This is a guest post from Canadian finance and travel expert, Barry Choi, who runs the blog Money We Have. Barry has been my editor, friend and, essentially, my mentor since 2017. I’ve learned a ton from his feedback and advice over the years both as a writer and as a small business owner. So, I’ve asked him to share his top finance tips for digital nomads starting their own business. Here’s what he has to say.
When freelancers, digital nomads, and bloggers start working, getting their finances in order usually isn’t at the top of their priorities list. Obviously, you want to make money, but in most cases, it starts as a side hustle. Making a little bit of money on the side is great, but the goal is to eventually make more.
As your income starts to increase, you’ll quickly realize that you need to have your finances in order. From saving money for taxes to building an emergency fund, here’s my top finance tips for digital nomads who make money on the road.
Save Some Money Before you Depart
If you want to make this digital nomad thing work, you need to take it seriously. One of the number one rules of personal finance is to have an emergency fund of at least three months’ worth of expenses. The problem is, if you’re new to blogging and you plan on travelling, you may have no idea how much three months’ worth of expenses is.
Generally speaking, budget for your transportation, accommodations, meals, attractions, and any other fixed expenses. After that, budget a little more. Even if you’re going to a country that has a lower cost of living, it’s worth budgeting more since who knows what kind of emergency that may come up. It may sound crazy, but what happens if there’s a military coup? Do you have access to funds that can get you out of the country quickly?
This emergency fund will also give you peace of mind because you’ll know you’ll have something to fall back on in the event you have a down month and don’t make as much income.
*PS: don’t forget about travel insurance! Safety Wing offers digital nomad insurance. Learn more here.
For those who have budgeted properly, avoiding debt should be easy. However, when you’re constantly travelling, it’s not hard to spend more than you have. When this happens, many people dip into their emergency fund since that’s what it’s intended for, but it should be saved just for emergencies. To be clear, a last-minute flight to an island so you can enjoy a full moon party does not qualify as an emergency.
Another thing to consider is if you currently have any debt. If you have low interest debt such as student loans, it’s probably not a big deal if you go travelling if you have steady pay coming in. However, if you’ve already accumulated high interest debt such as credit card debt, you likely want to focus on paying that down first.
Once you’re on the road, stick to your budget. Using your credit cards to fund your lifestyle is not sustainable and the interest rates are insane.
Set up the Right Bank Accounts
You’ll obviously have a bank account at home, but you need to prepare yourself for the road. First off, you’ll want to open a high interest savings account with a digital bank. Why? Because most bricks and mortar banks pay nothing for your savings. Canadians will want to read my EQ Bank review as it has quite a few benefits over traditional banks.
Setting up a PayPal account is another must since quite often it’s the easiest way to get paid. The tricky thing about PayPal is that it can be expensive to convert currencies. For example, let’s say you’re American but you have a few clients that pay in Euros, PayPal will automatically charge you a currency conversion fee when sending funds to your bank that’s in U.S. dollars.
This is obviously annoying since you’ll be losing money every time you cash out, but there is a way around it. You can create multiple digital bank accounts in different currencies via a company such as TransferWise. You can then send money to yourself at much lower rates which puts more money in your pocket.
Some of you reading this may be thinking that the 2-3% fee may not be a big deal since it’s convenient, but that amount adds up over time. Also, you need to factor in any wire fees that your bank may charge for international deposits.
Choose a Good Credit Card or Two
Once you start freelancing, you should think about the credit cards in your wallet. Some freelancers will apply for a business credit card as it makes accounting easier. All you need to do is charge any business expense to your business card and you’re good. While convenient, a business credit card may not be ideal for digital nomads or bloggers.
If you’re travelling a lot, then you’ll want to apply for a good travel card. For example, some of the best travel credit cards in Canada offer unlimited lounge access, hotel status upgrades, car rental insurance, and more. These are benefits that will appeal to people who are constantly on the road since it’ll give them some travel perks.
Alternatively, getting a credit card that has no foreign transaction fees can help you save big. Many credit cards charge a standard fee of 2.5% when you make a purchase in a foreign currency. That will obviously add up if you’re travelling, so why not avoid it if you can?
Americans have a huge selection of credit cards, so it won’t be difficult to find a premium travel credit card that has no foreign transaction fees. The card may come with a high annual fee, but as you’ll soon find out, it’s a business expense that you can claim.
Understand your Tax Implications
What most freelancers don’t realize is that you’re taxed on your residence. Let’s say you’re a U.S. citizen, but you’re living in Thailand. Even if all the work you’re doing is for a U.S. company, you technically would need to file your taxes in Thailand too. This of course also assumes that you’re legally allowed to work in Thailand. You do have a work permit, right?
