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The first question many people ask us is, “Just how did you manage to pull this off, anyway?” To be able to save money and travel the world, spending the better part of each year travelling to distant lands and soaking in new experiences rather than being chained to a 9-5 job for all but 2 or 3 weeks is a hard concept to grasp for most. For the majority of people, food, bills, debts, kids, pets, etc. eat up all (or more) of their monthly income, making even a short annual trip difficult to finance, let alone multiple months on the road at a time.
Every situation is unique with regard to income, expenses, responsibilities and obligations, and long-term travel simply doesn’t fit easily into many people’s lives as currently constructed. But that doesn’t mean it’s impossible. You might be surprised how a general change in life philosophy followed by the implementation of some simple financial rules and following easy saving and investment tips can suddenly bring world travel within your grasp.
It’s All About Planning
Until we quit our jobs back in 2008, I was a Certified Financial Planner. I specialized in retirement planning and worked for a very successful financial advisor. Usually when people hear this they instantly go, “Ah, so that’s why you can do this.” But that’s not why. It is, however, why I was able to recognize the fact that this was possible. There was no magic solution we kept hidden from the general public, or some sneaky loophole that only professional money men have access to. No, it was simply a good job that paid well, my wife also had a good job, we saved hard, we invested some money in real estate at a good time, we minimized our spending, then we quit and travelled for 5 years on our savings until it was a good time to sell property. In the meantime, we’ve worked at finding ways to supplement our investment income through a variety of projects and freelance jobs. It’s more planning than magic.
Travel Tips: 40 Things We’ve Learned
Step 1: Look at Your Fixed Variables
As I mentioned earlier, clearly every financial situation is different. While most areas of your finances are at least somewhat under your control, there are two big ones that usually aren’t:
- Income
- Location cost of living
I think it’s safe to say that everybody would love to get paid more. However, if it were that simple then you probably already would be. So, let’s assume you (and your spouse, if you have one) are already making as much as you can under the circumstances. And unless you work remotely (more on that later), you probably have to live in one of a fairly limited range of locations. If this happens to be a large, expensive city, then your minimum spending is bound to be quite a bit higher than people who have the option of living in a cheap villa in Penestanan, for example. Beyond those two big factors, though, it should be technically possible to alter your spending in almost every other way.
Step 2: Figure out your Budget
Before you can figure out how to spend less, you need to know how much you are spending right now. Which seems pretty straightforward, although you might be surprised at how many people really don’t have a clue what their monthly expenses add up to.
- Determine your current spending
- Analyze it for areas you could cut back
There are some good online budgeting resources you can use to help with this process:
Financial Consumer Agency of Canada
Ok, now that you have dealt with the small stuff, it’s time to tackle the big concepts. If you truly want to trade in your daily normal for a more dynamic, less certain lifestyle of travel and new experiences, you probably need to make some hard choices.
Step 3: Use these 4 Easy Tips to Save for Travel
1. Avoid “lifestyle creep”
It is basically standard practice for most North Americans – as we gain experience, get better jobs and make more money, we increase our spending accordingly. Some of that comes with kids and mortgages, sure, but the exact figures are very much under our control. Our consumer culture encourages us to spend everything we make, and then the massive availability of debt in our economy pushes us to spend even beyond that. But if you truly want something different than mere possessions, you need to be diligent about reigning in your spending. Live within your means, don’t get sucked in by the nicest car on the lot or the biggest house on the block. We chose not to have children, which gave us a pretty big head start financially, but while kids are undoubtedly expensive items to have around, we have met many, many full-time travellers who have managed exactly the same lifestyle with kids in tow.
2. Cut corners on small things, too
Once you’ve taken steps to minimize your large financial commitments (a small house or condo / a practical, affordable vehicle), now it’s time to focus on the little details that add up to big savings over time. Eat out less, buy in bulk, ride your bike to save gas, make do with the cheaper wine. Share a list of travel gift ideas with your family and friends at birthdays and Christmas so you don’t have to buy everything yourself. And if you definitely, absolutely need to have a pet, do yourself a favour and make it a hamster, or something with a similarly short lifespan.
3. Minimize
Examine your possessions and, if you’re like most of us, you’ll realize you own far more than you could ever need. Nothing hammers home this point like travelling to distant lands for months at a time with nothing more than you can fit in a 50-litre backpack (or less). Returning home after wearing the same 4 shirts for 4 months to a couple of large bins completely full of clothes can feel a bit dumbfounding. And it’s not just about clothes, go through everything you own and get rid of anything you don’t absolutely need. Be ruthless, and sell anything with value. And if one of your least favourite kids (we all know you have a preference) might consider moving out and fending for themselves, well, even better. Financially, I mean.
