Digital Nomad is a term that has drifted into public consciousness and will continue to be increasingly more known. Andrew Henderson of the Nomad Capitalist has cointed another, related term, suggesting people who are more affluent than what is thought of as a Digital Nomad be called a Nomad Captialist. I'm fine with just Nomad, though it probably conjures up images of Subsaharan pastoralists and I can understand why modern Nomads want to discourage that inference. I guess I'd favoer Tech Nomads, but then I don't determine such things. I just call myself a Nomadic Polymath. I will use Digital Nomad or DN as they are frequently labeled, simply for clarity.
There are two important traits of the DN. First, they need a location independent income and second, they need to use that to move their residence regularly, often using the tourist status in the various countries where they reside. This distinguishes them from expats, who leave their country of origin, often with a location independent income stream, but settle in a specific country as their new home. Most U.S. expats live in Mexico, but they do reside in virtually every country, including places like Mainland China.
DNs derive their location independent income from various sources. They include pensions and investments, blogging/vlogging, influencers, language instruction, online teaching and coaching, Amazon selling and affiliate programs, to name a few. I travel on my pension income and my blogging and book writing. Most DNs tend to live on between 1,000 USD and 1,500 USD per month in income. That, of course, is a near poverty income in the EU and North America, but is actually quite comfortable in many parts of the world. I have somewhat more than that, so in the general scheme of DN lifestyles, though far from alone, I am probably not typical.
The most elemental form of Digital Nomad literally throws their laptop and a few changes of clothes into a backpack and just takes off to a low cost country with lenient visitation rules. I call these the Backpack Nomads, not as a term of disparagement, but rather just to recognize that their priorities and needs are different than the rest of DNs. Traditionally, Chiang Mai, Thailand and Cenggu, Bali, Thailand have been the most popular. However, Thailand has recently fallen in popularity because the Thai government is tightening up the rules over long term stays on short term visas. Additionally, for destinations with a cost, per Nomadlist.com, of less than $1,500 per month, Eastern European and South American countries are becoming popular. Vietnam is also becoming more popular, with Ho Chi Min City, Hanoi and Da Nang, the three largest cities, gaining the most in popularity. Despite having one of the lowest COLs (Cost of Living) Kaohsiung, Taiwan is not yet popular. The same is true of a few Indian locations, Sri Lanka, Malaysia, Kazakhstan, Nepal, etc.
The first thing that a DN must do is become somewhat expert on the tourist and residency laws as it pertains to holders of their passport. In other words, U.S. passports, EU passports, Russian passports, Colombian passports, etc. are not all treated the same when entering a country. For EUNA (European Union and North Amerca) holders, many countries are a simple matter of flying in, having their passport stamped and then they are free to stay for 30 to 90 days. Some places, like Vietnam, do require visas, but they make the whole thing ridiculously easy. Some countries require you to present an outgoing ticket prior to the expiration of your allowed stay and some require proof of medical insurance. In order to not get caught in inconvenient visa snafus, the DN really needs to do some serious study.
Second, the DN must be good at analyzing true COL and that requires an understanding of Forex (Foreign exchange). In other words, if your location independent income is denominated in USD or EU, you will find that, when converted to local currency, in many countries, they will just buy a whole lot more. To measure this, everything can be converted to International $, using the World Bank's Purchase Price Paritiy Index (PPP). For example, imagine that you can buy one apple for one dollar. If you go to Ecuador, for example, and convert your one dollar to the local currency, it will buy 1.75 apples. The World Bank does that for a basket of things and comes up with a purchasing power multiple that indicates approximately how far a $1,000 to $1,500 budget will go. For example, in Malaysia, a $1,000 budget will spend like $2,948. This explains why the 'backpack DNs' tend to congregate in SE Asia, Eastern Europe and South America where PPPX is very high. In Belarus, $1,000 spends like $3,342 and, in reality, it goes even farther in a smaller town like Brest than it does in the capital city of Minsk.
Another thing to keep in mind is that some countries, such as Chiang Mai, Thailand, are cost effective locations for DNs with low cost, short term apartments readily available and other places, like Limassol, Cyprus, have cheap rents on one year leases, but short term rentals, because it is a tourist location are sky high. The same is true about restaraunt costs, for the same reasons. That means that DNs, at least the backpack variety, avoid tourist locations with the exception that some are inexpensive during the off season. Nomad List does provide some COL information, but Numbeo.com is the source authority for local costs.
The Backpack DNs generally live at a standard a bit higher than the locals, but usually not so high that the low Standard of Living in many of their host countries is a concern. However, for those DNs that average over $2,000 per month ($3,000 for couples), the general standard of living of the country matters. You may go into a store and find that the quality level of products that you need is below what you are accustomed to, simply because the locals can't afford better quality and there isn't sufficient upper class and affluent visitors to support the products that you want. Numbeo lists the average monthly after tax income of locals and, while misleading at times, is a good guide to your reasonable expectations. For example, while the average income in Brest, Belarus is quite low, there are sufficient upper class citizens and moderate and long term foreigners to support higher level retail. However, in the smaller towns, adequate selection con be difficult to come by.
