Crafting a Savings Plan for a Round The World Trip

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_DSC1772I hear people say all the time that they would love to have the chance to travel the world, although to many of them embarking on a extended trip is something they think is totally out of the realm of possibilities. While it’s true that many people might have genuine obstacles to long term travel, many other people have self-imposed ones usually in the form of mental blocks: can’t quit the job, can’t travel alone, married, have kids, too old, need the comforts of home, and so on.

Then there is the matter of money. If you are already wealthy, then your travel possibilities are limitless. If you are in a tough financial situation, then you probably have other priorities that take precedence to seeing the world. If you are, however, somewhere in the middle, going on a long trip might be more attainable than you think.

A Matter Of Priorities

If you love traveling, but you love buying expensive clothes more than traveling, then you will give more priority to the latter. You don’t REALLY want to travel that bad, and since it’s not one of your top priorities, you will not make the sacrifices necessary to make it happen. You really have to want it more than almost anything else. If this is the case for you, then the first thing is to believe in yourself and tell yourself that, barring some unforeseen and unpreventable event, your trip WILL happen. It might take some time to get there, but you should be exited because sooner or later you will be on the road. In order to make it a certainty though, and not just a perpetual pipe dream, you will have to have 100% control of your finances.

Money…Money…Money

Unless you have other factors such as an illness, family issues, etc, your biggest obstacle to hopping on that plane is most likely money. You will want to research places to travel to keep your inspiration and motivation alive, but more important than travel itineraries and packing lists will be the balance of your bank account.

If you have debt (student loans, credit cards), you will then have to decide if you want to pay it off first or not. If you decide not to, you’ll have to add the monthly payments during the time you’ll be travelling into your overall travel budget. If you are budgeting $60/day but it’s costing you $10/day to make minimum payments on your debt, then your travel budget is really $70/day.

Speaking of budgets, how much will you need to travel the world for a year? Answers vary and is dependent on many factors, but assuming you will be staying in hostels, eating street food or cooking yourself most of the time, not getting drunk every night, and choose to visit cheaper countries more than expensive ones (a 70/30 ratio for example), I think $60/day is a good estimate. Some people might feel that’s too much or nowhere enough, but let’s use that as an example. If you stay in only cheap countries and limit expensive flights by traveling overland by bus or train, you could even do it for much less than that.

Some Assumptions

Let’s start by making some general assumptions. You love to travel. You would like to go on a long trip and visit all the places you want to see in this beautiful world. You have decided to make this your #1 priority from now on.

You would like to travel for a total of one year. $60 x 365 days = $21,900. Round that up to $25,000 to include flights, travel and health insurance, and pre-trip expenses. It’s always a good idea to round up wherever you can just to be safe. Don’t forget about expenses while you are away, such as the rent of an storage area for your stuff.

It’s also wise to have a bit money for when you return from the trip. You will probably not find a job right away, and you’ll need a place to stay, money for food, or maybe buy a beat up car to move around. So add another $5,000 extra for all that.

Let’s assume you have a job that pays you $2,500 each month after taxes. A job that you intend to quit when you go on his trip. We will also assume that you don’t have any debt, but at the same time don’t have any savings either because you have been spending it all every month by going out for fun and buying a lot of stuff.

The first thing you want to do is to get a complete picture of your current financial situation. For the next month or two, you will start tracking every penny you spend. You can do this the old school way by writing them down on a notebook, or you can use online sites or cell phone apps.I separate my expenses into 2 types: fixed and non-fixed.

Track Your Fixed Monthly Expenses

Fixed expenses are things that you are currently obligated to pay every month: rent, utilities like water, gas, electricity, cable TV, etc. Some of them could maybe be reduced or eliminated, we’ll get to that later on.

Most utility bills now are online and you can track the amount of each bill going back a long period of time. Spend a night to calculate the monthly average for each of these “fixed expenses”, going back 12 months. Let’s use these numbers as example:

ItemAmount
Total$1,380
Rent$800
Cable$50
Internet$50
Electric$50
Gas$15
Water$25
Cell Phone$60
Car Insurance$100
Commute To Work$150
Netflix$10
Car Fund$50
Presents Fund$20

Car Fund is for car maintenance and repairs. You put $50/month into this account and assume that that money is already gone. Not yours anymore. When your car needs new tires or an oil change, you use money from this account to pay for it. You can do the same thing for other certain but irregular expenses, like presents (birthdays, Christmas, etc) for example. I use ING Direct savings account for this since it’s very easy to create additional accounts and setup automatic transfers every month from one account to another.

