How To Manage Your Money As A Digital Nomad
To build a better relationship with money, first, we need to change the way we think about it. We need a set of rules and beliefs to become future-focused.
The Right Attitude
In society, we often have the wrong attitude toward money. We label those who are good with money as tight or greedy while at the same time fantasizing about those who are rich and successful. Adding such labels provides no benefit.
Associating a negative characterization with how we view money can worsen our own attitude toward it. Why not focus on the positive aspects of mastering money management? It can give you the freedom to choose to live life on your own terms rather than have it be decided for you by a lack of options.
Plus the added mental health benefits of removing financial stress. It’s about taking control and visualizing a better future that you can build for yourself, whatever that means for you.
Personal Habits
So let’s talk about those personal finance habits and tips on how to take control of your money management.
The goal is to take the intimidation out of finance and create habitual goals to follow so they become ingrained and second nature to you.
A good example is a 40-year study at Standford University that found that those with one particular quality are much more likely to succeed. This quality is Delayed Gratification or being future-focused.
Pay Yourself First
This is one of the most important lessons to take control of your financial lifestyle style right now: Pay Yourself First which means paying a portion of your salary into your savings as soon as you get paid, before you spend money on anything else. But that sounds pretty boring, so how about we think of it this way Start Loving Your Future Self with our guide below.
Five Tips To Improve Your Financial Health
1. Create a Personal Budget
The first step in improving your financial health is understanding how much you’re spending and on what. We dive into this in way more depth here.
For a start, you’ll want to keep your ‘Needs’ at 50%, ‘Wants’ at 30%, and ‘Savings’ at 20% of your income.
This budgeting method gives you some flexibility. For example, housing is a Need, but you have a choice on how much to allocate to it, so if you are trying to hit big goals, decide how important this item is and allocate accordingly based on your values.
Creating Independence
The goal here is to put yourself in a position of financial independence so you can do whatever you want in the future. And no, I don’t mean age 65.
If you start now and manage everything correctly you can get ahead in a few years with the right level of motivation. The key is for you to recognize the difference between Needs and Wants. Needs are things you need to survive,
Wants are things you would like. There will be items that cross that line, so you need to define which items go where while keeping your eye on the goal of keeping Needs low.
This is not about reviewing your previous month’s spending and passing judgments, it’s about having a future-focused mindset now you have decided to take control.
2. Know Your Net Worth
Your net worth is a calculation that looks at the value of everything you own.
It is something that you want to grow over time. The first step is to calculate where you are now.
Make a list of all your assets. This could be your house, your car, and any other large items you own. Don’t worry too much about smaller items as these can complicate things too much.
Then think about what debts you have. This could be the mortgage on your home, car loans, or credit card debt. Subtract this from your first figure.
Ta-da, you have your net worth figure. This could be a minus and most likely is if you’re just getting started. Ideally, you want to track this over time and watch it grow.
3. Manage Salary Creep
It can be tempting to reward yourself with each pay rise.
A little bit more spent on housing, slightly nicer lunches each day, or purchasing a new car. However, this can mean that you’re actually moving backward.
What will you have to show for your increased salary in a few years?
Rather than spending this cash, which you survived just fine without last month, it’s a much better idea to set up an automatic payment so it goes straight into a savings or investment account.
Sure, celebrate moving up, but make sure you’re also moving ahead financially.
4. Start Investing Early
“Compound interest is the eighth wonder of the world. He who understands it, earns it... He who doesn’t... Pays it.”
That was Einstein and he was pretty smart. It can be hard to get your head around compound interest until you experience how powerful it can be. But I’ll give you an example.
If you had just put your money into a growth index fund (a basket of the largest 100 growth companies in the USA) ten years ago, the compounded return was 309%. That’s right. 309%.
This is because you're earning interest on your interest every year. If you had invested $10,000 ten years ago, you’d now have just under $50,000. Crazy right?
5. Build an Emergency Fund
This is your bucket of cash to keep you safe in case of emergencies.
The car engine dies or you lose income unexpectedly. You want to build this bucket first and keep it in an account where you can access it quickly before you begin investing.
How Big?
What size should this bucket be? A good place to start is to look at your ‘Needs’ section total from your 50/30/20 budget and times that figure by three.
That means if something happens, you’ll be able to pay all your bills for the next three months.
That takes a lot of stress out of daily life if you know you’ve got a nice big cushion to fall back on. After this, you’ll start building an investment bucket that may include low-risk investments like bonds as part of your strategy.
Final Note
Getting started with improving your finances doesn’t have to be overwhelming. Breaking it down into simple actions like these and tackling them one at a time can help you move towards financial freedom.
