We recently released a new podcast on exactly how to think about your budget as a digital nomad.
There’s no doubt that living as a digital nomad can be an amazing, fulfilling, and mind-opening experience. One of the all-time best perks? It can be very affordable… that is, if you budget properly.
Many people are attracted to the digital nomad lifestyle because they can do more for less. For instance, we moved to Medellin from Southern California, which is one of the more expensive places to live in the United States. The thought of living in a country with a lower cost of living excited us immensely. Not only could we live comfortably, but we could also save money.
However, without a budget, it is easy to spend way more than you intend. After all, sometimes the excitement of, hey everything is cheaper here can end up causing you to spend more money in the long run. I always go back to one of my favorite quotes, if you fail to plan, you plan to fail.
We’ve already covered how to create a location-independent income stream. But what’s the next step? How do you maximize your time abroad without eating through your savings? This week, we decided to cover another question we get asked quite frequently. How do you budget as a digital nomad? How much does it cost to live abroad?
Budgeting 101: Why is it Important
Budgeting for our Year Disrupted before we left actually helped us see just how doable our year abroad would be, especially because we had money coming in from working online. The best part about living in a country with a lower cost of living is that you do not have to make as much money to pay the bills. Therefore, you have a bit more time to focus on creating your dream business, exploring the city you’re in, or simply relaxing and having fun.
Learning how to budget as a digital nomad is essential to staying on track with your financial goals, whatever they may be. Whether you want to live extravagantly or save up for a house down the line, a budget will take the guesswork out of staying on track with your goals. It helps you see where you’re spending too much money so you can adjust accordingly. It also helps you think strategically about your priorities. Instead of a spending free-for-all, budgeting helps you spend money on what’s important, which helps you enjoy it all the more.
How to Budget as a Digital Nomad Step 1: Think About Your Priorities
Before you even start to run numbers, starting thinking about your biggest priorities. This is actually one of the most fun steps. It helps you feel like you’re in control and gets you excited at the possibilities. For example, do you like to try fancy restaurants? Cool, do it. If you want to try fancy restaurants and put money in your savings each month, awesome! Allocate more money to fine dining and perhaps cook affordable meal preps on the other days. Is going to the gym a priority? Or can you take walks/runs for exercise and spend that money on entertainment? Maybe you don’t care about eating out but you love ordering table service at dance clubs. Go. For. It. Get excited about it!
If you want to live on a budget, you have to pick and choose. But we’ve found that deciding what’s most important can actually make those things all the more satisfying. For example, we cook all of our meals but occasionally splurge on a nice restaurant. You’re damn straight we savor every bite of that meal because it is well earned.
Start to rank your most important priorities. Decide what aspects of your life excite you most and what things are not as important.
Budgeting Step 2: Familiarize Yourself with the Local Cost of Living
When we first began our search for the perfect first stop in our Year Disrupted, we consulted Nomad List. Nomad List is an amazing resource that ranks countries based on the cost of living, safety, nightlife, ex-pat communities, and more.
We discuss why we chose Medellin in greater detail on this podcast, but cost of living was a huge factor. After our research, we concluded that it would cost about $1,000 per person, per month. And that’s living in the nicest part of Medellin due to the convenience of the location. We could’ve gotten by on a lot less. For two SoCal residents, this is huge! We’ve both paid well over $1000 in rent alone for just a room in a house or apartment.
Budgeting Step 3: Categorize Your Expenses
Separating your expenses into categories will help you stay on track. It will allow you to see where, exactly, you’re going over budget. For example, if you put entertainment/social life lower on your priority list, yet you’re getting bottle service at salsa clubs every weekend, you’ll be able to identify this quickly.
To download the budget spreadsheet we created with several different categories, click here.
Budgeting Step 4: Start Living with Your Budget in Mind
As soon as you touch down in Medellin or wherever you are, start living with your budget in mind. For example, if your goal was to be super thrifty about groceries, don’t go crazy and splurge on 10 pounds of Lobster. Be conscious for the first week so you don’t shock yourself when you analyze your spending.
Keep in mind that moving to a new place will involve some “startup costs”, ie buying spices, shampoo, etc. We actually wish we would’ve brought fewer clothes and more toiletries/practical items because that stuff is more expensive in Medellin.
Budgeting Step 5: Update and Analyze Your Spending as Much as Possible
We recommend checking in with your spreadsheet once or twice a week. Plug in all spending and purchases made that week and see how it adds up. Be patient and understand that there may be an adjustment period until you get it perfect.
Budgeting is a strategic numbers game. If you want to save money or do more with less money, you absolutely can as long as you’re strategic about it. If you find yourself spending too much in one category, see how you can either reduce spending in that category or reduce in another category.
While our budget of $1,000 per month, per person, has been mostly accurate, we’ve still had to course correct. For example, we realized we spent way more on groceries than we intended. However, we’re also shopping at essentially the Colombian version of Whole Foods. Our entertainment and social budget is on track as well as our gym/health expenses.
The Bottom Line
Whether you’re living at home or abroad, budgeting is an essential part of reaching your financial goals. It also gives us clarity and peace of mind as we continue our digital nomad journey.