Are you finding it difficult to save money for travelling or just can't seem to get ahead? Well the answer is a budget!
When people hear the word 'budget', it often conjures up images of eating 2-minute noodles, staying at home watching TV every night, having no fun or just generally doing it tough. Well it doesn't have to be that way and understanding what and where you spend your money on is the fastest way to make your dollar go further and achieve your goals. And if you're reading this then I'm guessing your goal is to travel more!
Having a budget is great for a number of reasons:
You start to understand where all your money is going and then you can decide what’s essential and what’s not.
Once you’ve established what's not essential, you can direct that into savings or investment.
It can help you determine how much money is required to achieve financial independence (defined as doing what you want, when you want and not being restricted by a job). For example, if you've figured out you need $60K per year to live comfortably, travelling the world, you know you'll need to generate $60K from some source to travel perpetually.
We're very lucky to have travelled as much as we have but it wasn't by chance. We're not recipients of a lotto win or a trust fund and if we were we'd have travelled even more! We've managed to realise our dreams through hard work, saving a large portion of our income and investing. And a budget was the backbone to achieving all that.
Looking back, I think our first official budget, i.e. actually documenting our income and expenses, was back in 2006 while living in Las Vegas. I had been transferred from London by the company I was working with at the time and Jen continued to work for her London employer in a remote, ad hoc basis. As our income had dropped but our goal of doing a snow season 12 months later in Canada remained, we had to ensure we had enough funds to make our dream come true.
And that’s where our budget came in. It was a pretty simple budget spreadsheet at the time as we just wanted to understand where we were spending our money. We knew our income but we really hadn't tracked our expenditure previously.
Before I go on any further, I need to let you know that on many occasions we've strayed off the path. We're not perfect and we give into human emotions just like the next person. You know, you've had a tough day at work, nothing seems to be going right and you feel like you 'deserve' something.
So off you go to dinner, drink a bottle of nice wine and blow your monthly going-out budget by 100%!
Or you get tempted by the newest gadget or car and you 'must' have it.
Well I can tell you we've succumbed many a time so don't feel too bad if things don't go right for a month or two. What's important is that you actually have a plan which makes all the difference in the world!
So where do you start?
You can keep it really simple by using Microsoft Excel (or some other spreadsheet) - it’s a great intuitive tool that is way more powerful that people give it credit. Fast forward 10 years and we still use Excel but our template has been refined many times to where it is today. We've used other fancy apps and budgeting tools (our favourite was the HomeBudget app as you could sync between phones) but we've found the easiest and simplest budgeting tool to be Excel which we store in Dropbox. Dropbox is an online, file storage service that's free to use (you'll get 2GB of storage for free, more storage will cost). We love using Excel in Dropbox as we can update from any device, anywhere, by either of us.
Side note: If you'd like a copy of our free budget spreadsheet template, that can be easily customised to reflect your situation, please fill out the form below and we'll deliver it to your inbox straight away.
Hint: If you sign up to Dropbox, you'll also be able to use MS Office online for free! Oh and every time you recommended someone to sign up, you get more free storage too. We haven't had to pay for any extra storage to this date.
Record everything you make and everything you spend for a 3-6 months. And I mean everything! Any money that leaves your wallet, bank account and debit or credit card needs to be recorded. Don't forget direct debits or really small items like a bottle of water. You must record where every cent goes.
Hint: Keep all your receipts until the expense has been entered into your budget. It's way too easy to forget to enter an expenses here-and-there if you've forgotten to grab a receipt.
Project the figures you've recorded to work out your annual budget and then divide by 12 to give your monthly targets.
Now you've understood where your money is going and how much you're bringing in, you can understand if you're in surplus or deficit!
Understand how much money you need for your next holiday / extended travel adventure and how long you have before you head off. For example, if you think you'll need $10K and you have 12 months before leaving then your budget surplus needs to be $833 per month.