While it is not emphasized in the DN community there is a significant degree of economic mobility. Many of the typical location independent sources of income have a Pareto distribution (the 80/20 Rule). There are clear examples of people who have begun as Backpack DNs and over time moved up to six figure USD income. Let's take 1,000 vloggers for example. 80% of the DNs will earn 20% of the income. If we say that those 800 DNs average 1,250USD per month income, that means their total income of 800X1,250=1,000,000USD is 20% of the total and the other 200 DNs have a combined monthly income of 4,000,000USD or 20,000USD per month each. Of course, that 4,000,00USD is split 80% 3,200,000USD to 200X 20%=40 or 80,000USD each and 160 who get 800,000USD or 5,000USD per month each.
I know of several blogger/vloggers who have managed to get into the 16% or 4%, such as the young Russian couple who produce the Forever Summer (Travel Vlog) Youtube channel. Based upon their business model, I can estimate that they are earning well into 100,000USD per year. If you take a second tier DN who earns 5,000USD per month, depending upon their lifestyle choices, they can be living a very affluent life. For example, I tend to stick to Belarus, Turkey and Southeast Asia where the average PPPX is around 3. That means that 5,000USD spends like 15,000USD per month or about 180,000USD per year. But, because they pay no income tax, they are living like people who earn about 180,000USD / .7 or about 250,000USD per year. Of course, that 4% who earn 80,000USD per month are, in the Eastern Europe, Southeast Asia and South America locations are by most people's definition, wealthy.
When I was living in Sunny Isles Beach, FL, USA, I knew a guy who seemed like a typical middle class guy. Then one day, he came to Einstein's Bagels in a AMG E63, a very expensive car. The next day he came in a Bentley GTC. A few days later he came in a brand new Ferrari. Turns out that he became an affiliate for an online pharmacy and found a way of putting it in front people on long term prescriptions. He got 15% commission on all those new customers and it added up to a whole lot. Most DNs who make their money on affiliate programs are $1,000 to $1,500 Backpack Nomads. However, some of them can and do move up to middle and even upper incomes.
Tax strategy is a critical aspect of DN life, especially for the middle and uppoer income ones. If the DN doesn't come from the U.S., simply moving usually relieves any tax liability from their home country. That is not true for U.S. citizens who are subject to income tax no matter where they live. Some countries will require their citizens to establish a tax residence elsewhere, or they will be taken to just be on an extended vacation and still subject to taxation. This is a very complex subject and even though every DN should understand most of the laws governing themselves, expert tax advice tailored to ones' specific circumstance is highly recommended.
Many, though not all, countries do not tax 'visitors', usually defined as those on tourist visas, unless they stay an aggregate of 6 months out of the year. Some countries, such as Cyprus consider 90 days or more per year enough to qualify for 'tax residency'. So, in these cases, there is a window where one may qualify for tax residency but not be subject to any tax. There are other countries, such as the U.S. that will deem you as a tax resident at 120 days per year and will tax you as a citizen, even if you are not.
Now, while the U.S. taxes their citizens no matter where they live or earn. There is an important exception, however, called the earned income tax examption. That is, if the income is deemed to be earned, the first 105,900USD is exempted from taxation. So, if a married U.S. citizen sets up a foreign corporation and pays themselves and their spouse a salary, the first 105,900X2+25,000=236,800USD is not subject to tax. Another common trick is to buy property through the corporation and rent them to yourselves, but only when you are staying there.
This is not intended to be a comprehensive treatment of the legal aspects of being a DN, but rather is intended to give enough information to convince the reader that one needs to become expert at being a DN in order to have success as a DN.
Andrew Henderson of Nomad Captialist advocates for his 'Trifecta Strategy' as a kind of modified Nomad. The idea is that you have three residences in different parts of the world. They are bases of operations where, for about four months per year you stay and explore the sorrounding countries. In this way, you will likely not be subject to any income tax in any of the locations. Without trying to force any particular solution, you get a strong sense that he advocates for Estern Europe, Southeast Asia and South or Central America. It is understandable. For a portion of the year, you will be a short plane ride from almost anywhere you may want to go. From Brest, just in the last year, my wife has visited St. Petersburg, Russia, Rome, Italy and Nice, France, all while residing in Brest, Belarus.
We will be flying into Bangkok on November, 15, 2019 and from there, we will visit much of SE Asia during the winter of 2019-2020. Then, we will probably head to Alanya, Turkey and Larnaca, Cyprus, both of which we are considering as our Eastern Europe Base. We will modify this a bit, because of friends and family in Belarus, we will almost surely maintain an apartment in Brest. Do we want a third base of operations in, perhaps, Bahamas or the yucatan? We will see. And, as we all know, even if you have residences in two or more countries, it doesn't mean that you are stuck with it.
That is my revision of the Trifecta Strategy. We may lease an apartment in Alanya, Turkey, but any year that the lease ends, we could move that Base of Operations to Cyprus or Malta or Marbella, Spain. We could lease for a year in Philippines one year and Yucatan the next. We could call that the Evolutionary Trifecta.
There is so much more about being a DN and while I have been doing it for a little while and studied it a whole bunch, I'm sure that I will keep learning more. So, this page is almost surely not closse to complete. I suspect I will add a whole bunch when I get to SE Asia.
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