The financial advantages of being a "Digital Nomad"
Posted: Fri Mar 25, 2016 3:13 pm
Pugchief and I were chatting privately, and I realized that some of it might be of interest to the forum.
If you're not familiar, the somewhat cheesy term "digital nomad" refers to the subculture of people who travel indefinitely while working remotely (usually from coffee shops or co-working spaces). In contrast to backpackers, they generally rent a place and stay in a country for at least a few months to achieve some semblance of a stable work routine. I'll be joining their ranks in a couple months when my girlfriend and I move to SE Asia.
The advantages from a financial perspective:
a) Geographical arbitrage - earning a US salary or bootstrapping a start-up from a location where the cost of living is an order of magnitude cheaper, thereby dramatically increasing your savings rate or extending the start-up runway. In Thailand, $1000/month is very comfortable for two people. $2000/month and you're frequently eating at the nicest restaurants, getting daily massages, etc.
b) Taxes - the FEIE (foreign earned income exclusion) exempts you from paying federal income tax after 330 days of being outside of the US (if there are less than 330 days left in the tax year, you can file an extension to buy more time to reach the threshold).
c) Health care - many of these cheaper countries have stellar health care systems with very reasonable costs, so you also dodge the ballooning costs for US health care (there's a whole medical tourism industry built on this). All you really need is a ~$1k/year travel insurance plan through a company like worldnomads.com, which also covers theft of your personal belongings.
Assuming you also establish your last domicile in an income-tax free state prior to leaving the country, the FEIE exempts up to $101,300 for 2016. If you have an LLC and Individual 401k, not even considering tax-deductible expenses, you can earn up to $137,850.62 and pay no income tax on it. All you'd pay is the 15% self-employment tax. For me personally, that's well above the income threshold where I'd rather work less than make more.
You generally apply for tourist visas and when they expire do quick "visa runs" to neighboring countries for the specified number of days before returning (assuming you want to stay longer). If you're using US banks, the countries you travel through have no way of knowing you're working and earning taxable income.
If you're itching to travel and can do your job or run your business via the internet, it's something to consider.
If you're not familiar, the somewhat cheesy term "digital nomad" refers to the subculture of people who travel indefinitely while working remotely (usually from coffee shops or co-working spaces). In contrast to backpackers, they generally rent a place and stay in a country for at least a few months to achieve some semblance of a stable work routine. I'll be joining their ranks in a couple months when my girlfriend and I move to SE Asia.
The advantages from a financial perspective:
a) Geographical arbitrage - earning a US salary or bootstrapping a start-up from a location where the cost of living is an order of magnitude cheaper, thereby dramatically increasing your savings rate or extending the start-up runway. In Thailand, $1000/month is very comfortable for two people. $2000/month and you're frequently eating at the nicest restaurants, getting daily massages, etc.
b) Taxes - the FEIE (foreign earned income exclusion) exempts you from paying federal income tax after 330 days of being outside of the US (if there are less than 330 days left in the tax year, you can file an extension to buy more time to reach the threshold).
c) Health care - many of these cheaper countries have stellar health care systems with very reasonable costs, so you also dodge the ballooning costs for US health care (there's a whole medical tourism industry built on this). All you really need is a ~$1k/year travel insurance plan through a company like worldnomads.com, which also covers theft of your personal belongings.
Assuming you also establish your last domicile in an income-tax free state prior to leaving the country, the FEIE exempts up to $101,300 for 2016. If you have an LLC and Individual 401k, not even considering tax-deductible expenses, you can earn up to $137,850.62 and pay no income tax on it. All you'd pay is the 15% self-employment tax. For me personally, that's well above the income threshold where I'd rather work less than make more.
You generally apply for tourist visas and when they expire do quick "visa runs" to neighboring countries for the specified number of days before returning (assuming you want to stay longer). If you're using US banks, the countries you travel through have no way of knowing you're working and earning taxable income.
If you're itching to travel and can do your job or run your business via the internet, it's something to consider.