Your current fixed expenses total is $1,380/month. Since you haven’t been saving any money, that means that you have been spending the rest of your paycheck each month ($2,500 – $1,380 = $1,120) on things like groceries, eating out, going to bars, clothes, or buying the latest phones/gadgets. These are your non-fixed expenses. Some of them are necessary, many of them are not. In order to go on this trip, you will have to make sacrifices in this area.

Non-Fixed Expenses And Delayed Gratification

You need to decide that since you will be traveling for a long time, you will not buy any more stuff that is not related to the trip. So no more big screen TV’s, iPhones, books that are not travel books, another pair of jeans when you already have 10 of them, and so on. All these things will have to be sold or put in storage anyway during the trip. When you come back from your trip, they probably won’t be “cool” anymore.

You will also go out less. Yes, it’ll sometimes suck when all of your friends are out having fun, but your friends are not the ones who will be going to the most amazing places in the world. You realize that every $60 you save adds an extra day to your trip. You don’t have to become a hermit though, so you’ll still spend time with his friends from time to time. On the nights that you are not going out, you can do some travel related activity like watching a travel show, reading a travel book, learning a new language, or looking at pictures of places. This will remind you of why you are making these sacrifices. There are also cheaper ways to spend time with friends like inviting them over to your house for a potluck, going to free local events, or cheap camping trips.

You then decide to cut down your non-fixed expenses from $1,120/month to just $420. This includes all your groceries, household items, going out, gifts. Everything that is not rent or a bill. I like to dump all this type of spending into one group because it gives you more flexibility. Maybe someone from out of town was visiting you this month and you had to go out and spend more than you expected, but you can cut back on other areas (groceries for example) to still stick to your $420 budget. This leaves you with $700 of savings a month ($2,500 – $1120 – $430). This is a good start. You are saving over a quarter of your take home income.

Going back to our initial target of saving $30,000 ($25,000 for the trip, $5,000 for your return fund), it would take you 43 months (a bit over 3 1/2 years) to get there . This might be longer than you expected, but at least it is a concrete plan and it’s not a guessing game anymore. If you are OK with waiting this period of time (maybe you want to get a certain number of years of work experience before taking off), then just stick to this plan and in 43 months you will be on the plane on your way to your first destination.

But maybe you want to leave earlier because you are feeling very restless, or maybe after spending those nights doing travel research, you have realized that 1 year is not enough and you might want to travel for 2 years. In either case, you will need to save more.

Cutting Fixed Expenses

Let’s look back at each of your fixed expense items and figure out if you really need to spend that much (or at all) on each of them. The largest item is rent. Yes, you might love your current apartment but ask yourself this, do you really “need” it? and is it more important than having to delay your trip? If the answer is no, then maybe you can move to a cheaper apartment, or maybe you can move in with your parents or a relative, but pay them something like $400/month so you don’t feel like a leech. If you can cut down on your rent to $400, then that is an extra $400 each of savings each month.

Next lets look at entertainment items like cable TV and Netflix. Maybe you are a big sports fan and can’t live without cable TV. Netflix is a good alternative to going out and spending more money, so maybe it’s also something not worth getting rid of. But maybe you don’t care about either, and cutting both would save you $80/month, or almost $1,000 in a year, which is enough for traveling for a whole month (or more) in India.

Do this for each item. You might not be able or want to get rid of a certain expense, but maybe you can reduce it by getting a cheaper alternative. Question everything, don’t just assume you won’t be able to live without something. Every dollar matters in bringing you closer to your ultimate goal.

Assuming that you have decided to move to a cheaper place for $400/month, and cut out cable TV, your revised monthly expenses would look like this:

ItemAmount
Total$930
Rent$400
Cable$0
Internet$50
Electric$50
Gas$15
Water$25
Cell Phone$60
Car Insurance$100
Commute To Work$150
Netflix$10
Car Fund$50
Presents Fund$20

You are now saving $1,150/month ($2,500 – $930 – $430). Instead of 43 months, it would now only take you 26 months to reach your goal of $30,000. You can even go more extreme. For example, selling your car and not having to pay insurance or contribute to your car fund would save you $150 more per month. Making changes (small or big) in your life can make a huge difference in the amount of money you save in the long run.

Savings/MonthMonths To Reach $30,000
$70042.8
$85035.2
$100030
$1,15026.1
$1,30023.1
$1,50020

Increase Your Income

Another way to increase your savings is by increasing your income. Can you ask for a raise or more hours of work (less free time to go out and spend money!)? Maybe get a part time job during the weekends? Even if it brings only a few hundred more each month, it can help a lot. If you feel that you’ve cut back too much on your “entertainment” money, then you can use this extra income for that so you can keep your sanity. Or, if you feel like you are doing OK, just add it to your travel fund to reach your goal faster.

