Why you need a location independent business
When it comes to living your best life, you may feel that you’re just like the masses of people stuck in a rut incapable of seeing the potential that lies just beyond the horizon.
Whether it’s sticking with a job you hate or staying in a country you believe has taken away all your freedoms, it’s easy to justify a life you are unhappy with by saying “it can’t get any better” — even if you believe it can.
Despite all the technological advances of recent years, most people still do things the old-fashioned way. They go to school, go to college, get a job in a cubicle, pray they get promoted, work the same hours as the rest of the world, shuffle papers, and retire with a dream to see the world and finally kick back.
Unfortunately, many never get to follow that plan all the way through to the end when things finally start looking up.
But the world has changed and the old way of doing things doesn’t have to be your way of doing things.
Design your life through location independence
For the past decade or more, lifestyle design experts have written extensively about how you can design your life to enjoy it both now and in the future. Rather than following the old script and simply hoping that you’ll get to that mystical “someday” in the distant future, you can harness the tools of the digital age and create your best life.
You just need the economic means to do it.
For the tens of thousands of people who have adopted a digital nomad lifestyle in recent years, work and travel are no longer mutually exclusive. Instead of saving up for years to have the funds to travel once you retire, it is now possible to travel while you work.
Together, work and travel combine to enhance the work-life balance.
With a little extra initiative on your part, you can create a location independent business that will not only allow you to escape the 9-to-5 but also enable you to go where you’re treated best to increase your freedom, reduce your taxes, and grow your money.
Between visiting dozens of countries to get the scoop on investment, business, and other expat opportunities, my travels allow me to spend time relaxing in some of the most beautiful places on earth.
Imagine strolling out of your hotel or apartment every morning, taking a pleasant walk to the market, and getting some of the freshest guava juice you’ve ever tasted — all for about $0.25.
Or, picture taking the afternoon off to shop in one of the world’s best shopping districts, all while knowing that your household chores are taken care of for you.
Lots of folks, myself included, have been designing our ideal lifestyle long before doing so became vogue. As an entrepreneur, I’ve never wanted to depend on anyone else for a living, let alone a raise.
As someone who values freedom, I like setting my own schedule and determining just how much money I want to make based on my life goals at the time.
The key to doing this is to have a location independent business. It’s the impetus for you to get out of dodge and find more freedom in every aspect of your life. Unlike your ancestors, if you want to call your own shots, you have no excuse not to become a global entrepreneur.
The barriers just don’t exist anymore.
I’ve managed large start-ups working an hour or two a day from my hotel room in Vienna or a cafe in Hong Kong. There’s no reason you can’t, too.
The essentials of starting a location independent business
In his book, “The Four-Hour Workweek,” Tim Ferriss talks about the concept of creating a “muse” – normally, a product that you can test and sell online – before quitting your job.
If the product sells well, you simply roll it out and automate production and sales so that you have a location independent source of income that requires very little management on your part.
The benefit of an online business like this is that you are not dependent on your local market to sell your wares. Not only can you operate the business from anywhere, but the business itself can operate anywhere.
As you think globally, rather than dogmatically, it becomes easier to realize that anyone in the world could be your potential customer.
These days, you don’t even need to know anything about online selling or computers to have a successful location independent business. Online entrepreneur Johnny Ward, who has traveled to 100 countries by now, explained that he had little practical computer skills when he built his online businesses.
If you have a passion and a vision, you can use sites like Upwork to outsource the parts of your business that you do not understand or that are simply not the best use of your time. Geo-arbitrage, the process of achieving lower costs by offshoring projects, is your friend when it comes to building your muse on the cheap.
Like most things, building a business takes time, but anything worth having always does. The time I spent watching the waves lap up against the rocky cliffs and beaches of Italy’s Cinque Terre or Hong Kong’s hidden beaches has been all the more worth it because of the accomplishments that got me there.
Make a living from your passion
While Tim Ferriss makes some great points about unemotionally testing a product online, I also believe passion is a key ingredient behind any successful business.
While automation is great, it feels good to be involved with your business on an ongoing basis — even if it’s only doing the parts that you like.
Many of my expat friends have sustained themselves while living overseas by working as digital nomads. By creating an ongoing product like a blog, they build a larger and larger following over time.
It’s the perfect way to showcase your passion.
Outside of the boring cubicle, there’s something you’re passionate about. Why not take the time now to start writing, building, doing, or creating it?
Start a test blog or YouTube channel and share your thoughts when you have time. Do a little research on internet tools and attract a few followers. Then, use their feedback to build a better, more permanent website for the same audience. As you build an audience, you can create products and services to help your followers learn more about your passion.
For example, I have a friend who spent her life working with children with developmental disorders who now runs a small business coaching people around the world on how to help kids on their own. Another friend writes about comedy to promote comedy tours and to sell tickets.
Even with an average endeavor, you’ll be able to earn greater amounts from your location independent business than you probably thought possible. I know people who are making six figures a month — some of them a million dollars a year — by offering consulting, mentoring and coaching through a location independent business.
You can check out our ultimate guide on how to start your own consulting business to give you some ideas of what you could do. You can also check out Tim Ferriss’s books and blog, which provide a wealth of information; read Chris Guillebeau’s book The $100 Startup to get you out of the excuse-making zone of saying you can’t afford to build your own business freedom; and invest in the services of experts like Pete Sisco who help people build online businesses.
Active vs. Passive Income
Now, there are people in the digital nomad space who will tell you that you shouldn’t trade your time for money and that passive income is the only way to really be free. But I have found that having active income via a location independent business is the key to a strong investment strategy.
