure you set a budget each month to put away for retirement contributions. Determine how much you can save and how well you can tolerate risks to fit with your investment goals.
Budget like your life depends on it… Because it does.
Strict budgeting is definitely a must for working nomads around the world. One possible way to do this is to create a separate spreadsheet and list out how much you make versus how much you spend on a daily basis. Laying out your income and expenses in front of you can lend perspective on your personal finances and provide you with a room to make smarter choices in the future. Before you decide to adopt the nomadic lifestyle, you should have at least 3 to 4 months of living expenses in savings. Do your research. Know the living costs around the area you want to live in and make sure you prepare financially months, possibly years, ahead of time.
Invest in Mutual Funds or ETFs
With any investments, there are always risks involved. But often times, especially for people looking for long-term growth, investing in mutual funds or ETFs can actually bring in big returns. The average annual return for the S&P 500 index is nearly 10% since its inception in 1926. After the stock market hit rock bottom during the Financial Crisis in 2008, the S&P 500 delivered a 10-year annualized return of 17.8%. Other index funds have had similar return rates. While markets certainly fall at times, the overall trends always seem to go upwards. That’s why investors, especially those without a consistent income, should look into passively investing into index funds.
A mutual fund is a type of investment vehicle where individual investors put their funds into a pool of money made up of securities such as stocks, bonds, and other related assets. This pool of funds is generally managed by professionals who study market movements daily and know how to analyze key metrics for major industry trends. While this is a good option for young investors, it can be costly to pay for management and sales fees. That’s why people turn towards ETFs. Exchange Traded Funds track major index funds and they can be traded like a common stock. ETFs account for lower fees and investors don’t need to track the market movements on a daily basis. The market is highly volatile and day traders are likely to hit a wall. As such, you should always think of investing as a long-term commitment. Especially for digital nomads, passive investing that tracks major index funds is a healthy way to build their nest eggs for the future.
While living on the road has its perks and benefits, it comes with a cost. Make sure you are able to withstand the risks financially. With strict budgeting, take time to become disciplined with your spending. And lastly, put money away each month into retirement and investing. Once you do all this, you are sure to be on your way to achieve financial freedom as a digital nomad.