Deciding to become a digital nomad is half the battle. It’s a big leap of faith into a (literal) world of unknowns! But once you’ve made the decision, where do you begin?
Designing your lifestyle and arranging your affairs and finances to be nomadic is an art form. So, we sought expert advice and found it with Nora Dunn.
Nora sold her financial planning practice (and everything else she owned!) in Toronto in 2006 to become a digital nomad. Today, she writes about travel, personal finance, and lifestyle design and is a personal finance expert at NerdWallet.
Here are seven financial tips for living your best digital nomad life from Nora.
Don’t Overcomplicate Things
A lot of people may want to become digital nomads, but they don’t even get out of the gate because the list of things to do seems so overwhelming that it induces stress eating and hiding under the bedcovers.
It doesn’t have to be that complicated. Don’t worry about opening foreign bank accounts and changing residency and managing offshore corporations. While, in some cases, these may be viable options, you don’t need to consider them until later down the road.
Get a Travel-Friendly Bank Account
Most major Canadian banks have various tiers of bank accounts. I used the no-frills lowest tier for a few years until I got to Peru, where cash was king and the ATMs restricted the amount of money I could pull out in one transaction.
It necessitated a lot of ATM trips, and when I realized my bank was charging $5/pop for foreign ATM withdrawals, I upgraded my account to the “all-inclusive” tier, which includes unlimited free foreign ATM withdrawals.
This kind of account normally comes with a monthly fee, but the fee is waived if you maintain a certain balance (often $3,000-$5,000) in the account. This kind of account usually comes with other perks like a complimentary premium credit card.
Have a Buffer
While keeping $5,000 in your bank account might seem outrageous, it’s important to have a financial buffer as an emergency fund on hand.
While I don’t usually recommend you keep large amounts of money in a regular bank account, it’s worth it to reduce the account fees. Store the rest of your emergency fund or buffer in high-interest savings account that you can access online.
How much should your buffer be? Generally speaking, an emergency fund should be six months of expenses. At the very least, you should have enough to get “home” from anywhere in the world in a pinch (like, I dunno, a pandemic) and to get by there for a few months.
Track Your Expenses
The first step to any budget is to know how you’re currently spending your money. Without this knowledge, you won’t know how to adjust your spending so you can meet your financial and lifestyle goals.
When travelling as a digital nomad, tracking expenses on the fly can get hairy since you’re spending in multiple currencies. Using an app like Trail Wallet or Travel Spend simplifies the process and allows you to track your expenses and analyze how you’re spending your money.
Watch for Credit Card Currency Conversion Fees
If you’re not careful, you can lose a lot of money to currency conversion fees, and in many cases, they’re invisible to you. For example, if you don’t have a credit card with “no foreign transaction fees” (also expressed as “no F/X fees”), then they will tack on an additional 3% to every expense you charge in a foreign currency as their fee to convert the money.
Even worse than this, however, is when a merchant offers to charge you in your home currency. Always decline this offer and charge the expense in the local currency! The devil you know is better than the one you don’t.
Never Use Your Credit Card at the ATM
If you need cash, getting it from an ATM will get you the best currency conversion rate since it will be done at the bank rate with very little, if any, markup. However, it’s critical that you only use your debit card and not your credit card.
Withdrawing money at an ATM with a credit card is considered a cash advance, and not only will it come with a fee, but then your entire credit card balance as of the date of withdrawal will start accumulating daily compound interest. Normally, if you pay off your balance before the due date, you aren’t charged interest, but a cash advance negates that grace period.
Work Those Miles Digital Nomad!
Most of my long-haul flights are in business class for less than the equivalent cost of economy tickets. I achieve this through the strategic use of frequent flyer miles and loyalty programs.
A great way to collect miles is through travel-friendly credit cards that have plush sign-up bonuses. Just remember to pay off your balance in full every month! Paying interest on credit card debt negates the value of the miles received.
