In recent times, remote technology has given rise to a new breed of professionals — the digital nomads. Digital nomads are individuals who are not bound to a specific office location, embracing the freedom to work remotely from anywhere globally.
While the prospect of living the life of a U.S. digital nomad abroad is thrilling, it comes with significant financial considerations and responsibilities. For those contemplating remote work while traveling internationally, the following insights can guide you in maintaining financial stability.
#1 – Create a Realistic Budget.
Before starting your global journey, ensure that you can sustain your lifestyle without jeopardising your financial well-being. Digital nomads, often freelancers or contractors, may experience fluctuations in monthly income. Additionally, the irregular nature of travel expenses, especially when frequently changing locations, necessitates careful budgeting.
Start by reviewing your income over the past 12 to 24 months. If your income varies monthly, consider using the lowest month’s earnings as a baseline for your budget. This approach aids in managing cash flow and preventing overspending.
Factor in monthly expenses such as housing, food, travel, insurance, healthcare, and work-related costs (internet access, computer maintenance, cell phone). Account for outstanding debts and prioritise building an emergency fund to cover at least three to six months of living expenses. Don’t neglect savings for the future, including retirement and/or investment accounts.
Lastly, incorporate discretionary spending, such as entertainment and dining out, into your budget. If your income falls short, explore opportunities to increase earnings or reduce expenses.
#2 – Retain U.S.-Based Accounts.
Maintaining U.S. investment accounts is crucial for American digital nomads residing abroad. This ensures compliance with U.S. tax laws, prevents investing in passive foreign investment companies (PFICs), and facilitates access to funds with lower fees. Some U.S. brokerages may pose challenges for non-residents, but collaborative efforts with advisory firms like Creative Planning can help establish accounts.
#3 – Plan for Healthcare Expenses.
Navigating healthcare options is vital for U.S. digital nomads, as not all U.S.-based health insurance policies cover overseas care. Evaluate public policies, private policies, or a combination based on your destination and health needs. Consider potential out-of-pocket payments for healthcare in some countries and be prepared for unexpected medical costs.
#4 – Consider Travel Insurance.
While health insurance addresses medical expenses, travel insurance provides coverage for various unforeseen circumstances that could disrupt your travels and financial plans. Assess the need for travel insurance, which may cover rental car issues, accidental events, identity theft, trip cancellations, and more.
#5 – Prepare for Dual Tax Responsibilities.
For stays exceeding 183 days in a country, you may be deemed a tax resident, obligating you to pay taxes in that country. As a U.S. citizen, you’re also required to report worldwide income to the IRS. Utilise foreign tax credits to offset taxes paid abroad. Collaborate with an international tax advisor to navigate complex tax obligations.
#6 – Engage an Experienced Borderless Financial Advisor.
Partnering with an expat financial advisor is instrumental in avoiding pitfalls and maintaining financial focus during overseas travel. A fiduciary expat advisor can assist in navigating tax complexities, building a globally compliant investment portfolio, coordinating with investment firms, estate planning, and addressing retirement planning challenges specific to expats.
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