4. Prioritize your debts
All debt is not created equal. Low-interest rate loans that are deductible for tax purposes should be left in place as long as possible while you invest your extra money elsewhere. Non-deductible credit card debt, however, with its monstrous rates and harsh penalties, should be paid off as soon as humanly possible. It is essential to analyze all of your debt and prioritize the payments, focusing on eliminating the worst as soon as you can.
Step 4: Invest While You Build Your Travel Fund
Now that you’ve got your spending under control, are living within your means and aren’t wasting any of those hard-earned dollars, it’s all about turning those savings into an enduring financial plan. How much money you need will depend on your specific idea for the future. Some people are happy to start with a year off to travel and then see where things go from there. Others want to set themselves up for 5 years, 10 years, or even longer, if they are going to bother overhauling their life. The process will be similar, though, regardless of the number you have in mind.
1. Prioritize Saving to Your Travel Fund
By setting up automatic savings plans that invest money immediately every time you get paid, you can reduce the burden on your will power. Determine an amount you feel you can afford to put away and ensure it never makes it as far as your bank account.
2. Seek professional help
Do not underestimate the importance of a good financial advisor. Financial ads today, especially those for online brokerage firms, are all about low fees and avoiding greedy advisors. These companies are eager to convince people that they can invest just as well on their own as highly-trained, experienced financial advisors who spend every day immersed in the financial markets. Well, as you know, I used to be a financial planner, and I can say with relative certainty that, although the abilities and knowledge of financial advisors can vary widely, pretty much every one of them knows more about investing than you do. There are some exceptions, of course, as I know some private citizens who have worked hard to learn all the ins and outs of investing. If you are one of those people, though, you already know that. If you aren’t completely sure… get yourself an advisor.
3. Diversify
This applies both within your investment portfolio itself – every good advisor recommends an appropriate mix of fixed income, equities and alternatives – and your overall cache of assets. Real estate and the stock market often trend in opposite directions, so having your thumbs in both will help even out the ride. A house or condo is a good start but for those that can afford it, additional rental properties can provide great potential and an additional income stream.
4. Focus on tax efficiency
It doesn’t matter how much your investment increases in value, what matters is how much money ends up in your pocket after you liquidate it. Every developed country offers some excellent vehicles to minimize taxes and increase your overall wealth. Registered Retirement Savings Plans (RRSPs) in Canada and Individual Retirement Accounts (IRAs) in the United States offer immediate tax savings and sheltered growth but are taxable upon withdrawal. Tax-Free Savings Accounts (TFSAs) in Canada and Roth IRAs in the U.S. both offer the sheltering without an immediate tax deduction but are not taxable when withdrawn. Non-registered investment growth is taxable annually, although it is possible to defer much of the tax if your holdings are structured properly. Different countries provide different alternatives, but the important thing is to get expert advice to make sure you find the right balance for your particular situation.
5. Don’t “treat yourself”
For some reason, people tend to treat financial windfalls differently than any other income. Just because you weren’t expecting that big tax refund, or year-end bonus, or surprise inheritance, doesn’t mean it’s play money. Sure, it can be tempting to take this cash and “do something fun” with it, and for many that can be an enjoyable and worthwhile plan. But if you’re serious about maximizing your wealth and changing your long-term lifestyle, then these unexpected lump-sums need to be invested instead. Along those same lines, even if you love getting a big chunk of money back from the government at the end of the year, it makes far more financial sense to instead make sure you are paying the right amount of tax throughout the year and invest the difference monthly.
Step 5: Figure Out How Much You Will Spend Traveling
There is no set answer to this, but don’t even bother considering what you spend right now. What people spend in retirement is always much different than when they are working (lower expenses but more time to spend, no kids but more RVs). And the difference will be even more pronounced if you are planning to travel extensively. Your actual spending will depend on many factors including destinations, seasons, travel style and activities. There are shoestring backpackers that manage to make their way around the world on $US30-40 per day. On the other hand, there is no shortage of luxury hotels or extravagant tours that would be happy to help you take that number closer to $US1,000 per day. Most mid-range travellers, however, come in much closer to that bottom number. We still consider ourselves backpackers but definitely don’t qualify as shoestring anymore. Other than on the occasional long trek, we pass on dorms in favour of basic, private rooms or affordable apartments. Often we choose longer stays in cheaper destinations. We rarely take tours, only choose taxi over public transport when absolutely necessary, and eat out at least once a day but almost always at restaurants on the lower end of the cost spectrum. Based on that, and taking large expenditures like flights, safaris or scuba diving out of the equation, here are some very rough spending estimates around the world (per person per day).