Even if you file taxes in your adopted country, you may still be required to file taxes in your home country. This can be complicated if the countries don’t have a tax treaty of some sort. In this case, you’ll want to work with an accountant who has experience filing taxes for digital nomads.
Now let’s be realistic, freelancers will rarely file taxes in another country if they’re just staying a few months or weeks. I’m not going to tell you what to do, but you should be aware of local laws. Some countries may not even admit you if you say you plan on working while visiting.
Figure Out if you Need to Charge Tax
Once you’ve established where you’ll be filing your taxes, you need to figure out your local sales tax laws. For example, freelancers from Canada need to start charging sales tax once they surpass $30,000 in income in any given year. Once that threshold is met, you need to register for a GST/HST number and charge taxes moving forward.
Canadians charge sales tax based on the province in which they reside. The tax rate would stay the same regardless of which province your client is located. That said, clients located outside of Canada are considered zero-rated, so no taxes would be charged. You would have to keep a record of your Canadian and non-Canadian income so you can input things properly when you file your taxes.
As you can imagine, every country has different sales tax laws. The government won’t do things automatically for you or give you a warning to start collecting taxes. As a freelancer, digital nomad, or blogger, you need to figure out what the rules are.
Saving for Taxes
You’ve probably figured out by now that you need to pay a lot of attention to your taxes. It’s arguably the one thing about your finances that will give you the most grief. That said, once you understand how everything works, it becomes an afterthought.
How much you’ll need to pay in taxes depends on the country where you’re filing taxes and what the tax rates are. For example, let’s say based on your income, you would pay 30% in taxes. That means you should be putting aside 30% of all your income for tax season. If you’re also charging sales tax, you’ll need to save even more.
Every country also has different tax laws about when you need to pay your taxes. If you don’t owe much, you’ll likely only need to pay after you’ve filed your taxes. However, if you pass a certain threshold, your tax agency may require you to pay taxes the following year in installments.
Hang Onto all Your Receipts
Another aspect of your taxes that you’ll want to become familiar with is expenses that can be deducted. Every country has different rules, but generally speaking, you can likely deduct a portion of the cost of any expense that’s related to running your business. That means things such as your mobile/internet data, hosting fees, and even meals can likely be deducted.
Let’s say you’re a travel blogger currently in Ireland. If you plan on writing a story about your trip, there’s no reason why you can’t claim all your meals, attractions, transportation, and accommodations as a business expense. Even if the story will only live on your blog, it still counts since those expenses were incurred for research purposes.
The key thing to understand is that you need to hang onto all your receipts. There’s always a possibility that your taxes may be audited so having all the receipts available will prove that you had legit expenses. You can either hang onto the physical receipts or take pictures of them. Credit card statements would not qualify as a receipt. If you don’t have a receipt, you can’t claim it as an expense.
Not everything can be claimed as a business expense, so you need to read up on your local tax laws to find out what’s eligible.
Tracking Your Income and Expenses
To make your life easier, you’ll want to track your income and expenses. This is pretty easy as there’s a lot of software and apps designed for small business owners. With apps, you can usually take pictures of your receipts and then it’ll automatically file things into the appropriate category.
You could also do things manually. This may sound slower, but if you set up an excel sheet with all the different categories, it would not be hard to update things just once a week as long as you’re hanging onto all your receipts. Remember, every country has different rules when it comes to expenses, so you need to read up on what you can expense, and then figure out the best way to log things.
When it’s time to do your taxes, you can hand over your files to your accountant or quickly reference them yourself. Make sure you keep these records for a while as you could be audited in the future.
Think About Your Long-Term Plans
Many freelancers, digital nomads, and bloggers are happy with just making enough money to fund their travels. While this may sound like a great idea while you’re travelling the world, you’re essentially living paycheque to paycheque.
Don’t get me wrong, if your goal is to travel for a year or two before you get a real job, do it. But if you’re trying to freelance long-term, just making enough to live may not be the best idea. So how do you make more money? Well, that’s something you need to figure out. You could pick up more clients or you could learn additional skills while travelling that will get you a job later.
It may not be possible but try to bank as much money as you can and consider returning home if your funds start to get low. It’s common for freelancers to travel for 6 months and then head home where they get more reliable income for a while. Once their travel bank is back up, they head off again.
This strategy works for a while, but think about your goals 10, 20, and 30 years from now. Do you really think you’ll be freelancing and travelling nonstop? Do you want to get married and own a home? It’s impossible to predict the future, but saving more money is never a bad thing.
Final Thoughts on Finance Tips for Digital Nomads
Becoming a full-time freelancer, digital nomad, or blogger is exciting since you’re basically an entrepreneur, but it also comes with its own challenges. Your income will rarely be stable, and you need to worry about other things which we didn’t even touch on such as healthcare. If you put an emphasis on your finances while you work and travel, you could put yourself in a good position for the future.