Calculating your financial needs while traveling and working backwards.
Finances, the number one reason why people choose to not follow their dreams and travel the world. But when you take a closer look, it doesn't take as much money as you might think. Here is the strategy I took when outlining my financial plan for not only my digital nomad travels, but also for when I return home.
Unlike most digital nomads, I plan on returning home after 3-5 years of travel. I would like to settle down for a period of time, get married and have babies. Haha sounds so tabu compared to the whimsical freedom the digital nomad lifestyle instills, but is it true.
Because of this, my financial planning encompasses not only my travel lifestyle but also my goals upon returning to the United States.
My goals have always been to acquire wealth and create streams of passive income for myself. With those two goals in mind, upon returning to the United States I would like to have $15K-$30K in the bank to invest in my first rental property. My mentors have taught me the value of real-estate investment to grow wealth, and that is my goal. How does this play into budgeting to become a digital nomad? This allows me to work backwards.
I know that I want to walk away with $20,000 in my savings. I can also say that over 3 years of travel I will spend on average $3,000 per month on living. If I layer in the $600 per month I'd like to save for my future property, I know I need to take home $3,600 per month. I'll layer taxes onto that, I know I need to make about $4,200 per month to hit this goal.
Here it is laid out more "math-like" if this helps visually:
End goal $20,000 in savings.
Must save $600 per month for 3 years to reach that goal.
On average I know I will spend $3,000 living and traveling expenses.
+ $600 saving
= $3,600 per month, take home (after taxes)
+ $800 (~20% taxes)
=$4,400 per month, income
With that number in mind, I have decide how many hours/projects/clients/side jobs I need to reach that goal.
Give it a try for yourself! Follow this worksheet below to outline your financial plan as a digital nomad.
3 Year Goal = _____________________________________________________________
(any monetary goal you have for 3 years from now, it can be paying off your student loans, purchasing a property, purchasing a surf hostel in Bali, or simply beefing up your savings account)
Monthly Estimated Cost of Living = ___________________________________________
(Take an average, for example the cost of living is around $1,200 but in Munich the cost of living is around $2,800. If you don't know where exactly you will be staying I would say $2,500 - $3,000 is a pretty safe number. Also remember to include flights into you calculation)
Estimated Taxes = _______%
(Take the average percentage of income taxes you have to pay to your home country, for California is about 20-25% for my income bracket. You can find this out by looking at your current pay stub)
Divide your 3 year goal by 36 months = _________ per month
+ Add your cost of living = __________ per month
+ Add in your estimated taxes = ___________ per month
= ____________ Required Per Month Income
Now you can work backwards and decide what type or quantity of work you need to create this!
What about a savings BEFORE you leave to become a digital nomad?
Since I know that I will have an income while traveling I am less concerned about having a massive savings. But this all depends on your own financial habits and comfort levels. A large goal of mine is to pay off all my debt (except for my student loans) before traveling. That way, I don't have any payments to worry about making. Because of my aggressive debt pay off plan, I will not have the time to save up $10,000 - $15,000 (which a few of my friends did before taking off the travel). Instead I will be saving up around $3,000 - $5,000 before leaving. I personally feel that this is a large enough safety net, since like I said I will have a substantial income. But I would recommend saving up what ever makes you feel comfortable, and that is feasible in your allotted time frame.