Southeast Asia: $US 40 (Myanmar) to $US 100 (Singapore)
South America: $US 30 (Bolivia) to $US 80 (Chile)
Morocco: $US 40
Guatemala: $US 30
India: $US 20
Western Europe: $US 60 (Spain) to $US 150 (Switzerland)
North America: $US 100
Once you’ve narrowed down your potential destinations, check out these great budgeting resources:
How Much Does it Cost to Travel the World?
Neverending Voyage Travel Costs
It should be easy enough to figure out your flight costs, add in any special expenditures you have planned, and you may even be able to pinpoint your accommodation costs fairly closely if you choose to book rooms in advance. This will give you a pretty good idea of how much each trip will cost and you can use this knowledge to come up with a general estimate on how much money you will need each year to incorporate your plan.
Step 6: Make Money While You Travel
The other side of the formula to determine how much you need to save is to estimate how much money you expect to have coming in while you travel. It is important to factor in any ongoing sources of income as these can make a big difference.
- Rent out your home
This is a good first step, yet one that a surprising number of people ignore. Whether it is a big, beautiful house with a view or a small, practical university-area condo, finding a reliable renter to help defray your travel costs can significantly reduce the amount of investments you need to accumulate. It is also possible to rent it out furnished, which saves the hassle of moving furniture and appliances in and out every year and leaves that much less stuff to put in storage while you’re gone.
- Get a job
Whoa, hold on there! Isn’t the whole point of this to quit working? Well, maybe. But not for everyone. While spending the next 3 months at an Indian ashram that specializes in intricate ear wiggling exercises and deep-sea meditation might require you to quit your local 9-5 job, there is a seemingly endless list of employment opportunities that do not require your physical presence. As globalization continues unabated, the remote job market has been increasing exponentially. Finding one that matches your skill set is a great way to supplement your travel income and extend your travels, potentially indefinitely. Or you can look for temporary work on location – teaching English (or another language), doing seasonal labour or joining local projects are all ways to subsidize your spending.
- Volunteer
There are a surprising number of “volunteer” organizations out there that not only ask you to donate your time and expertise, but also a sizeable chunk of cash just for the opportunity to work for free. If one of these has a position and cause that really speak to you and it fit into your budget then, by all means, go for it. But if one of the main reasons you are looking into volunteering is to spend less, then you should focus on smaller local organizations that have less overhead and don’t require billions in funding just to operate each year. You don’t usually have to ask around long to find a good cause.
- Start a blog
It’s super-easy, and we’re all incredibly rich. And if you don’t believe me, well, just sign up for my “How to Get Rich Writing a Travel Blog Every Week or So” course for just 4 easy instalments of $2,500 each. Seriously, though, it is actually possible to make money managing a blog or website, and it is really quite easy to start a travel blog, although in most cases the return won’t be at all comparable to the amount of work you’ll need to put in. Either way, far more dedicated and successful bloggers than I have produced comprehensive guides on the subject, so don’t take my word for it.
8 Important Pros and Cons of Blogging
How & When to Monetize Your Blog
5. Get Sponsored
If you are able to find a unique niche or are willing to take on an interesting challenge it may be possible to have your travels sponsored. Sponsorship is one of the most popular ways to make money while overlanding, completing extreme physical activities or raising awareness for a good cause.
Step 7: Determine How Long Your Travel Fund will Last
All right, you’ve got your plan. You’ve streamlined your spending. You’ve built up a solid investment portfolio. You own your home, and maybe another property besides. You have a pretty good idea how much you’ll need to spend. You’re ready to make the leap. You walk into your boss’s office, you give him or her a creepy grin, and next thing you know you’re urinating all over their desk. For better or worse, you are now truly free of those pesky employment constraints.
Now you take your spending estimate, subtract your income estimate and, voila, you basically know how much money you need to withdraw from your investments to live each year. So, now the question becomes how long will your assets last?