Side note: How do you know how much you're going to spend on your holiday? Well that's a tough one if you haven't travelled much before so you're going to have to guestimate. I'll be writing a separate article to discuss this at the end of our 9 month journey. I'll give you a run down of our travel budget, with real-life examples, so it will give you an idea on where to start. Look out for this in August 2016.
Tweak it! So did you really need that second cup of coffee today? Between a couple, an extra cup of coffee each, five days a week, will cost you over $2000 per year. That could be 20% of your next holiday!
And all that stuff you buy that just sits around the house accumulating dust is not really required. Don't get us wrong, we love 'stuff' too – snowboard gear, mountain bikes, etc. but we understand that buying this stuff will have an impact on our savings.
Hint: Why not free up some extra cash and add it to your savings by selling the stuff you don't need? We've done this many times in the past using Gumtree, eBay and Craigslist (in the USA and Canada). Apart from eBay, there are no sellers fees.
Be flexible and realistic. It's no good having something so tough to stick to that it makes your life miserable. It's like those fad diets – you can stomach it for a little while but it's not sustainable.
For example, we both have a monthly 'personal' budget – we can buy anything we want as long as it doesn't go over the predetermined amount. That way you can still buy the stuff you want, you don't feel like you're missing out and there's no guilt (especially if you're a couple as you both get to buy stuff but there's no issue as it's all been accounted for).
You're totally aware of where the money is going, you've budgeted for it and your overall budget is still in surplus. For big ticket items, we might have to 'save' our personal budgets for a few months until we can afford it – having flexibility like this allows you to achieve your objective without feeling like you're doing without or feeling guilty.
Supercharge your savings. Continually tweaking your budget to increase your surplus is the secret to long-term financial success. The more surplus you have the more that can be invested into savings, paying off the mortgage or increasing your share portfolio. Imagine how much more you could travel if your house was paid off and while you were gone someone was paying you rent!
Planning and Goal setting
What's your goal? If it's to have nice things around you, the newest car, the biggest house, and you don't mind working until you're 65 to have those things then great. Everyone's different so you have to understand what's important to you.
For us, it's freedom. Freedom to go anywhere in the world, spending quality time there and not be shackled to things or jobs. And to do it while we're still relatively young and healthy.
What's that famous saying? "The things you own will end up owning you". Or something like that but it's so true.
We're currently (April 2016) on a 9 month trip in North America and that wasn't by chance. Back in 2010, we knew we wanted to do another snow season but hadn't exactly decided where – that came in 2013 when we were in Colorado on a 3 week ski holiday and decided we wanted to come back for a full season. So we knew that we had to have enough funds to last 9 months but more importantly have our savings and investments topped up and our mortgage significantly lower.
So how did we achieve all this? Of course with a budget! We tweaked and tweaked until we were saving as much as we could – paying off the mortgage, increasing our share portfolio every month and increasing our cash savings.
Sure there were 'things' we wanted but did without because we had our eye on the prize. At times it was tough but we kept thinking, "how awesome is it going to be when we get to Colorado and we have the option to snowboard every day?" – that was one hell of a motivating factor to keep us focussed!
We lived relatively modestly but it was kinda fun watching our savings increase and our mortgage decrease (a bit nerdy I know!). Once you see this happening it's a snowball effect – you revisit the budget and try to save even harder!
Where can you achieve the biggest savings?
Once you buy a house, keep it! Nothing eats up your funds quicker than loan establishment fees, real estate agent fees and stamp duty when you change properties. Do you really need that bigger place or would you rather go on a 6 month travel adventure?
If it's still working ok, keep the car for another few years. That extra $20K you were going to spend to upgrade your car will be $40K in 8 years (+/-) if you invest it in an index fund (tracks the share market). And that original $20K will be worth a whole lot less in 8 years if you spent it on a car...
And try really hard not to borrow money to buy a car as you'll lose money 2 ways - interest on the loan and depreciation on the car!
