As you are on the move, keeping organized will be one of your best assets. A good rule of thumb to think about: the more tourists the area has, generally the more expensive it will be. Alternatively, areas a little further away or more where the locals live will have lower costs. Basically, expats generally follow tourists and increase costs. There are tradeoffs with convenience and safety, but since accommodation will probably be your most expensive cost, deciding on that will dictate a lot of what is left for the rest of your budget.
The Five-step Budgeting Framework
Following this outline below will ensure you cover the basics of budgeting:
- Assess your financial situation
- Identify expenses
- Research destination costs
- Develop a flexible budget plan
- Track and adjust
Easy, peasy, right? Let's go through each.
Assess Your Financial Situation
Do you own a home or rent? Do you enjoy eating out or cooking at home? For your birthday, do you like material gifts or do you prefer an experience? Do you have any savings? Depending on the type of person you are, you can safely manage a budget that meets your needs.
Start by calculating your average income for the year. Working primarily online, you may have a consistent income or one that varies with the seasons. Finding the average will help with your budget. Many banks now have the availability to track and review your spending.
As we were a family of 4 with 2 kids under the age of 5 when we moved, having a bit of a runway was important for us in the move to Costa Rica. Meanwhile when moving to Cayman Islands, single without dependents, I had no savings and that worked just fine.
Identify Fixed and Variable Expenses
Fixed expenses include accommodation, subscriptions, and insurance, while variable expenses cover utilities, food, and entertainment. We secured a long-term rental which included everything except electricity. It was near the boys' new school in a gated community. Safety of our 2 young children was a priority and we were willing to pay more in rent for this assurance. The wifi and water costs were also included in our monthly rent which made it easy to budget.
Research Destination Costs
There are various websites like Numbeo and Expatistan that provide insights into the cost of living in different cities. They show average prices of meals, groceries, transportation, utilities, childcare, sports, clothing, rent, and more. Joining expat Facebook groups or other similar forums can also provide information about what it's like to live in that country. People in these groups are generally helpful in providing information to set your expectations. There was no shortage of Facebook groups to join, not to mention real estate groups.
Develop a Flexible Budget Plan
Start by assigning budget amounts to categories. Line items such as housing, food, transportation, leisure, and so on. Set realistic maximum limits for each category to prevent overspending. Don't be afraid to make specific categories instead of keeping it general.
Make sure to incorporate currency fluctuations. While this might seem impossible with the factors that affect currency, monitoring exchange rates can be helpful. If possible, budget in local currency whenever possible to avoid surprises. Regularly review and monitor your budget and be prepared to make adjustments when needed.
Here is a typical spending breakdown that may be useful for digital nomads. The largest portion, 34%, goes to housing, reflecting the need for stable accommodation. Food expenses make up 15%. Savings and entertainment are each allocated 12%, balancing between future financial security and lifestyle enjoyment. Travel expenses are set at 10% to allow flexibility for movement, while miscellaneous costs also take up 10% for unexpected or varied expenses. Utilities, a smaller category at 7%, represent necessary costs like internet and power, essential for remote work.
Canada has the highest costs for internet and cellphones. We were pleasantly surprised to see just how cheap internet and cell service was in Costa Rica. This allocation provides a well-rounded approach to managing finances on the move, with a focus on housing, savings, and food as core expenses.
Track Your Expenses
It is especially important in the beginning. There are a few apps you can try to assist with this that can also accommodate multi-currency. Apps such as Mint, YNAB (You Need A Budget), and Expensify are some of my favorites for digital nomads. Many banks also have some expense tracking features so that you can review where your big spends are and if you should and can