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The Financial Challenges of Digital Nomads and How to Overcome Them

More and more people dream of becoming a digital nomad, but only a few understand the financial challenges that come with this lifestyle. Sure enough, life seems great when you’re working from the beach and sipping mojitos after you’re done. But how many think about their financial future while doing this?

If you’re a digital nomad and working as a freelancer, you’re probably already familiar with the “feast and famine” financial cycle: some months when you generate a high income and some months when you barely have enough money to pay the bills. 

While in your 20s or early 30s, this might not seem all that bad but ask yourself this: how will you spend your retirement? Will you have enough money to maintain your current lifestyle? (Assuming that your doctor won’t forbid you to drink mojitos, of course.)

If the answer is no (and I’m not referring to the mojitos), then it’s probably time to start thinking about your future and how to start putting some money aside for your golden years.

Here’s how you do it step by step.

1. Figure Out Your Investment Options

If you’re from the US, one option would be retirement accounts, like 401(k)s and IRAs. A second option would be to invest in the stock market (link to how to invest in stocks), either through traditional brokers (that make the investments for you) or online brokers (where you make the investments yourself – it’s not as scary as it sounds once you start learning about it).

2. Start Investing Now

Investing is like a marathon, not a sprint. So, the longer you invest (meaning the sooner you start investing), the more you’ll save. You achieve this through the power of compounding – you are reinvesting your earnings to generate more money. Think of your money as a snowball you roll down a hill – the more it rolls, the bigger it gets. 

It’s probably easier to understand with an example. Let’s assume you invest in a dividend stock with a dividend yield of 5%. You start off with a $1,000 (or 1000 euros) investment, and every year, you add another $1,000 (or euros) to your account – you also reinvest the money received from the dividends. You do this every year for 30 years, so the total investment would be %31,000. But do you know what the end balance is? Try to guess. The correct answer is $71,967.75. That’s the power of compounding. 

Another way to do it is to invest in an Index fund (a fund that tracks an index like the S&P 500). Since its inception in 1957, the S&P 500 constantly grew at an average annualized return of 10.5%. So, if you took the same amount of money and invested it here, you’d end up with $219,867 when you retire. (Please note that this is not an investing advice!)

3. Reduce Your Costs Wherever Possible

Sure, $71,000 may not seem like much, but neither is the $1,000 annual investment. This is why you need to save as much money and invest it. Just doubling your initial and yearly investments would bring you to an end balance of $143,935.5. 

If you want to reduce your costs today, you should use a monthly budget. Just put everything you spend on a list and, at the end of the month, see what unnecessary purchases you’ve made. Next month, set that money aside and invest it.

4. Spot Your “Hidden” Fees

Some digital nomads are still using a traditional banking service from their country of origin, which is a big mistake. Some banks charge extra fees when you use their cards abroad. On top of that, you might also end up losing money via the bank’s exchange rate.

In the best case scenario, you would only be charged a 1% fee. If you’re spending $2,000 per month, that’s $20, which you could be saving each month.  

Instead of using your old account, you should switch to a digital bank. Bunq (link to bunq review), for example, charges zero fees when using your card in Europe. On top of that, you get free cash withdrawals and up to 25 sub-accounts in almost any currency you want. Switching to a digital bank means that you will also say goodbye to such fees and invest that money. Those $20 invested each month for 30 years would grow to $45,499.

The same goes for money transfers. Are you sending money to your loved ones back in your home country? If so, consider abandoning the classic bank transfers and switching to a money transfer app like Wise. You’ll end up paying lower fees and sending money at a better exchange rate. 

What Should You Invest In

I hope by now we’ve shown you it’s a good idea to save and invest as much money as you can, without giving up on mojitos, of course. 

You may be wondering how you should start. We recommend that first, you start learning about the stock market and all the assets you can invest in. Here, at Sortter, we have created some great investment guides, especially for people who’ve never done this before. We recommend you start with the basics. First, read our intro guide to learn how the stock market works and then move on to the one about how to invest in the stock market

What to Do Next

After you’ve acquainted yourself with the stock market, you must choose your broker. To make the selection easier for you, we’ve created this amazing tool that lets you find the best investment app for you. Simply answer a few questions, and in a few seconds, our algorithm will show you the best broker to get you started.

We have similar tools for digital banks and money transfer apps, so give them a try too. Our services are 100% free. 

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