Five star restaurants. Sure on the odd occasion it's good to spoil yourself but don't make it a habit. Don’t get me wrong, we love food, but sometimes eating at a hawkers hut for $15 can give you just as much satisfaction as eating at a fancy restaurant for $100. And if you must eat at a fancy restaurant, hunt out their 'cheap' nights (usually during the week) - you could eat in style for half the regular price!
Five star accommodation. A week in a five star hotel could support you travelling in Asia or India for 2-3 months. Think about it and if the sacrifice is worthwhile, then go ahead but just be aware of what it's really 'costing' you!
Hint: You can actually stay at some pretty nice places without spending a million bucks. Check out our article How to Find Cheap Short Term Apartment Rental for some tips.
Subscriptions - do you really need Foxtel, those magazine subscriptions, etc.? That's another $1000+ per year or potentially 10% of your next adventure.
Non-essential stuff, e.g. upgrading the perfectly good lounge suite to a new one. That $5k will be gone in 8 years but double if you saved it... So much stuff we buy for the house is not really required and before you know it, it has added up to $10-15K per year. Without a budget you'll be wondering, "where did all my money go?".
Never, ever use your credit card if you can't pay it off completely every month (or whatever your card's interest free period is). Nothing chews through your cash quicker than the 21% interest you pay on credit cards!
Hint: We've used credit cards to accumulate frequent flyer points but always cleared the balance back to zero at the end of each month. You have to do the sums to see if your annual credit card fee can be justified compared to the frequent flyer points you accumulate. If it can and you know you can clear the balance every month, then it's not a bad way to reduce flight costs for future trips.
Clothes. We all need to be clothed but does it have to be in that designer label shirt that costs $200? I don't want to sound like Scrooge McDuck but what's your priority – travel or designer label clothes? If it's the clothes over travel then you're probably reading the wrong blog!
I hope the above gives you food for thought. To be fair, if you're even thinking about a budget you're ahead of the game already!
I will be writing a blog soon about what to do with all that surplus that your budget is now generating! We know the surplus is for travelling but what if our investments could pay for our perpetual travelling – how cool would that be? I'll cover things like savings and investment and how to plan for an early 'retirement'.
By now you've probably figured that our retirement plan is not about sitting at home in front of the TV all week or stopping work completely, but rather travelling the world and exploring new places. It's essentially about having the freedom to do what we want to do. That may mean some work along the way but work we want to do rather than we have to do!
In the meantime, if you want to learn more about getting ahead, investing and improving your saving habits, read up on Warren Buffet and for our Australian followers, Scott Pape. I've taken a lot of inspiration from these guys. Scott has an awesome monthly newsletter, The Barefoot Investor, that we subscribe to. His independent, no bull advice is refreshing in this day and age. I can't recommend him enough and he has a loyal Facebook investment community too that addresses many day-to-day challenges that we all face.
N.B. We have no affiliation with Scott Pape and do not receive any compensation for recommending him – we just love him!
I'm sure by now you can see that a budget doesn't have to be scary, boring or complicated. Saving money for travelling should be easily achievable for everyone as long you have a budget plan!
If you'd like any advice or have any questions, please either leave a comment below or send me an email at firstname.lastname@example.org. I'm also happy to take a look at your personal situation and budget if you feel my guidance would be beneficial.
So don't wait another week, month or year before you start your savings budget. You'll be amazed how much you'll start saving once you know where your money is going. And the sooner you start saving, the sooner you'll be on the road.
And we might just see you out there!
P.S. Remember if you want a copy of our free budget template spreadsheet, just fill in your details below and we'll send it to you!
P.P.S Since writing this we've tweaked a few things on our budget philosophy - head over to Saving For Travel - Part 2 to see what we're doing these days.
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Mick is a lover of speed runs and hitting every feature on the mountain. Ex road bike and motocross racer with plans to dabble in mountain bike racing. Spends a lot of time looking at fast cars and bikes. Jen’s instagram model and selfie camera holder due to long arms. Sometimes an optometrist.