You want to go on a big adventure? Great! You’ve already done the hardest work. Making the decision to challenge yourself is a really big accomplishment, and you haven’t even gone out the door.
My husband and I knew that we needed to get out of the city we were living in. We wanted to live somewhere green and rural, but hadn’t found the magic spot. But instead of waiting for somewhere to appear, we decided to get our finances in order so we could move when we were ready. And at the same time, we started saving for a bicycle trip around Europe.
Three years later, we haven’t settled in one place and we’ve never looked back. We’re living in Europe by house sitting and working remotely. Each summer we go on a one to three month bicycle tour. We could never have imagined that we could re-engineer our lives in this way. Once we decided to go, our momentum carried us to where we are now.
The next step after making the decision to go is to figure out how you’re going to do it.
No matter what you decide to do, you’re probably afraid of the financial side of things. And that’s perfectly normal. It’s not easy to change the way you relate to money. But it is possible. We were both in credit card debt, had (and still have) huge student loan debt, and had no financial safety net to fall back on. Neither one of us comes from a family that could do more than let us move in for a couple of months. It’s nice to know there’s a warm room somewhere that we can always return to, but even that prospect — of moving back in with our parents — helped us to get out and succeed at living our adventurous dreams.
Anyone can change their spending and saving habits. Anyone.
Most people assume that financial planning is an innate skill and either they’ve got it or they don’t. There may be some people who find it easier to control their finances, but if you want to learn, you can learn. Do you know basic addition and subtraction? You’re ready to go.
Right. Here are the 7 simple steps you’ll complete in order to get on the road.
Of these seven, there are three steps to start checking off immediately:
- Write up a budget of your current income and expenses
- Set a daily budget for your trip
- Create separate bank accounts
And four steps that will take some time:
- Figure out what’s happening to the rest of your money
- Pay off any credit card debt
- Set aside money for long-term debt payments
- Save the rest!
Yes, it’s ridiculously simple to whittle down financial goals into 7 steps. You don’t have to make it more complicated. There are no secrets that you won’t understand. If this sounds new to you, it’s just that nobody has bothered to tell you before. If it’s familiar, congratulate yourself on having a leg up. These are not complicated tools, just logical ways of approaching the way money comes in and goes out of your life.
Now let’s take each of these steps in turn and look at them in a little more detail.
1. The ‘B’ Word
Let’s start out with something scary: budgeting. Your personal monthly budget is nothing more than a tool you use to get a picture of your finances. At its simplest, it’s a list of every regular expense and all income, so you can see what your life actually costs. A budget is a list.
Creating a budget is not an instantaneous process. In fact, give yourself a couple of months to really get a handle on your budget. Most importantly, start paying attention now so you can figure it out within the next couple of months.
Today, perhaps right now, sit down with a piece of paper and your favorite writing implement and start listing the bills you pay on a monthly basis. Do it on paper. This list will include things like:
- Utilities (electric, water, gas, waste disposal, phone bills)
- Cell phone & data
- Internet & cable
- Loan payments (student loans, car loans, mortgage, medical or personal debt)
- Insurance (car, health, liability, renter’s, home owner’s)
There will be others, probably. Anything you pay regularly. If an expense is not the same every month, estimate or calculate an average. Always lean toward higher amounts, round up. Any annual expenses should be included, but divide the annual expense into 12 and use that as the monthly amount for the monthly budget.
You won’t think of everything all at once. That’s okay. If you have credit card debt and you pay monthly, include that. But also look up and write down the total amount of all your debts somewhere on this piece of paper, so you know just how much money you’ll need in order to get out of credit card debt.
Move on to income when you stop thinking of expenses (others will come to mind eventually). Income is usually pretty easy. What is your take-home pay each month? Not your listed salary, but the amount that you put in your bank account and can spend.
You’re probably getting the picture. So let’s say you make €2000 per month and your bills add up to €1000. (This example is not meant to be realistic). The other €1000 is being spent where?
Well, obviously you’ve got to eat. This gets more complicated since you don’t get a bill for your monthly groceries. Try keeping receipts for a month and adding up your total expenses on groceries. This can be fun, really. How badly do you want to make this adventure happen? Is it too much to ask yourself to keep track of how often you eat out vs. eat at home? You’re doing detective work now.
