Financial Planning For American Digital Nomads

Tom Zachystal is president of International Asset Management providing financial planning and investment advice for Americans living abroad.

More and more Americans are seeking to embrace the digital nomad lifestyle, exploring the world while working remotely. However, the nomad life requires careful financial planning. In this article, we look at the main financial considerations that American digital nomads should be aware of to avoid some pitfalls and plot a path to long-term prosperity.

1. Budgeting

Since both your expenses and income as a digital nomad can fluctuate depending on your location and work patterns, your first step should be budgeting. Plan not only for regular costs like accommodation, food and transportation but also unexpected expenses like emergency travel and healthcare. If your income varies, base your budget on your lowest monthly earnings to make sure that you’re covered. Then, aim to consistently save a portion of your income each month to build a surplus that you can use for emergencies and invest.

2. Access To US Brokerage Accounts

Maintaining access to U.S. investment accounts is useful for American digital nomads, but it’s not always straightforward. Keeping your U.S. accounts open allows you to benefit from low fees, access to U.S. markets and FDIC and SIPC protections. While short-term digital nomads who maintain a permanent U.S. address can often keep their brokerage accounts active, those planning extended stays abroad may face challenges, as many U.S. brokerage firms won’t maintain accounts for nonresidents for compliance reasons.

So if you’re planning to be abroad for a year or more, consult with an expat-specialist financial advisor who can help you find investment firms that support Americans living overseas.

3. Digital Nomad Visas

If you’re planning to settle and work remotely in a single country, it’s important to obtain the correct residency visa. In 2024, as many as 66 countries offer digital nomad visas, with more launching all the time. These visas generally allow Americans to stay for up to a year if they can prove a steady remote income, with options to renew.

Some countries offer the possibility of entering on a tourist visa and then applying for an extension or switching to a different visa once you’re there, so if you’d like to spend more than 90 days in a year in a single country, research digital nomad visas. Note, though, that a residency visa often implies local tax residency too, depending on the rules in each country.

4. Tax Efficiency

American citizens are still subject to U.S. taxes on their total worldwide income regardless of where in the world they live. As mentioned, if you spend a significant amount of time in a single foreign country, you may also qualify as a tax resident there, which can result in double taxation by both the U.S. and that country. Claiming the Foreign Earned Income Exclusion (FEIE) when you file your U.S. tax return can reduce your U.S. tax bill by excluding a portion of your foreign-earned income (in 2024 up to $126,500) from U.S. tax, but it requires careful planning and adherence to certain rules.

If you earn less than the FEIE threshold, and you travel between different countries and so don’t qualify as a tax resident in any other country, you may not need to pay any income tax while traveling and working remotely overseas.

It’s also worth noting that there are numerous U.S. reporting rules that can affect Americans who register a business or invest abroad. If you are thinking of doing these, you should consult cross-border financial planning and tax professionals.

5. Currency Considerations

As a digital nomad, transferring money between the U.S. and another country can lead to losses due to fees and exchange rate movements. To minimize these costs, consider low-fee multicurrency bank accounts and use currency brokers for transfers rather than banks to access better exchange rates and lower fees. Credit cards that waive foreign transaction fees and budgeting apps that track multiple currencies can also help keep currency costs low.

6. Saving And Retirement Planning

As a digital nomad, it’s important not to neglect planning for the long term. You may still be able to contribute to U.S. retirement accounts like IRAs and 401(k)s while living abroad, but your contributions may be limited if you claim the Foreign Earned Income Exclusion. Otherwise, you can usually still invest in regular U.S. brokerage accounts, perhaps holding capital gains-producing investments for the long term to limit realizing gains that would be subject to tax. Contributing regularly to these accounts will help meet long-term financial goals such as buying real estate or funding retirement, no matter where your travels take you.

7. Insurance

Digital nomads often lack access to employer-sponsored health plans, making it essential to find insurance that covers both routine and emergency care, as well as other situations. Additionally, many countries require proof of health insurance coverage as part of their visa application processes.

It’s worth researching the public healthcare system in the countries to which you’ll be traveling because, while some countries offer public healthcare, it might not be available immediately upon your arrival, it may involve fees or it might not meet your quality expectations. Comprehensive international health insurance plans should include coverage for evacuation and repatriation in case of an emergency, and long-term care.

While health insurance covers medical expenses abroad, it doesn’t address other unexpected costs, so purchasing travel insurance too can help with expenses such as rental car insurance, trip cancellations or delays, lost or delayed luggage or thefts.

Final Thoughts

The digital nomad lifestyle offers the opportunity to experience the world in a way that few can; however, it also presents new financial challenges that require careful consideration. The right strategies, including consulting with tax and financial advisors who specialize in expat and cross-border finances, will help ensure you stay optimized and compliant while working and traveling abroad.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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