Strong Dollar, Strong Nomads
You use a lot of currencies when traveling around the world; Turkish Lira (3.08 per USD), Thai Baht (35 per USD), Lao Kip (8,100 per USD), Chinese Yuan, Mexican Pesos, Honduran Lempira and the 1 Vietnamese Dong shown above.
Every currency glorifies different national heroes, prints ‘Legal Tender’ in a different language and displays different national symbols but whether I’m in Eastern Europe, Asia, or Central America, everything costs pennies when converted to US dollars.
Meals are $1.50, hotels are $10 per night and rent is $200/month. (The situation is similar for Western Europeans using the Pound and Euro.)
This unique economic environment has allowed the ‘digital nomad’ phenomenon to take off. Travel makes a lot of economic sense right now. We can work and run our companies online anyway, it’s difficult to find good jobs at home, and the alternative is to move back in with mom and dad. Why stay in the USA when we can earn dollars online and travel for cheap?
I’m thrilled to be ‘location independent’ but I, along with the majority of US-born digital nomads, need to make a confession. We’re still very dependent on the USA. We’re dependent on an economic umbilical cord that doesn’t pump oxygen, vitamins or minerals but strong US dollars.
So long as we can earn in dollars and spend in local currencies, we don’t need to do much to live well.
But if we’re all relying on that umbilical cord, what do we do if it shrivels up? What if the dollar loses its strongman position on the world stage? What if the dollar depreciates, other currencies appreciate in comparison, and your costs rise 300% or potentially even more?
The other side of the coin is clearly visible in the countries I visit. In Vietnam, trained accountants are paid about 100,000 Vietnamese Dong per hour. That’s enough to live on in Vietnam but it’s just $5. For them, visiting distant ‘North America’ is only dream.
What if the tables turned? What if the dollar depreciates and trained American accountants and other well-paid knowledge workers can no longer afford to vacation abroad?
Especially with currencies like the Chinese Yuan jockeying for position with the dollar, it’s likely that the ‘reserve currency of the world’ will eventually lose value.
If you’re relying on the strength of the dollar and coasting on $500/month, you’ve got all your eggs in one basket. That basket is floating on a turbulent, continually changing international economic environment. Your single-currency-dependence means you’re taking on currency risk that affects 100% of your income.
That’s a lot of risk and while the current exchange rates are in your favor, it’s unsustainable to maintain that risk long-term. If you’re living abroad and completely dependent on the US dollar, here are some things you should do.
1. Leverage The Current Opportunity
Whatever will happen 2, 5, and 10 years down the road isn’t in effect yet. The dollar is still strong today and you can live wonderfully for pennies in many of the world’s most beautiful locations.
You need to see this opportunity for what it is. It’s not your chance to work just 5 hours a month, drink excessive amounts of beer, and generally ‘pass time’ like a retiree living in The Philippines.
Think longer term. This is your chance to build a launch platform for the rest of your life. Invest your extra income into your first business. Use your extra time to learn everything you can and upgrade your skills.
If you position yourself well and become an incredibly valuable member of the (global) economy, it won’t matter what happens to the dollar tomorrow.
2. Make Your Income ‘Location Independent’ Too
As I mentioned above, earning only US dollars leaves you with lots of risk, just like if you put all of your money into one stock on the stock market. You’re in big trouble if the currency or stock you own loses value.
It’s wise to diversify your wealth and income, just as you would a stock portfolio. As a business owner, I’m looking for ways to sell products (and generate profits) in Europe and even India. If the dollar loses value my European sales won’t.
3. Travel… A Lot
If you love to travel this is your golden opportunity. There may be no better time to see Asia, South America and the rest of the globe. You’ve got the strong dollar and a passport accepted in almost every country.
It’s possible that in the future Americans find themselves in the position of the $5/hour Vietnamese accountant. It’s too expensive for him to travel abroad and foreign governments don’t let him in anyway because they assume he’s poor.
I Expect A Gradual Shift
I’m no economist, but I doubt the US dollar will lose value quickly like the Mark’s hyperinflation in 1920’s Germany. Normally, these shifts take place over decades. They are still real.
When I was in Vietnam last year 50,000 VND bought a bowl of soup.
Even if the dollar depreciates against foreign currencies at just 3% per year, a very reasonable expectation, it will cut your real wealth in half in 25 years and to less than a quarter in 50 years. This long-term shift will affect your long-term goals such as a comfortable retirement with luxury cruises and wine tours across France.
Prices increased 5% during the one month I lived in Hanoi last year.
Don’t just relax, drink cheap beer, and avoid work because the current economic conditions allow you to. Take advantage of the opportunity to learn more, do more and be more.
It may not be here forever.
It took the Vietnamese Dong about 50 years to get here.