When I first started traveling, I had basically “retired” for the time being and lived off my investments. But one of the things that kept me from investing as much as I should have was that I did not have active income coming in every month.
It was only when I started developing businesses like Nomad Capitalist and others that I felt comfortable enough to really go super gung-ho with my investments. Once I had a continual stream of income, I had the freedom to make investments that I never would have made before when I was so focused on maximizing the value of the assets that I already had.
So, while there is a big debate around whether you should be chasing active vs. passive income, I have found that it is best to have both.
Like the Dan Lockes and the Gary Vaynerchuks who say that your income is your most powerful tool, you can hustle, build your business, build your income, and then bring it home and park that money so that it’s sitting there, waiting for you. But you can also follow the advice of Rich Dad who says that you need to make your money work for you.
While avoiding trading time for money seems like the right move, there are many entrepreneurs that love the hustle. They love going out every day and doing what they do. If they were to retire early, they wouldn’t be as happy as they are now. People want to be doing something of worth in the world and to be paid for it.
Thus, the value of quickly turning active income into passive is all in the eye of the beholder.
Furthermore, having made investments around the world, I’ve noticed that most businesses that people consider passive, aren’t passive. In most situations, passive income is a case of managing the managers.
The most successful side hustle I ever had was a swimming pool business in the US. I had staff and a manager in place and could have run that business from overseas. However, that would have required me calling into my manager every day to stay caught up with the business, find out who didn’t show up for work, know if we had new contracts coming in, or answer any other question that I could have easily answered on my own by being physically present.
I would be managing my manager. That’s not passive income.
In the same way, the “Four-Hour Workweek” muse that you set up to essentially run itself is still not passive, even if it needs minimal management. Most real estate investments, by that measure, aren’t passive either because you end up dealing with all the calls and the nonsense.
In my case, I made two small investments in the US that required hiring multiple property managers after finding out that the first manager was doing a bad job. I also had to work with different lawyers and real estate agents.
These two investments should have been examples of passive income that ended up being a very active headache. In the end I came out fine, but it was easily the worst deal I’ve ever done.
The Tax Benefits of Active Location Independent Income
Being the Nomad Capitalist, I also take a very different view of active vs. passive income when it comes to a tax perspective. Particularly if you’re a US citizen. It’s much easier to offshore an active income than it is passive income.
And this is even easier if your active business income is derived from a location independent business.
In many cases, income that people believe is passive is actually considered active business income from a tax perspective. In the perfect scenario, you might be able to move this business offshore and pay little or no tax on an active income.
You cannot enjoy the same tax advantages with passive income.
For one, under the Foreign Earned Income Exclusion, you can only exclude the first $105,900 of active income while all passive income is taxed at the regular rate.
Another disadvantage is that passive real estate investments will tie you to where that investment is physically located. If I own property in the US, then, despite being a non-resident alien of the US, I must pay taxes for the privilege of earning income in the US territory.
Many types of passive income have similar problems. While you can avoid the worst of taxation by going where you are treated best, you will still end up being taxed at least somewhat based on the income you receive from these sources.
Active Income, Passive Growth
My personal strategy is to focus on active income by constantly growing my businesses by reinvesting their profits back into business operations. Only when I feel that the business cannot grow any larger, I take those profits and invest them in more passive sources of income.
For example, I’ll invest in real estate in countries where there is a large amount of potential for growth because growth is often taxed better than income.
If a property can be sold without a capital gains tax after two years, I will go to that country and buy a property that I can sell ten years down the road when its value has doubled but my taxes haven’t.
I can keep all that gain, making my passive income much more profitable.
I can focus on the growth rather than the yield because my business is already generating the yield.
This gives me passive growth and active income.
The question you have to ask yourself is how much you can put back into your business to optimize your income. In most cases, passive income is not nearly as optimized to increase your earnings.
If you can put half of the $100,000 your business made this month back in, you can begin seeing your income doubled or tripled as I’ve seen many people in e-commerce already experiencing. You’ll be priming the pump, allowing more and more money to flow through your foreign company where you control the terms because you’ve set up a situation where you have the most control.
Then, and only then, should you move more money into passive growth.
To create a strategy that works, you need to be honest with yourself: Is your passive income really passive? Are you chasing passive income simply because it’s what you’re “supposed” to do because you shouldn’t trade time for money?
If you can get your business going to the point where you have a team managing it and you’re focusing less time on it, accept that it’s still an active income and reinvest more money in it. Once you’ve run out of potential for more growth there, begin creating a strategy for long-term growth.
The real freedom of having a location independent business
Once your business grows, you will discover the real freedom of having a location independent business as you avail yourself of the tools we talk about here, from setting up an offshore corporation to putting a holistic tax strategy in place and to obtaining a second residence or even citizenship.
But having a location independent business must come first. It is the most important precursor to being able to invest overseas.
This has been my personal experience and I have found that it is the same for the individuals I have helped over the years.
I have had many clients who wanted to do just one more investment deal where they were living before going overseas because they didn’t feel comfortable enough with the cash on hand to go somewhere else.
That mentality holds people back from living the life that they want.
If you don’t feel comfortable investing with the assets that you have right now, the antidote is having a location independent business that is throwing off cash. Think big and you will be able to create a source of income that you can both live on and put toward your investments.
In the end, you cannot fully go where you’re treated best if you are unable to earn money from anywhere in the world and on your own terms. Fortunately, the modern digital economy makes it possible for almost anyone to set their own schedule and earn money regardless of their location.
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