I recently got back from my first long trip to New Zealand. I talk about my impressions of the country here, but suffice it to say that I really like it and I’ve officially designated it as one of the places I will spend a lot of my time once I move out of the USA. My most likely plan will be to spend several months in New Zealand, then Hong Kong, then the summer in the USA every year, then repeat the pattern, slowly lessening my time spent in the USA, as I described here, using the Five Flags model to minimize my taxes and maximize my freedom.
In this article I will lay out my initial planning stages regarding the budgeting of all this. I can’t and won’t give you financial details, but I can lay out the general basics of what I’m planning.
As I’ve said many times, the primary reason for me leaving the USA under a Five Flags model is to save money on taxes. I have many other reasons that I’ve talked about many times, but tax savings is the number one by far. I make a six-figure income, and though I pay much less taxes than the typical man who makes what I make (because I follow the Alpha Male 2.0 lifestyle), I still pay quite a bit in tax. This is because I live in the USA, one of the highest-taxed nations in the history of the world.
I don’t like paying a lot of money in taxes, particularly since most of that money is used to pay interest payments to billionaire elites, bail out rich bankers, bomb and murder innocent civilians in the Middle East and Africa, and to financially support Won’t Poor people and lazy Millennials who refuse to work. Yeah, no thanks. I choose not to participate.
I currently pay around 17-18% of my income in total taxes. Not bad for an American (who typically pay 51-73%), but my goal is to get this number down to 4% or less. 0% would be ideal, and I know digital nomads and perpetual travelers who have done this completely above-board and legally. However, at my age (46) I have no interest in being a perpetual traveler and would prefer a much lighter travel schedule. So 4% will make me happy, and anything less than that I will consider a bonus.
I will also save money in that once I adopt this lifestyle, I will not own a car. I will instead use a combination of public transit, ride sharing services, and rental cars to get around. This will save me some additional expense since owning a car is very expensive (gas, upkeep, repairs, insurance, deprecation, etc).
In following Five Flags, I will not own any property of any kind in any of the countries I reside in. Thus, one could also argue that I will save some additional money by the fact that I will be renting my homes instead of owning them like I do now, since you typically get more for your money in terms of house when you rent vs. when you buy. However, the numbers and variables behind this get complicated so I won’t assume this, even if it may be true.
That’s the money I will save, which is quite a bit. Going from 18% taxes to 4% is quite a bit of an income boost, particularly when you’re making six figures. Now I need to assess how much money all of this will cost. To make all this worthwhile, I have to ensure the costs are less than the savings; ideally, far less.
Here are the new costs I will incur once I assume this Five Flags lifestyle:
1. Airline tickets for three flights per year. Some of this will be offset by the massive amount of frequent flyer miles I’ll be racking up, but it will still be a new expense.
2. Approximately six months of extra rent. I will purchase some property, cash, in SE Asia, rent it out, and this rental income will pay the rent for my homes in Hong Kong and New Zealand, so that won’t cost anything. However, in where I decide to make my primary home, I will rent a place 12 months a year even though I will only actually be there a maximum of six months. Those extra six months per year will be a new expense. I probably won’t be able to rent it out AirBnB style since I won’t be the owner, just the renter.
3. Various small international banking fees. In order to keep my zero-tax status in places like New Zealand, I can’t own any bank accounts inside New Zealand. This means all my transactions will be with debit or credit cards that will be considered international transactions, often around 1%. This won’t always be the case, but will certainly be the case for some consumer transactions I would need to make.
4. Small amount of sales taxes I can’t avoid. Right now, I pay no sales tax, since I live in one of the few states in the USA that has no sales tax (by choice). Hong Kong, thank goodness, also has no sales tax because they believe in freedom and prosperity. New Zealand, however, being the typical, socialist Western nation, has a ridiculous 15% sales tax on just about anything. The good news is that it doesn’t charge this tax on food, which is nice, and I will only pay this a few months of the year, not all year and not on everything (since I won’t buy anything expensive there, in accordance with my Country E). Yet, in a given 12 month period in my life, there will be a small uptick in the amount of sales tax I will pay.
5. Attorney’s fees. Establishing this Five Flags setup will require various attorneys from three different countries. That’s going to cost some cashola. I already met with several tax attorneys in New Zealand and they were extremely helpful. The good news is that 90% of this will be a one-time expense to get all of my finances and business structures situated. Once I’m set, I’ll be done with this stuff. There will simply be an increase in the amount of money I pay accountants for my US tax return.
