How to Improve My Finances? 7 Steps to Financial Freedom – Part II

As we start a new year, we make an assessment of the previous period considering what we achieved, what we haven't, what we've learned, and what is yet to be learned.

In this context, coming back to the question of “how to improve my finances” might be a good idea, especially in the new year. This is why Mundo decided to pick up our Seven Steps to Financial Freedom series, presenting the second part.

As financial conditions get harder, i.e., prices increase in some countries, and regulations are tightened in others, it is vital to understand how to get extra income in our quest for financial freedom.

How to Generate Extra Income: What is Financial Freedom?

It's important to stop and analyze this concept. In general, financial freedom is linked to the idea of no taxation, however, Mundo doesn't recommend this. A no-taxation approach may have been viable in the 90s or the 2000s but today this is very hard to achieve. What we can implement, however, is a low taxation plan or one that gets us the highest level of optimization possible.

It is fair to say that the concept of financial freedom may vary according to the person and their origins, needs, structure, and line of business. So, when we mention financial freedom in this article, we talk about making a person's finances optimal to achieve his or her goals.

How to Improve My Finances or 7 Steps to Financial Freedom

In our previous article, we showed you the first 3 steps to financial freedom according to Mundo: you find your goals, choose your line of business, and allocate your finances according to your plan.

Step 4 or How to Generate Extra Income: Choose Where You’ll Live and What Kind of Lifestyle You Want to Have

This point is vital when designing your plan. Jurisdictions like Panama or Saint Kitts and Nevis don't tax foreign income. This is a very attractive selling line but there's a whole other side to tax residency that one should consider. 

Generally, the rule to become officially a tax resident requires a stay of six months a year in any given country, and this must be proven through passport stamps, invoices, utility bills, etcetera.

Can you live in a territorial taxation country only a few days a year without a tax residency certificate and get by just fine? This may be, but what will happen when you have to prove you are a tax resident in that country, so you don’t have to be taxed in another one?

When thinking about how to generate extra income through a tax optimization strategy, this has to be considered. Hence, comes the question “do I want to live six months a year in this country?” Should I settle in a place that offers territorial tax residency? Or am I fine with living half a year in one place and half a year in another?

Naturally, for single people, this may not be such a puzzle, but things change when you have a family. Many factors are involved like schooling, language, social bonds, and others.

This is why choosing what kind of lifestyle you want and where you want to live goes hand in hand with answering “how to improve my finances”.

Step 5: Choose Where to Open your Company or Where to Establish your Operations

This question points to where you'll be getting your income or dividends. For an optimal taxation strategy, you should receive dividends or income in a country where you are not tax resident and ideally, you should be tax resident in a country with territorial taxation. 

A good place to establish an operating company is Nevis, because the company won't be liable to taxation if it operates abroad. As for your own tax residency, you can have it in Panama or Nevis itself and lower your tax burden considerably. It's worth noting that by living in this country, you’ll need money for expenses, utilities, tuition, transportation, and accommodation. Therefore, you will need to receive some cash here on which you will be taxable. Nonetheless, if this is properly planned, your taxable income will be lower. The same applies if you have dividends, rental returns, or royalties. 

Note: it's vital to find out whether there are any tax liabilities or other liabilities in the country of incorporation, or where you receive your income.

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Step 6 - How to Get Extra Income: Choose your Tax Residency Wisely

As stated above, the idea is to have a tax residency in a place with territorial taxation. You'll be connected to the country, so you want a place that offers a high-quality lifestyle and that allows you to get residency.

That's right, if you want to be a tax resident of a country you have to first be a legal resident, and this is not always so immediate. Traditional migration processes provide residency for those who have family, get married, or work or study in a given country, but they are usually lengthy and complex.

Fortunately, new tendencies when it comes to migration provide the option of becoming eligible for residency or citizenship in exchange for an investment.

This is the case of the Saint Kitts and Nevis citizenship program. In Panama, however, there are plenty of other options that don't require investments like the Pensionado Visa or the Friendly Nations Visa. 

To sum up, if you're thinking about how to get extra income by getting the right tax residency, you should choose according to the following criteria:

• What country offers the easiest and fastest path to legal residency?
• What country has territorial taxation or a lower taxation regime if I'm planning to work or do business there?
• What country offers a safe and high-quality lifestyle so that I can spend most of my time there?

With these three parameters in mind, you should be okay when answering the question of “how to improve my finances through tax residency”.

Disclaimer: this article presents general parameters to create your financial plan according to Mundo’s opinion. Nonetheless, this is only one possible approach. This article is based on editorial research; therefore, this article should not be taken as financial or legal advice. Before making any decisions when it comes to taxation, investment, business, or migration make sure to consult with a certified professional.

Discover How to Get Extra Income with These 7 Steps to Financial Freedom

We are yet to present the 7th step, to which we’ll dedicate a separate article because we consider this to be the essence of the perpetual traveler and financial freedom philosophy.

Mundo is connected with a wide range of lawyers, agents, realtors, and advisors who can help you address any of the steps described here. From getting a second residency or a tax residency to establishing a company abroad, Mundo can assist you all through the process. All you have to do is write to us and get in touch with our experts who will guide you and answer all your questions.

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