2. A Daily Budget, Too?
An effective way to encourage yourself to be more thrifty is to calculate a daily budget for your trip and use the trip as the incentive to stop spending.
We set our daily spending budget at $100 per day for both of us, on average. That is a lot. Most people spend much less on bicycle tours, but we knew that to be comfortable we’d need to be able to stop and get a hotel from time to time. We also knew we’d be touring in Europe, which is notoriously expensive compared to places like, say, Thailand. For more information about budgeting for your trip, check out Travelling Two’s article on the cost of bicycle touring.
Once we had a daily budget, we convinced ourselves to eat at home all the time with a simple trick. Each time we were tempted to order delivery or go out for a meal, we would ask each other: “Would you rather have one more day out on the road, or would you prefer to go out drinking tonight?” Once you know how much money a day might cost on your trip, you’ll know just how many days you’re sacrificing each time you spend. Pose these kinds of questions to yourself each time you try to pull out your wallet.
3. Divide and Conquer
One way to impose controls on your spending is to actually separate your money along the lines of your budgetary hopes and dreams. You want to save £200 each month? Put it into a separate account. Want to cut down your spending? Give yourself a spending limit and transfer only that amount into your cash account. Make it harder to get the money out of various accounts so that you have to really think about each purchase.
And stop using your credit card. If you have to buy it with credit, you don’t need it. Cutting up credit cards is a nice idea, but most people are afraid to do that. Instead, try putting them in a jar of water and storing them in the freezer. They’re still there, if you really, really need them.
4. The Rest of Your Hard-Earned Cash
Now that you have an idea of what your monthly household budget is, you know how much you make and spend. Isn’t it fun? Do you feel ashamed and afraid now that you know? Nope, you feel in control and a bit baffled because you spend all your money every month. Most people do. It’s way easier to spend than to save. Now you’re finding out how you end up with an empty bank account just before each pay day.
The next step is two-fold. First, you have to look at your expenses and decide what you don’t need or how you can reduce the outpouring of cash. The biggest expense for many people is a car. If you have one and can find another way to commute, get rid of it. You’re probably spending way more money on it than you realize. Ditch your phone and only use Skype. Cancel all your subscriptions. If you live alone, move in with a friend and lower your rent. Whatever it takes.
Next, and this is going to be the hardest part, you have to stop spending money. Just stop. Consider every penny. Cheap things still cost money. It doesn’t matter how great a deal you get, you’re still spending.
You’re probably going to buy things for the trip. But ask yourself whether you’ll be bringing it along each time you think of buying something. You want that cute pair of shorts? Are they going to be one of the three pairs you take on your bicycle tour?
5. Getting Rid of Debt
How can you pay off credit cards? How can you start to save without constantly dipping into your savings account? It’s very likely that you’ve created bad habits around money. Most people have. Now you have to reverse past decisions (pay off your credit cards) and build new, good habits (save regularly).
Paying off debt should be your first priority. Not long term debts, of course, because then you’ll never leave. But credit card bills have to be payed in big lump sums if you want them to go away. Paying the minimum amount can actually allow your debt to get bigger.
You have to pay off credit card debt before you put money aside in savings, for the most part. The interest rate on credit card debt is so outrageous that you’ll never benefit from saving money while you’ve got credit card debt. You are losing money over time. If you already have savings that could pay off the debt, consider paying it off with your savings. Sounds scary, right? But then, after it’s paid, you can put the same amount of money that you were paying each month to the credit card company straight into a savings account. You’ll save more each month and it will add up again more quickly.
6. Dealing with Long Term Debt While You’re Away
It may seem like saving for the trip is hard enough, but if you’ve got debts like student loans, you’ll need to pay those, too. There’s always the option of a deferral or forbearance, but consider those options carefully. In the long run they make your debt grow bigger than it would have otherwise. Maybe that’s an okay trade-off for you. Just think about it carefully and make a considered decision.
The alternative is to have yet another account where you put savings for those long-term debts. Set up automatic payments from the debtor and have the monthly payment amount deducted from the account. Add up the total you’ll need to pay over the length of your trip. You’re going away for three months and your monthly bill is $100. That’s $300 you’ll need to put in the account. And for good measure, put in an extra $200, so that for the first couple of months after the trip you don’t have to stress about the loan payment.