6. Shipping costs. I’m sure I’ll be shipping more stuff than I do now, and be doing so internationally. Not a big thing but definitely something new and extra.
It’s my job to ensure that all of these new expenses added up is still far less than the money I will save in taxes (and lack of a car). In penciling it out on several spreadsheets, this is indeed the case, to the tune of five figures per year. This will become even truer as my income continues to grow. (My income grows every year, because I make sure it does.) If I see some savings at my current income, I will see much more in the years ahead, since I will be making more money several years from now than I do today (unless something very unusual happens).
The above is just my thought process as I navigate this stuff. As usual, Five Flags is complicated, which is why I don’t expect very many of my readers to attempt it. But if you’re considering something less complicated, like just relocating to a new country, hopefully the above info will be of help to you
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I make six figures and am fed up with how much I pay in taxes… does your book outline how you get your rate down to 15%?
Yes. There’s a chapter on reducing expenses and a section in that chapter on reducing taxes. It doesn’t go into extended detail though.
Advise on where to get the extended details? My accountant has been worthless.
Yeah don’t rely on your accountant. Most accountants are data entry workers, not consultants.
Budget Option: Do an Amazon search for Sandy Botkin and buy his latest book. (If you’re an American; if not then look around for a similar book.)
Expensive Option: Hire a tax attorney in your state.
Awesome. Thanks man. Love your blog and wealth of information, changed my life.
The problem I see with your plan is that you’re not in control of your house when you’re renting it. I rented “my” house for 5 years. I never missed a payment and never bothered the guy that owned it.
Then one day after the market had went up around 30 %, I received an email from him thanking me for being an “exemplary tenant” but due to “difficult circumstances ” he and his wife have decided to sell their Real Estate holdings.
I immediately started getting harassed by his bird brain Agent, and had strangers wandering around sticking their nose in all my personal belongings during numerous showings.
One of them was a Muslim family that used my bathroom and made a mess out of my towels getting them all wet. They were the people that ended up buying the house. I had 60 days to leave. I barely scrambled to find an apartment in that time.
It was a very shitty experience for me, perhaps it wouldn’t bother you as much?
Because you didn’t have a Plan B. Always have a Plan B when you rent. I rented a house for seven years and never had a problem, but I had a very clear Plan B if they jacked up the rent or sold it.
In addition, I will also have a Plan B for if New Zealand changes their tax laws and suddenly want me to start paying taxes there. So not only will I have a Plan B for if I need to move within NZ, but another Plan B for if I have to choose a different country other than NZ.
Redundancy, redundancy, redundancy. Never put all of your eggs in one basket.
I like hearing this: “you typically get more for your money in terms of house when you rent vs. when you buy.” Can you expand a bit? Whenever I add up the 30 year interest, repairs, and risk, BUYING a house to LIVE in seems like it’s really not worth it to me, especially anywhere in southern california where i currently live.
You just gave the reasons. But most of the reason is upkeep. When you rent and your house needs a new $15,000 roof, you just get one for “free.” When you own, that comes out of your ass. So the way the mathematics work, at least in most regions, you tend to get a little more for your money when you rent than when you purchase. There are many exceptions to this though.
That doesn’t mean you should rent for the rest of your life, however. That can be a very stupid idea. I own my house and I’m very glad I do. It depends on your lifestyle, where you live, and your future plans.
In order to be considered a non resident im most countries YOU must not own property.
But a legal entity (foreign, ofshore – as appropriate) can own “your” house and rent it to you.
IMHO, this is done for other expensive items – boats, planes, luxury cars, etc.
CJ – your view on this?
Of course it can and I’ve done things like that in the past. Five flags is more complicated. As just one example, New Zealand has a very specific definition for what they call PPOA, Permanent Place of Abode. If they deem that you have one, regardless of who owns the property, they can ding you with worldwide income tax even if you stay in the country less than 183 days.
So the situation is a little more complicated than just renting from an offshore entity.
I’m interested in becoming a perpetual traveler after I take care of a few other things in my life and have a few questions.
What is the minimum yearly income needed to maintain such lifestyle?
How long does it take to set up PT lifestyle assuming I’m starting from scratch but have the needed yearly income?
What are pros and cons of PT vs 5 flags?