Track Your Progress

Now that you have a concrete plan, you just have to make sure you follow it every month. Sometimes things won’t go as planned and you’ll end going over your monthly budget. That’s OK as long as you make a commitment to make up the difference in the following months. For example, if you went $100 over last month’s budget, try to spend $50 less in each of the next 2 following months.

Don’t let yourself get sidetracked or derailed.

Make Adjustments If Necessary

Unexpected things happen, so you might need to make adjustments to your savings plan from time to time. Maybe you got a raise, now you can either leave earlier for your trip, or stick to your original date but have more money saved instead. Maybe you had to spend a chunk of money on something unexpected and totally out of your control. You might have to delay your trip for a few months. Just make sure that this doesn’t become an excuse to totally abandon your plan. Get back on track right away.

The important thing is to always have clear picture of your current situation, a concrete goal, and a realistic and detailed plan to get there.

Sell Unneeded Stuff

“The things you own end up owning you”, Tyler Durden, Fight Club.

Mr Durden was right. How much harder would it be for you to leave on a lengthy trip if you had just bought your dream car, or your perfect home theater system? And how much easier would it be for you to leave, if instead you could fit all your belongings in your backpack?

A few years ago, I made over $250 selling a few old college textbooks that had been sitting on my bookshelf for years. That’s just an example, but you probably have a lot of stuff you haven’t touched for years. Sell them to both save money and also liberate yourself from them. They are just cluttering your home and your life.

Don’t Go Too Extreme

This waiting and savings period doesn’t need to be miserable. For a period of time, I was so extreme with sticking to my own plan that I forgot enjoy life in general. It had become a grind. Many of the fun stuff you dream of doing while traveling can be done at home. An example would be meeting other travelers through Couchsurfing. Maybe there are amazing places around where you live that you haven’t yet made an effort to explore. I live in California and only recently have I started experiencing all the amazing sites and national parks that many tourist from places far away come to visit.

Use the trip as a motivator for other fun and worthwhile activities as well, like getting in better shape, learning photography so you can take better pictures of your journey, and so on.

It Will Be Worth It In The End

Two years of sacrifice for a 1-year vacation is a great trade off. If you think about it, people usually only get 1 or 2 weeks of vacation for an entire year of work. Exceptional goals always require time and sacrifice. If long term traveling is a big dream of yours, I hope this article has helped you get started on the right track.

Discuss - 3 Comments

  1. 2wanderers says:

    I notice that while halving your rent appears to be an option (not to mention the super-cheap entertainment from netflix), a few things seem to be treated as sacrosanct. Adding up the car insurance, car fund, and “commute to work” line, you appear to be spending 12% of your take-home pay on transportation. And tying up a lot of capital.

    If you live in a city, a car is probably an unnecessary burden, and can be replaced by a bus pass (probably around $80 or less) or a bike (one-time expense, basically free after that).

    Your cell phone also appears to be absurdly expensive. There’s about $40 on the table there. Buy a phone at full price usually pays for itself inside of 6 months over a subsidised phone/expensive monthly service plan, and if you can get an unlocked phone, it will continue to be useful in your travels, since you can usually pick up local pay-as-you-go sim cards for just the cost of airtime (the card itself is free).

    A couple good articles about alternative cell providers in the US.
    http://www.mrmoneymustache.com/2013/05/30/republic-wireless-19-for-an-unlimited-everything-smartphone-plan/
    http://www.mrmoneymustache.com/2012/10/11/our-new-10-00-per-month-iphone-plans/

    I also feel like your trip is kind of pricey. If you can afford to live in the US for less than $1000/month, what makes you think you’ll spend more than double that traveling? Obviously, it depends on where you go, but a RTW trip usually spends a fair bit of time in countries where you can live very cheaply (Thailand, Bolivia, etc.).

    • Kevin says:

      Thanks for your comment. I appreciate your feedback.

      The expense numbers are not mine, they are just some sample numbers I came up with to simplify the example. I wanted the numbers to be as generic as possible, as to be applicable to as many people as possible. But you are right, every single expense should be looked into to see if there’s a way to reduce or eliminate it.

      I personally have a $30/month cell phone plan with only 100 minutes, but I realize that it might not suit somebody who needs more minutes.

      As far as the trip budget is concerned, I definitely went with a high estimate. Once again, I didn’t want to just use my personal example as I think I can travel comfortably for around $15,000/year for the regions I want to visit. I wanted an example that allowed more luxuries than what I’d indulge in, and more expensive regions (Western Europe for example) than what I plan to visit. I remember reading a RTW blog of someone who spent around $35,000 for a 15-month trip. Much more than what I plan to spend per day, but people travel in different ways.

  2. Maddie says:

    This is so helpful Thank you very much! :)

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