7. Save, Save, Save
And if you can start saving, start saving. Start small at first. The first step to changing your habits is to do things differently. If you can save €10 per month at first, do it. The only benefit of starting to save before you pay off credit card debt is that you’ll be getting into the habit of putting aside the money. It won’t take long until putting aside money will start to feel really good. People get addicted to saving. Think about that.
Create a piggy bank. A jar will do. Every time you come home with cash, put all the cash in the bank. Don’t leave home with cash (unless you need it for public transport). Cash is too easy to spend. Will you go get a coffee? Sure, you’ve got a fiver, right? Oh, you’ve got to make a €3 charge with your debit card? Never mind.
And if you can sell anything, sell. You’ll be able to put all the money you make towards paying off credit card debt or put it directly into savings for the trip. It will feel good to lighten your load of possessions, too.
We started selling furniture on Craigslist four months before we left. We also had two garage sales. At the first one, about a month before we left, we were naming high prices because we felt like the stuff we had was kind of valuable. At the second one we were practically giving things away because we were leaving in a week and we didn’t want to deal with stuff anymore. We made about the same amount, $500, at each garage sale.
A Financial Plan and a Calendar
Everyone’s financial situation looks a bit different. You may need to save for a longer or shorter amount of time, depending on the amount of money you need to save for your trip and the amount of money you can save every month.
Let’s do a bit of math. Let’s say your goal is to save for a three month trip and it’ll cost you about $35 per day. That’s 90 days at $35 per day: 90 x 35 = $3150. That’s your savings goal. You’re also going to need money for gear and the plane ticket, but let’s start with your basic needs for the trip.
Now let’s say that you need to pay off your credit card debt first, at it’s a whopping $2000. Crap.
How much money can you spare per month? Let’s say you can start out by reducing some expenses and putting $300 towards credit card debt per month. (Sounds like a lot? Start making your own lunches). 2000 / 300 = 6.66.
It’ll take about seven months to pay off that $2000, probably a bit longer because of the interest. After that, you can put that $300 into savings each month. How long will it take to get to $3150? 3150 / 300 =10.5 months. All-in-all that’s less than a year and a half.
You haven’t even figured out how much money you’ll make from selling your belongings or doing a bit of overtime when you can. Taking a few spare shifts from a co-worker. Picking up odd jobs on weekends.
We started the process of paying off credit card debt about two years before we left. At first, we just decided we needed to change our habits because we needed to save so we could leave. But we had no set date. We pooled our finances and used some savings I had to pay off much of my husband’s credit card debt. A few months later the money he had been putting towards that debt started going back into savings.
Once we really started saving, we set a date for about 9 months in the future. Four months before we left, we started selling everything we owned. For the last week in our place, we slept on the floor on our camping mattresses. But we were as happy as can be, because we were about to embark on the trip of a lifetime and we had the savings in the bank to make it happen.
Every financial problem has a solution. But unless you know what’s going on with your finances, you’re flying blind. Address each problem at it’s root and a solution will appear.
The really scary thing is that you’re going to be leaving your life behind and you may not know what you’re coming back to. Will you have a job? Will you have to move in with your parents? Should you save three months’ worth of rent and expenses so that you can start fresh even without an income?
If you own your home, you may decide to rent it out to pay the mortgage while you’re gone. What’s that going to involve? If it sounds overwhelming, break it into pieces. Problem solving 101: turn a big problem into a bunch of smaller problems that are much easier to tackle.
If you’re feeling anxious about taking this big leap, save for after the trip. Yes, there is one more savings account you might need. If what you need to do is set aside some savings for when you return, do it. All too often, people are afraid to do what they’ve been dreaming of doing because they feel they’re being irresponsible. Fine, be responsible and save so you’re not destitute when you return. You’re a pro at saving now, so just go for it. Extend the time before you leave so that when you leave you’re comfortable.
We have an account that has money saved for when we ‘settle down’. We said that if we had to use that money, it was time to stop and settle down. Guess what? The money is still there. We even try to add to it when we can.
This trip you’re dreaming about is going to change everything for you. You’re going to think about the world in a different way. You’ll think about life in a different way. And everything is going to be just fine.
Phew! Crash-course in financial literacy or what? Thanks, Ramona! Be sure to check out her own cycle touring blog. And don’t forget that plenty more on the subject of planning bike tours can be found on the mega resources page.