Earning in One Currency, Living in Another: Currency Risk for Digital Nomads

Did you spend too much this month?

Or did the exchange rate move?

Part of my income is in US dollars, part in Turkish lira. My spending is in whatever country I’m in that month: sometimes euros, sometimes lari, sometimes złoty.

In the beginning I didn’t think much about what that meant. At the end of the month I’d look at my spending and think: a bit much this month.

Then I noticed that in some months, I hadn’t spent more at all. The rate had moved.

While it’s happening, you don’t really feel it.

Then I check my bank accounts and my spending. The same coffee, every day, and in my own currency I’m paying more and more for it.

It’s a strange feeling.

In 2021, the Turkish lira lost 44% of its value against the dollar. For someone earning in Turkey and living abroad, that meant the same life cost about 1.8 times as much in lira within a year.

Nothing else changed. Same rent. Same groceries. Same café.

Three currencies, not one

As a nomad, you actually live with three currencies, often without noticing.

The one you earn in

Whatever currency your salary, your invoices or your clients pay in. Usually, you don’t control this one.

The one you spend in

The currency of the country you’re in. Rent, groceries, transport, cafés. Your daily life runs in it, and it changes every time you change countries.

The one you save in, or left behind

What currency are your savings in? Do you still pay subscriptions or fixed costs back home? Those are tied to a currency too, and it moves as well.

Currency risk is these three not moving together.

If the currency you earn in falls against the one you spend in, you get poorer without doing anything. If it’s the other way round, you get richer without doing anything. Neither is your decision.

Two income currencies

Earning in two currencies is, in a way, luck. When one falls, the other doesn’t necessarily follow. Part of the risk splits itself.

But split isn’t gone. When the lira side falls, my budget still shrinks. Just not all of it — about half.

A year in numbers

Let’s not use my own numbers. Let’s use a round example. Every period moves differently; the point is to see the size of it.

Think of everything in the currency of the country you live in. Your income is 1,000 units a month and your life costs 800. You save 200 units a month.

Now the currency you earn in falls 20% against the one you spend in.

• All of your income is in that currency: income drops from 1,000 to 800 units. Life costs 800. Savings: 0.
• Half of your income is in that currency: that half drops from 500 to 400, the other half stays at 500. Income is 900, life is 800. Savings: 100 units.

Same country. Same life. Same rent. The only things that changed: the rate, and how much of your income depends on it.

The real fall in 2021 was more than twice the 20% in this example.

What I do now

I keep my travel budget in dollars. Most of the time, I try to plan it and hold it in US dollars. If you live in a Western country and aren’t used to inflation, that might sound strange. For people used to living with high inflation all the time, it’s a kind of insurance.

I see my spending in one main currency. I record every country’s spending in its own currency, but I want the total in one. Otherwise I’m adding euros and lari, złoty and lira in my head. That’s why Nomad Budget stores every entry at the rate of the day it was paid and adds it all up in the main currency you choose. I try to track it all in US dollars, but I look at it in Turkish lira too.

Before I say “I spent too much,” I check the rate. Sometimes I didn’t spend more; the rate moved. Without telling the two apart, I can’t make a good decision about my own habits.

In some of those early months when I thought “a bit much this month,” I hadn’t done anything. The rate had. I still can’t control it. But at least now I can tell the difference.

I wish you exchange rates that move your way — and, when they don’t, the eye to notice.

Sources

• Reuters, Turkey’s lira logs worst year in two decades (via Gulf News), 1 January 2022