Can you suggest any good books, blogs, videos on the topic of PT.
Thanks.
Here’s a fascinating video on how cutting out tax can make a huge difference to an entrepreneur who is reinvesting into a growing business:
https://www.youtube.com/watch?v=ZmUv6T0I7Og
PT? There is no minimum. I know PT backpackers who travel the world @ $500/month or less.
For Five Flags, my opinion is that you need a minimum income of at least $150,000 per year to make it viable, certainly $200,000+. You could do it at much lower income levels, but I don’t think the costs or hassle is worth it for those folks.
You could strap on a backpack and buy a plane ticket right now. Whatever that would cost. It just takes a little pre-planning.
It’s not an issue of pro or con; they are two totally different things.
PT is not having any set home, and changing international locations once every 2 weeks to 3 months. That’s it.
Five Flags is living in one country, having your passport in a 2nd country, having your assets in a 3rd country, and having your business in a 4th country.
The goal of PT is travel and experience. The goal of Five Flags is tax reduction and freedom maximization. Two different systems for two different goals.
Google perpetual traveler forums and expat forums. Tons of stuff on YouTube too; just search around.
Does your business need to be in any specific country? I mean if its a fully online business that does not need a visitor or mail address I don’t see why your business needs to be in any specific country. Can’t you just make a “delocalized” business?
Yes. In order to do any banking of any kind, your business must be a legal entity tied to a certain government.
The exception to this would be a 100% cash-only business, but that would not be location independent nor Alpha 2.0 compatible (and a pain in the ass to run). Another possible exception would be a bitcoin-only business.
The bank of course needs to be tied to a government, unless like you say its crypto only business. But I dont see why the business itself needs to be linked to a government. You can receive payments via bank transfers or paypal or similar service. As far as I know anyone can use such services regardless of whether they are registered as a business somewhere or not. Though I can see that if you want to have standard credit card payment options available then they might not like it if you are not registered somewhere?
You’re talking about not registering a business at all and just taking payments directly yourself. That’s an option, but then you will be subject to all the tax laws of your residence and citizenship; not a good idea if you’re attempting five flags.
Yes exactly. If I have a citizenship that doesn’t tax me if I don’t live there and if I do the rotating home / PT trick with not spending too much time in the countries AND choosing the right countries then I also don’t have taxation obligations in those countries. Only problem I can foresee is that if I want to have access to all the full normal banking services I need a bank account somewhere and there might be taxation laws associated with that. But that is the same under your system. Therefore maybe I missed something but I still don’t see why you need a registered business – unless that helps you with taxes in the country where you want to have your bank account(s)?
I can think of several non tax related reasons why it might be a good idea to have an official registered company though.
I was wondering – how do you fly? Do you fly business / economy premium to make it more comfortable or even enjoyable or are you hardcore economical? If you do economy do you buy memberships that allow you access to airport langues / skip security/passport queues?
1. Asset protection.
2. More privacy.
Economy Premium, which means I get economy seats and add just a little bit of money to sit in something slightly more comfortable. It’s rare I do business class or first class, but sometimes.
I’m about to. TSA Pre and that other one (the name eludes me).
Ah so that one is for whole US? The problem with the queue jumps is that they are country or even airport specifics if you dont fly business/first class. Havent found something universal yet. But I suppose if you will mostly fly between the same airports its not that complex but can be very expensive in total.
For longue access though its much easier there are credit cards for example that give you very nice purchase and travel insurance packages and longue access in 1000 aiports around the world for example. Depending on which card I get and how often I travel it can be a very good deal.
On short flights in my experience this is usually just more legroom and on long flights this costs like 20% of the flight of the ticket, so I never tried because I wasn’t sure if its worth it for just a seat that is slightly better.
Are you going to do an article on all this recent new privacy updates stuff? It seems like something you would discuss and that youd have some interesting ideas on it.
Correct, but I live in the US, so I always fly to or from US airports. If you’re a perpetual traveler, then yeah, you’d have a problem.
I use Priority Pass and Dragon Pass. Those two cover just about every major airport in the world.
I don’t know what you’re referring to. I already posted about personal cybersecurity here.
There now is a thing called Revolut. Haven’t tested it myself but from what I understand you can save on those transactions using this. Its a digital wallet that supports both fiat and crypto and can change between them according to their claim at a rate available to banks where you save on this commission. You can also order a normal credit card from them that is linked to this digital wallet.