I frequently get asked how I am able to afford to travel so much and so often. I make the same as or less than many of my friends, yet I can afford to travel while taking unpaid time off whereas some people I know live paycheck-by-paycheck or in debt. I thought about it and noticed drastic differences in my friends’ lifestyle choices that made me realize it wasn’t as simple as saving money and making time. Here are ten lifestyle choices – five mindsets and five methods – that can help you have more money to travel:
Live for experiences. (Photo taken at the Sarapiqui River, Costa Rica)
5 Mindsets
1. Commit to living well instead of just doing well. To paraphrase Tim Ferriss, it means preferring a life rich in experiences rather than rich in material goods. I suspect most people have not put much thought into their spending habits on experiences relative to material goods and that may be one of their sources of financial and emotional discontent. Determine where you’d want to fall on this spectrum.
2. Prioritize living better instead of just living more. Buying more and doing more on a weekly basis may not necessarily make you happier (have higher utility) if your goal is to travel or live differently from an unsatisfying routine. Think about your priorities and simplify your calendar by cutting out activities and expenses that bring low utility or have a high cost-to-utility ratio, then redirect that saved money toward things you’ll really enjoy, like your travel budget.
3. Spend money in ways that makes you feel rich or happy. Making more money does not necessarily make you richer; it’s really about how you spend it. This concept involves identifying what you love and what brings you happiness or excitement and then being able to splurge on it guilt-free while cutting back mercilessly on what you don’t need.
4. Live simply. Everyone wants to live comfortably, yet we confuse comfort with sophistication rather than attribute it with simplicity. People end up buying bigger and better stuff that will supposedly make our lives better and less complicated when these items bring about maintenance costs, hidden costs, and psychological clutter. The money and peace of mind saved from rejecting unnecessary purchases, especially those with baggage costs, will make it financially and mentally easier to travel. On a related note, I believe appreciating the simple things in life makes one feel rich, whereas constantly trying to one-up and chase after bigger purchasing highs leaves one feeling inadequate.
5. Remember that traveling is not that expensive. I had previously alluded to how traveling is not expensive in terms of absolute costs but it is also worth noting that traveling is relatively inexpensive or comparable with other major leisure options. Compare an average of $50/day backpacking Southeast Asia, Latin America, or Eastern Europe with an average day at the theme park, or $2500 to backpack for an entire month (including flights) once a year with the yearly costs of owning and maintaining a vacation home, yacht, or sports car (assuming people even spend 30 full days a year playing with them).
Dreamline or depreciation item? (Photo taken in Vancouver, Canada)
5 Methods
6. Set dreamlines using monthly savings goals. This method helps you finance large dream purchases by dividing the total amount needed by the pre-set number of months available before purchasing. For example, my dreamline trip to Central America had an estimated cost of $915, which meant saving $183/month for five months to finance the entire trip (I started in January for a May departure). By setting that aside that monthly amount in a dreamline-specific savings account, I ensured that the trip was financed for and was aware of what my adjusted discretionary spending limit would be during those months.
7. Calculate monthly cash flow to determine your monthly discretionary spending budget. This exercise ensures that you can spend guilt-free and debt-free on activities like shopping, entertainment, eating out, dating, bars, etc.. To determine your discretionary spending budget, take your monthly net income after taxes and retirement contributions and then subtract for your average monthly fixed costs (e.g. rent, groceries, gas, phone/Internet, and insurance), your monthly savings goals for dreamlines, and your investment contributions. The net cash is your discretionary spending budget, and it can be increased if needed by earning more on the side or saving in other areas.
8. Do not let economies of scale cut into Pareto efficiency (the 80/20 rule). If you live with others, you’ll find that it’s cheaper for two people to buy an item and share it; you’ll realize economies of scale. The problem is that you’ll keep buying items at their cheap relative costs while your absolute costs balloon. In general, 80% of your needs can be met with 20% of the items you own. It’s more financially sound to make a purchasing decision based off your 80/20 needs and absolute budget rather than on the cheap relative costs of each item; it’ll prevent those expenses from cutting into your travel budget.
9. Consider the depreciation value of the item before purchasing. I take this into account along with an item’s 80/20 efficiency in addressing my needs. The depreciation value will make many items not worth buying. I often also calculate the real cost of an item by subtracting its present cost with its future resale value. For example, if a $300 item depreciates to a resale value of $120, then the real cost to me is actually $180 since I could get $120 back (before adjusting for inflation).
10. Covert time into money, then adjust for purchasing power parity. The converted value of your time and money gives you an opportunity cost to make your spending decision against. An example of converting time to money: one hour of your time could be worth $20 (or whatever your freelancing rate may be) if you spent it tutoring a kid instead of it being sunk into unproductive activities. When adjusted for purchasing power parity, that $20 could buy you half a day’s worth of traveling in Thailand or Costa Rica.
I hope this helps you finance your next trip or whatever excites you in life. At the very least, I hope this helped you understand why I think this NY Time article gets it whereas this CNN Money article does not. I recommend reading Ramit Sethi and Tim Ferriss if you want details on strategies to making more money and time, respectively.
See you on the road! ;)
-KFC
P.S. I’m still learning personal finance and would appreciate any tips that you have.
