4 feet 2 mouths

Trip Tip #4: How to Finance a Year of Travel (by Nathan)

Step one- get a hand full of money!

For the fourth installment of our travel advice series, we decided to tackle a big one, the question that everyone is thinking about- How do you pay for a 14 month adventure?  It is not easy, but it is possible for anyone that is committed to the journey of a lifetime.  In the big picture there are costs of travel that are somewhat predictable; the challenge relies on funding the trip and reducing expenses everywhere possible.

Check out the entire travel advice series for all the information you might need before setting out on a trip of your own:

• TRIP TIP #1: Letting go is easier with a good travel companion.
• TRIP TIP #2: Pack what you need and need everything you pack.
• TRIP TIP #3: Plan early and leave room for spontaneity.
  

Let’s start the pre-planning.  The seed is implanted- you are going to take a yearlong around-the-world trip.   Better start saving.  Make a rough guess at your grand plan.  Separate the places into three categories, expensive ($75-125+ per day- western countries & South America), Average ($40-50+per day- SE Asia & China) and Inexpensive ($25-30+ per day- India).  Create a rough estimate of cost, say $75 per day including visas and flights; now refine that number based on the number of weeks in each type of country listed above.  Now we have a number for the whole trip.

Now, we can start saving.   The necessity here is that 1) you have a job and 2) your earn more than you spend.  Long ago, several years now, Carmen and I decided to prioritize our savings for this long-term trip. Major life decisions such as buying a house, a new car, or having a pet were considered.  For us, we put those things on hold because seeing the world was that important.  Travel around-the-world will definitely make a dent on your nest egg but I promise you, it is well worth it.  Numbers are not for everyone, but some simple budgeting efforts will help you save and spend while traveling.

Our pocket expense book

We keep track of our money while traveling in two ways.  The first is a spreadsheet or list that tabulates each ATM transaction, credit card payments and conversion rates.  The second is our pocket calendar that we write down what we spend each day (this is only necessary if you want to know exactly where your funds are going – otherwise you can just watch your spreadsheet).  We sum our outgoing expenses every week to answer the question “are on budget?”  If you have finite funds, you’ll want to pay attention closely so that you have enough money to actually make back home.  Think of travel in number of dollars per day.  If you are doing really well, then adjust for more time in expensive countries, if you are over-budget then slow down and travel more in the inexpensive countries.  Having a good bank will also make it easier to save money.

BANKING- Get a bank account that covers ATM transactions at non-bank ATM’s.  We found out this the hard way with over $300 in fees in South America.  We traveled in Europe, India, SE Asia & China for twice the time and we only spent $75 in fees.  This happens because the bank abroad charges a fee, the US bank charges a fee then there is a 1% transaction by MC/Visa.  Online banks do not have physical ATM’s of their own so they cover the transaction cost issued by the ATM.  We have been using Scottrade because it allows a pretty seamless transition to selling off portions of our nest egg into money to be withdrawn.  With Scottrade we have been able to keep fees at about 1.5%. Bring at least one other bank card, one from a big bank, not to use, but just in case your no-fee one is not working.

MasterCard Conversion Rates for July 5 – USD

Do some research on which ATM’s to use.  Some banks are very dodgy, they charge a fee to use the ATM, but then they also try to slip in an added 2-3% conversion.  Scottrade typically only reimburses $3, so you have to avoid these dodgy banks.  Use Techcom in Vietnam, Bank of China in China, and BCEL in Laos.  Europe seemed pretty standardized.  Do not use HSBC unless you already bank there, they charged me $9 for withdrawing $250 in Vietnam.  You can track the currency conversions on Google, but I like the MasterCard conversion tool.   Thailand ATM’s are horrible, they are prevalent, but most of them are owned by currency exchange houses.  This means $6-8 every time you withdrawal money.  I suggest you run a Google search (such as: site:www.lonelyplanet.com/thorntree best ATM Thailand ) before you enter a country to get the most up-to-date discussion.   If at all possible, minimize your ATM pulls by using a good credit card.

CREDIT CARDS – Most banks will tack on a fee and a 1-2% conversion which can get expensive when you are spending a few thousand dollars every month.  Get a credit card that does not have a foreign transaction fee. And use it at all possible transactions, there is no better exchange rate.  I like my Capital One cash card; Chase offers a sapphire preferred card that has some enticing initial rewards & no foreign fees, but an annual fee after a year. Find one that suits your needs and maybe you can get a bonus out of it.  Bring a spare card just in case and never let your credit cards go overdue.

The last 18 months could have earned you 25%!

INVESTING- there is no reason that your money should be sitting stagnant while you travel.  Savings accounts and money markets are not going to make you anything; CD’s lock your money into a long-term contract that does not allow you to access it.  Now, I am not your financial advisor but here is my personal opinion: invest in the stock market. I think high-dividend stocks from blue chip DOW companies are reliable for a decent return on investment.  Another option would be to invest in an index fund that has little overhead cost.   A good resource for financial advice is Motley Fool.  The reality is that I am not a day-trader but some businesses are making lots of money out there, regardless of the economy, and I am happy to let them fund my vacation.  Even if we make just 5%, it may be $2,500 and a month of travel expenses.  We recommended a Scottrade bank account, but their main operation is as a brokerage offering $7 trades.  It is very useful to sell a stock and have the money available within a week.  Try it, understand the risks of investing and hopefully it will work in your favor.

The final leg in financing a year abroad is to get rid of all your expenses.  You are wasting your money if you are paying for car insurance, car payments, domestic health insurance, phone bills, rent or a mortgage while you are traveling.  You will be much happier not worrying about all that crap anyway.  If it does not help you on your trip, then scrap it.

I understand that it is an enormous effort to afford and actually execute a trip like ours.  There are the costs of travel that need to be kept reasonably under $50 per person per day for everything.  There are the expenses left at home that should be $0.  And all this without any real income.  It can be done through careful planning, moderately paced travel and being observant of an ongoing budget.  We recommend that you fund your big trip with several years or months of dedicated saving and investing.  If we can travel around-the-world, then almost anyone can, just commit!