6 Tips to Keep Your Finances on Track as You Live and Work Overseas
In recent years, the increased opportunities provided by remote technology have given rise to a new type of worker — the digital nomad. Digital nomads are individuals who work remote jobs and aren’t tied to a specific office location. This freedom allows them to make a living from anywhere in the world.
While living the life of a U.S. digital nomad overseas can be fun and exciting, there are some important financial considerations and obligations to be aware of. If you’re considering working remotely while traveling abroad, the following tips can help keep your finances on track.
#1 – Establish a realistic budget.
Before you head out to explore the world, make sure you’re able to cover your expenses without sacrificing your financial future. There are two main reasons why budgeting is especially important for digital nomads:
- If you’re a freelancer or contractor, as many digital nomads are, your income may fluctuate significantly from month to month
- Travel costs can be irregular, especially if you’re frequently changing locations
Start by considering your income over the last 12 to 24 months. If the amount you make varies monthly, use you lowest month’s income as a starting point for your budget. This can help you manage your cash flow and avoid overspending.
Next, consider the amount you’ll spend each month as a digital nomad. Potential expenses include housing, food, travel, insurance and healthcare, as well as work-related expenses such as internet access, computer maintenance and a cell phone. If you have any outstanding debt, you’ll need to budget for those payments as well.
As you budget, don’t forget about your savings. It’s especially important for digital nomads to establish an emergency fund with adequate savings to cover at least three to six months of living expenses, should something unexpected occur. You’ll also want to continue saving for the future in a retirement and/or investment account.
Finally, remember to budget for discretionary expenses, such as clothing, entertainment and eating out.
If your income isn’t enough to cover your expenses, you’ll need to find ways to either add additional income or lower your expenses.
#2 – Maintain U.S.-based accounts.
There are several reasons why it’s important for Americans living abroad to continue maintaining U.S. investment accounts:
- To remain in compliance with U.S. tax laws
- To avoid investing in passive foreign investment companies (PFICs), which are taxed very punitively by the United States
- To maintain access to your funds
- To avoid high fees
- To maintain FDIC and SIPC protections
- To be able to work with a U.S.-based advisory firm
It may take some planning to establish accounts with an investment firm that supports U.S. digital nomads living abroad. Many U.S. brokerages have stopped directly supporting non-U.S. residents due to concerns about compliance with foreign countries’ tax laws.
Fortunately, there are still a handful of U.S. brokers that continue to support Americans living abroad. While some won’t open an account directly for an individual, they’ll work with an advisory firm, such as Creative Planning, to open accounts on a client’s behalf.
#3 – Plan for healthcare expenses.
Not all U.S.-based health insurance policies offer overseas coverage, which is why it’s important to plan for medical emergencies before you head overseas. There are three main health insurance options for Americans abroad.
- Public policies – Some countries offer access to affordable public healthcare to foreigners in exchange for a monthly contribution. However, if you plan to live in a country that doesn’t have good public healthcare, you may need to purchase a private insurance policy.
- Private policies – Many digital nomads traveling overseas choose to purchase a worldwide healthcare policy, which helps cover medical expenses regardless of where they are. While certain country-specific policies help cover the costs of traveling back to the United States for care, they may not pay for medical treatments once you’re back on U.S. soil. Although a worldwide policy may be more expensive, it can help protect you regardless of what country you’re in when you receive treatment.
- Combination of public and private policies – You may find that it makes more sense to combine public and private health insurance coverage. While public insurance may help pay for healthcare in your current country of residence, you may still struggle with long wait times for public care. Adding a private health insurance policy can allow you to access affordable care at private hospitals and clinics as well as at public facilities.
Additionally, some people opt to pay for healthcare out of pocket. This can be a reasonable option, especially in low-cost developing nations, but you should fully research potential costs and have money set aside for this purpose. Don’t forget that in the event of a serious health problem, you may want to return to the U.S. for medical care, and then you’ll want to have insurance to avoid exorbitant costs.
#4 – Consider travel insurance.
While healthcare insurance can help pay for medical expenses while you’re overseas, it won’t cover other unexpected expenses that could derail your travels and financial goals. That’s why it may make sense to purchase travel insurance, which can help pay for expenses such as:
- Rental car insurance and vehicle issues
- Accidental death or dismemberment
- Identity theft
- Trip cancellations, interruptions or delays
- Lost or delayed luggage
- Missed connections
Some travel insurance also offers 24/7 emergency support, which can be helpful when you’re traveling in an unknown area.
Work with an insurance professional to determine whether it makes sense to purchase a travel insurance policy to cover you and your family as you explore the world.
#5 – Prepare for taxes in both the U.S. and your country of residence.
If you plan to reside in a single country for more than 183 days, you’ll likely be considered a resident for tax purposes. This number is significant because it means you’ve spent more than half a calendar year living in a particular country. Additionally, some countries have even more stringent residency criteria that can be triggered much earlier than 183 days. For example, German residents are taxable there as soon as they have a home or “customary place of abode” there.
Typically, residents of a country must pay taxes in that country. And, as a U.S. citizen, you’re also responsible for paying taxes in the United States. Because the IRS taxes worldwide income, you must report all income you receive in a given year, regardless of where you live when you receive that income.
Fortunately, you may be eligible to apply a foreign tax credit to taxes you’ve paid in another country. An international tax advisor can help minimize your tax liabilities.
#6 – Work with an experienced expat financial advisor.
Working with an expat financial advisor is one of the best ways to avoid potential missteps and remain on track toward achieving your long-term financial goals while traveling overseas. A fiduciary expat advisor can help you:
- Navigate multi-jurisdiction tax complexities
- Establish a global investment portfolio that remains in compliance with U.S. and local laws, avoids common investing pitfalls and helps mitigate currency risks
- Coordinate with a U.S.-based investment firm to broker your assets while you’re living overseas
- Review or establish an estate plan that holds up to both U.S. and foreign laws
- Navigate various retirement planning challenges, such as foreign pension plans, required minimum distributions and Roth accounts
Could you use some help planning for life as a digital nomad abroad? Creative Planning International is here for you. We specialize in helping U.S. expats and cross-border families maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes. We help clients develop operationally and financially efficient wealth management strategies customized to each client’s unique set of circumstances. Because we serve in a fiduciary capacity, you can be confident that we’re acting solely in your best interests.
Living life as a digital nomad doesn’t need to derail your financial goals. Give us a call. We’re happy to help. To learn more, request a meeting with a member of our team.
