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Avoid the freak-out: getting to grips with the shaky earnings of a digital nomad

Mish and Rob are freelance writers and web development project managers. Since March, they’ve been completely location independent – giving them the freedom to travel wherever they want to go, whenever they want. They’re happy to admit to being “unadventurous adventurers”: they like to live in nice, clean apartments (with air conditioning, wifi and decent mattresses), in nice, civilised cities. Read their stories, guidance and advice on www.makingitanywhere.com

So you want to go location independent, but you’re about to have a major freak-out: you don’t know if you’ll make enough money, and you don’t like the idea of an irregular income.

I have good news for you. And also bad news. But then more good news. A bad news sandwich, if you will:

Good news! You live in one of the most expensive countries in the world. And if you live in London, you’re used to a place where spending £20 to park your car for an hour is generally accepted as an entirely sane thing to do.

What does this mean for you? Maintaining your current standard of living will cost you less almost anywhere else in the world. Enjoy the odd three-course meal? It’ll cost you less than £8 in Chiang Mai, Thailand.

How about trips to the cinema? A ticket is about £3 in Buenos Aires, Argentina. Check out more comparisons for yourself with Numbeo’s cost of living comparison tool.

pad thai – nine quid in wagamama, less than one in thailand

Bad news: You’ll earn less than you do now. For the first few months at least. Maybe forever. Even if you get to the point of earning more, you’ll never again have the security of knowing exactly on which day you’ll be paid.

But forget about that - good news! The very nature of being nomadic means you’ll need less money. For a start, you won’t be able to buy “stuff”, because you’ll have to cart it around with you.

You won’t have to buy suits, or shoes that seem to say “I’ve totally got this merger on lockdown, Mr CEO”. You won’t have to buy a season ticket for the train, or pay Pret crazy money for something soggy involving rocket and crayfish.

You can hang out with this guy in the sea, rather than eating his overpriced buddies

OK, so we’re all happy? Not freaking out yet? Let’s dive into the practicalities.

Plan before you go

Your living costs will be determined mainly by your location. But wherever you choose to live, you’ll need an amount saved up in the bank (or under your mattress – it makes no difference these days) while you get your new business going.

How much should you save? However long you think it’ll take for your new business to cover your living costs. Doubled.

In startup circles, the amount of time you’ve got to make the business generate a profit is known as your “runway”. The length of your runway is equal to the amount of cash you’ve got in the bank, divided by your “burn rate”, or the amount of money you burn through in a month.

You don’t want to run out of runway

If saving enough money is going to be a problem, you could reduce your burn rate by moving to a cheaper part of the world. In parts of Southeast Asia you can comfortably live on under £750 per month, so relocating there could easily treble the amount of time you’ve got to make a profit compared to staying in Western Europe.

Alternatively, if you own the place where you live in the UK, you might want to think about renting it out while you’re away.

The rental income (after management fees and a contingency for repairs) could cover a substantial chunk of your expenses in another part of the world, reducing the pressure on you to make your idea work right away.

Embrace uncertainty, but try to control it

Unpredictable income is a fact of freelance life, however carefully you manage things – I once went without any income for over three months and ended up being owed more than £15,000.

Whatever business you’re running, cashflow is everything. If you’re freelancing you should get as much payment upfront as you can, and get on clients’ cases the minute a payment becomes late. If you’re selling products, prepare yourself for an inexplicable lull in sales just as you’ve placed a big order. It happens.

This guy lies

A cash reserve is your only real defence against the vagaries of income, so having an emergency fund in a separate account could do wonders for your sanity.

Think in terms of multiple streams of income

In a way, having a job is one of the riskiest things you can do: 100% of your income depends on a single source, so being laid off would have a catastrophic effect. Having multiple clients as a freelancer helps spread the risk, but you’re free to earn money in other ways too.

For Mish and me, the bulk of our income comes from writing for clients. But in the last few months we’ve also earned money from book royalties, sales from a side-business, rental income from our two London properties, and teaching classes through Skillshare.

Anyone can do the same. If – in your “main” career as a digital nomad – you consult with small businesses on their HR procedures, for example, you could also write a book with your advice, sell standard documents on a website, or develop a sideline doing something totally unrelated.

You can wear many hats – but not these ones, or you’ll just look silly

Building up the different streams is a slow process, but it’s worth developing income sources that don’t involve exchanging your time for money. That way, you can take a few weeks off to travel full-time and still have money coming in. It’s a great feeling.

Make travel cheaper than having a permanent home

It might seem counterintuitive, but travel does make for a cheaper lifstyle – you become naturally more focused on experiences than possessions, and you’re bound to be living somewhere cheaper than the UK. But there are things you can do to bring the cost down even further:

  • Base yourself in the same city for at least a month at a time – you’ll be able to get cheaper stays with Airbnb or a serviced apartment for stays of 28 nights or longer
  • Spend on a credit card that maximises your airmilesMoney Saving Expert has a comprehensive article about it
  • Switch your current account to Metro Bank - they don’t charge any fees for foreign transactions
  • Before you travel to your next location, use a price comparison site like Skyscanner for booking your flights

Don’t panic!

Above all, set yourself up financially before you leave so you’ve got a bit of breathing space, then relax. The uncertainty is terrifying at first, but soon you’ll wonder why you ever chose rush-hour commutes and arguments about drywipe marker pens over this.

  • Adele

    Thanks again guys! Loved this point: “In a way, having a job is one of the riskiest things you can do: 100% of your income depends on a single source, so being laid off would have a catastrophic effect.” Bill Rancic from the Apprentice (USA, Season 1) talks about this in his book and the point really resonated with me. Similar to this: http://www.stevepavlina.com/blog/2006/07/10-reasons-you-should-never-get-a-job/

  • http://www.mydestinationunknown.com Kellie

    “having a job is one of the riskiest things you can do: 100% of your income depends on a single source” – I love this comment! So many people are reluctant to take a leap from the ‘security’ a permanent job brings but forget the risk associated with it that is described so succinctly here. Great post!