A (very) general rule of thumb is that you will need 20-25 times your annual expenses to last you the rest of your life. Of course, this will vary greatly depending on rate of return. While North American stock markets have averaged around 10% returns over the past century, most advisors feel that 5-6% is a more realistic and conservative estimate to plan around. It is also crucial to factor in inflation. A 6% rate of return is really only 4% if the cost of all your expenses increases by 2%, which is roughly what inflation has averaged this millennium.
But, if you were hoping for some wild predictions that are in no way guaranteed by me, well, I’d be happy to oblige. Based on our extremely rough 6% rate of return and 2% inflation rate estimates, and spending requirements of $40,000 per year, you could expect the following results:
$200,000 would last 5.5 years.
$500,000 would last 17 years.
$800,000 would last 38 years.
Maybe you find a way to make $10,000 per year, either working or renting out your home. Then you only need to withdraw $30,000 per year and those sums last 7.5, 26 years and forever, respectively.
Or we can stick with our $40,000 per year but the markets perform well and you average 8% returns. Now you can increase the years to 6, 22 and forever.
Maybe your investments go the other way, though, and you end up getting just 4%. Your time frames are lowered, although maybe not as much as you’d think, at 5, 14 and 25 years.
Here is a quick and easy calculator you can use to play around:
How Long Will My Savings Last Calculator
In the end, the key to any successful financial plan – travel or otherwise – is to plan around your best estimates but continue to monitor and make adjustments over time. Nothing ever turns out exactly the way you think it will, investments maybe less than most. But by following these suggestions, adjusting your spending and committing to a long-term travel plan, a nomadic lifestyle could be more realistic than you ever imagined.
Further Reading
Ok, now that we’ve covered all the most important considerations for funding and maintaining a long-term travel lifestyle, it’s time to direct you to some additional reading. Start with How to Travel on a Budget and our Universal Packing List, then have a look at the following books that provide valuable information on saving money:
Nice one! I always get the same question. Hope to see you down Guatemala way! From Antártican Mike (now in Argentina)
Thanks, I’ll bet people wonder about your situation all the time. Are you going to be in Central America this winter?
Great article. I really love this kind of stuff. I like the 20 to 25 times annual expense number….it was weird at first, but its really the draw down rate of 4-5% right? For those who want to be super conservative, a lower drawdown rate would be better as your eating away at your nest egg slower, in fact, if your investments do well, you could easily have this egg last forever as the inflow exceeds the outflow. Another safe way would be to only spend at the annual dividend income received. This amount normally increases annualy above the inflation rate, so year after year your income rises…not bad right?
My issue with most advisors (not you specifically) is expected return. Almost every advisor in the financial retail space advises a pretty high fixed income to equity ratio within a portfolio which in the longrun will drop average returns well below the 9% equity average. By being safe with fixed income you kind of guarantee having to work longer or retire with less which is a sure fire way to risk eating cat food in ones older age.
What helped me to determine how much i needed for retirement was to use a spending tracker app to determine monthly cost. I did this for over a year, inputting every cost to the penny. Its really tricky because pre retirement spending will be different than post retirement. But at least it provides a valuable baseline to determine how much money you need to retire. The app will also break down your spending by catagory ie food, entertainment etc…it gives you a perspective that most people as you mentioned are unaware of.
Again, great article.
Marc
Good points, you were actually one of the people I was thinking about when I said there are some exceptions to the “advisor knows more than you”. Yeah, that 20-25 number comes from the common 4-5% draw down and definitely a lower number would be more sustainable. But for general purposes it works. As you know, there are no hard and fast rules, I just wanted to give an overview of the important considerations. And I agree, maybe the biggest thing is that it is so hard to know exactly what we spend without tracking it, so many things that don’t come to mind but add up.
Anyway, glad you liked it, looking forward to seeing Slow Sally’s renos this winter.
Great article!
I like this article. One of the parts I like best is when you point out that the lifestyle you’ve achieved is not “magic” and then follow-up with all the steps you’ve taken over time to make it happen. I’m often told how “lucky” I am to spend a large part of the year travelling. This suggests that I can do it because I’m lucky and others can’t because they’re not. Don’t get me wrong – for sure I feel fortunate to be able to live the way I do. But in reality, like you, my lifestyle is the result of years of planning, saving, prioritizing and in some cases – sacrificing. I think that a lot of people could travel (or pursue other hobbies) more and work less if they put your advice into practice. Great article!
Thanks, Natalie, I wholly agree. I think seeing how you two travel much differently than us yet we both end up doing some very similar things as well is a great example of how there’s no one way to make it all happen.