Budget Savings

In the previous post I outlined the monetary value that is associated with a RTW itinerary. Excluding the cost of keeping things at home safe while away, which is very low for me considering I am living with my parents, I determined that 300 days of travel would cost roughly $25,000 on high end approximations. Regardless of what your personal number would be, now that research is done and a monetary figure has been developed the necessary goal is to determine how to save that money by the departure.

I am not going to say to move back home, sell all your belongings, and stop having fun in order to save. I do not believe that giving up everything is necessary to accomplish the goal of extended travel. While I do live at home, it is primarily due to the fact that I think it would be ridiculous for me to have an $800/month apartment on campus that I would be in just to shower and sleep. Since giving up the biggest expenses (car, housing) are likely not an option for the vast majority, there are ways to get around that hurdle and to still save, however the time it takes to save that much may be longer.

The following are just a few ways to increase potential savings on top of whatever savings plan you already have:

Housing

This is a big expense that most people could likely cut down on but may not want to. Downsizing a house or apartment will accomplish two goals. The first is that your monthly payments for rent, utilities, and upkeep will be significantly lower (on the order of hundreds of dollars a month). If you are comfortable with spending habits at the current location, a downsized apartment would easily translate into a massive savings increase without changing daily habits. The second issue that downsizing housing will force upon is being frugal in spending when it comes to housing accessories. Less room equates to less space for potential junk, and without having somewhere to put a new furniture piece, decoration, or electronic device could deter needless spending, resulting in more savings. (Up to $500 a month)

For myself, living at home puts this value at close to zero as I am only responsible for my portion of the bills. As I mentioned, I am never home, so my portion is very, very low.

Daily Activities

As I said, I do not recommend cutting down a social life to zero. No one would appreciate that and it wont help pass the time for the trip. However cutting down splurges such as fast food, coffee, movie night outs, etc. will increase potential savings. Most friends would be supportive and should embrace the idea, especially if there is an alternative. Packing lunches to work will save a good deal a month over fast food and cutting down the morning coffee runs to made at home cups could save a fairly decent amount as well. If you go 3-5 times a week for such splurges and cut it down to 1 day a week, the savings will be tremendous. (Up to $100 a month)

For myself, working 70 hour weeks limits the amount of time I can really go out and spend. Most of my friends, being in college, do not want to spend money either, and hang out on campus rather than going places and spending money. I still will go catch the occasional movie, dinner with friends, or bar outing, but due to my crammed schedule it is very limited. I do not drink coffee or eat fast food, and pack my lunch daily allowing for optimal savings.

Credit Cards Are Your Friend

I might be one of the only few people that will say this, and I only say it as it works for those with highest spending responsibility. Use a credit card for everything. I know this is against everything that people say, with most common logic being never use a credit card. But I state this with one condition: pay off balances, in full, every month. In doing so you will never pay interest and splurge spending will come down. Not enough money in the checking account to pay off that new computer? Wait until you can afford it completely. In a way it is the same logic people say about paying cash to everything, but paying cash does not give you cash back like credit cards do.

I am a big fan of Chase's BP Rewards Card. I can't tell you what the interest rate is, as I never pay interest, but the rewards program is great. 5% on gas, 2% on travel and entertainment, and 1% on everything else. When a $25 balance has been reached you can get cash back issued for $25 or a $25 gas card. I opt for the gas card as I hate paying for gas, and as you may guess, now have an additional $25 to save for a trip. The other great thing is that for the first two months there is double points on everything. If you have a big purchase coming up, this is the credit card to get for the double points period. I paid off my Europe trip in full and got $75 in free gas for doing so. I paid $0 in interest. (Benefit varies: I have been receiving about $25 every 3 months but will likely come down now that I am in graduate school and saving).


Savings Accounts

Now if you can achieve some of the previously mentioned spending adjustments, the magic of compounding interest can work miracles to net you even more. With the economic turmoil going on it is worth finding a good company that seems to not have many financial troubles right now. Especially one that is FDIC insured up to $100,000. Most money market savings accounts require no minimum balance to maintain or open an account and offer up to 5% interest rates. I currently use Capital One which is around 3% currently due to the economy slumping. In either event putting your money in a dedicated savings account will earn interest and will help resist the temptation of additional spending. I try and put a set amount of $1250 a month in savings. For this savings plan, I will earn up to $40/month (averaged out until August 2010).


Stock Market?

I know some people are very worried with the recession on putting money in stocks. But anyone who has money to travel also has money that is somewhat fluidized. If you are willing to take a risk, there are huge returns that are bound to happen with the coming recovery. If you have time and are willing to risk it, there is great potential.

I only recommend this for those who understand how the stock market works, and make informed decisions. If you are weary at all, stick to a savings account or a bond for a set rate of return. I will be putting a bit in the market when things begin to look better to see if I can make some return. Although I am only planning on the money that I will have on top of the trip budget [money to return on]. Any extra return might add a few days of travel or something fun that is otherwise too expensive.

Everyone has a potential amount that can be set aside for travel savings without affecting their day to day lives and emergency savings. By making a few changes like the ones listed above, a great deal more can be saved without significantly changing daily activities or taking a second job. Unfortunately a specific number can only be determined by an individual's current living situation, but most people can likely increase their savings abilities to a level high enough to make extended travel feasible.

Posted in: Budget,Initial,Saving for Trip