Finance: How to Budget for Travel

It’s no secret that the number one priority in our lives from a financial standpoint are my student loans. Off course, more important matters such as health, relationships, and happiness trumps that, but really not much else is prioritized before the loans. However, even before paying down the student debt entered the picture, Mike and I had decided early on in our relationship, before we even got married, that a top priority of ours would be travel. That hasn’t exactly changed, as you can probably tell from all the travel posts on this blog. Today, I wanted to go through how it is that we have the means to travel on a very tight budget.

Related Posts: 

Set your priorities

Our ability to travel the world is built on a clear understanding that travel will remain a top priority for both of us. By defining this activity as extremely important, it makes it easy for us to give up less important things if it means that we will be able to travel. From the very beginning, even before we started paying down student debt, this is something both Mike and I felt strongly about. In fact, it was at the very forefront of our conversation when we started to check the feasibility of paying down over $550k in ten years. The first question to answer was, “Will we have enough money to still travel?”

Since this is such a high priority for us, we would give up almost everything in order to make it happen. The only exception, off course, is being free from my student debt. We were willing to give up buying a house, buying things in general, dining out (if it means dining out when we travel), the newest tech gadgets, and so much more. We were already frugalists before, but having travel as a motivating factor makes us even more successful at being frugal weirdos. When your priorities are clearly defined, the budgeting part becomes easy.

Set a budget

It is very important, especially in our particular situation, to plan for travel. I think that budgeting is useful for every category of spending, but it becomes imperative for those categories that will make your life happier. We don’t want to leave the decision of whether or not we can go somewhere to the whims of everyday life. In other words, we want to avoid the excuse “Life happens”, and we actually want our lives to happen.

Our budget for travel changes according to where we want to go. Typically, we decide on an amount to set aside every month using our favorite budgeting tool, YNAB! We will probably continue that trajectory for a couple of months. We treat it like money stashed away in an envelope. We use the “cash” in this envelope to pay for anything that involves travel expenses. If we ever go over, we would have to borrow from another envelope that month. As an example, overspending $50 in travel would require us to pull $50 from our allocated grocery money. In the past six months, we have not over-drafted from our travel envelope. When calculated, 2.6% of our income each month went towards travel.

Keep in mind that this is our top priority! Yet only 2.6% of our income went towards travel. That’ll give you an idea of how frugal we’ve been and how focused we are on paying down my student debt. 100% of my post-tax income in our first year of student loan repayment went towards the loans, plus help from Mike too!

To be fair, the budget is changing every once in a while. For example, since we have a huge three-week trip planned for the beginning of next year (where we will be visiting ten cities and two countries halfway across the globe!), we will be increasing our travel budget to 3.5% of our income for the last 6 months of this year. Nothing wild and crazy, but it is fluctuating as needed.

Have a plan

Call me Type A (and you would be right in doing so), but I don’t like to travel without a plan. Mostly because I find that travelling without a plan can sometimes be very costly. Choices will need to be made in the spur of the moment, and while that is fun at times, it also means limited research can go into choosing the best financial option. Plus, not having a plan makes the previous goal of setting a budget very, very difficult. It is hard to guess just how much money you need to allocate if you have no idea what you are allocating your money to. That being said, this isn’t to say our plans are entirely rigid. We have flexibility and I am the first to admit that our recent trip to Banff did involve cancelling an entire day of hikes in exchange for napping on a hammock lakeside and resting sore legs. And if we come across an ice cream shop that we want to grab ice cream at, we aren’t going to say to ourselves, “Oops, not in the budget. Can’t.” But typically, these changes aren’t so drastic that it throws our financial game plan out the window entirely. Within the budgeting, we have already budgeted for the possibility of a change of plans.

Save for the big stuff.

Usually, when we go someplace, there is one activity that we are uncompromising on. We don’t just visit a place to randomly visit. We went to Germany for Oktoberfest. We visited Mexico City because we wanted to eat at Pujol. I wanted to go to Banff to see what was left of the glaciers while I can. We went to Oregon after hearing about how a devastating fire last year wiped out all of its beauty. And we are going to Australia to celebrate our two year wedding anniversary on New Year’s Eve in Sydney. These are the big things. If you have a particular reason to go someplace, then go ahead and go for that reason! But go knowing that it requires you to save for the big stuff. We scrounge up the savings by giving up some of the everyday spending that a normal couple would make. I always say how easy it is for me to give up dining out regularly, if it means I can dine out when I am traveling elsewhere, and eat local food in a different country. We had no problem celebrating our first year wedding anniversary eating pizza, if it means that on our second year, we will be watching fireworks over the Habor Bridge in Sydney. Interestingly, even THAT is a free event! But you see what I mean. Don’t skimp on the big stuff, especially if there is a specific reason for your travels. Skimp on the little stuff that you could do without. I promise, it’ll make the big stuff that much more valuable.

Be frugal, still.

There is no need to skimp on every adventure. What’s the point of seeing a country when you don’t want to spend to see a country? Off course, there’s transportation that we need to pay for to get around, and food to be eaten. But, where you can, be frugal still. Our budget would not be the small sliver of a fraction of our income that it is without us being frugal, still. Here are the ways in which we save quite a bit on travel money.

  • We travel hack in order to buy our flights. I have written about the pros of travel hacking and what that has afforded us in this year alone. Long story short, we have used only points to book all our flights for this year! Our favorite travel hacking credit cards are Southwest Rapid Rewards, Chase Sapphire Preferred, and the Chase Ink Business Preferred.
  • We opt for AirBNB whenever we can. Typically, we find that those rates are cheaper than most hotels.
  • We book with Turo to save money on car rentals. Turo is the car version of AirBNB and we have had a great experience thus far with this company.
  • We reach out to friends and family in the locations we travel to. Some of our favorite trips are made more special by the company we keep. A plus side would be a place to stay, or a way to split the costs. I stayed at an old college roommate’s apartment when I visited Salt Lake City, UT. We stayed in my high school best friend’s extra bedroom when we visited New Orleans. Both of these friends drove us around everywhere we went! My sister provided an air mattress and shared her bed when we went to visit San Francisco. She also lent us her car for the weekend. Our Munich trip meant a free ride to the Castle Neuschwanstein when we hit up a friend’s cousin’s family. Also, we were invited to their house and got served the most amazing dinner, which to this day, remains one of my favorite memories while traveling. We reached out to my family to see if they wanted to go to Oregon with us, thus splitting the car rental fee and the AirBNB costs among seven people. All of this to show, not only is group travel more fun and entertaining, it saves you money as well!
  • We skip the touristy stuff. As I become better versed in traveling, I have found that less and less attraction lies in the touristy stuff. We would rather fill our days with free tramps through nature, exploring the city by foot, people watching as we eat at a café, and so on. We have found ways to see cities without having to spend much. I used to book excursions on every trip, until I realized that some of the best excursions are free. Our most recent Banff trip was focused around hiking all day. Trips to Calgary and Munich involved mostly walking around the city. Oregon was a mix of both. Skipping the touristy stuff also means that you can explore your way, without having to adhere to someone else’s timeline.
  • We don’t buy souvenirs to take home. Most of the stuff they sell in souvenir stores are absolutely useless and unnecessary. Unless we come across something that we think someone back home would really like, we do not shop for souvenirs for the sake of bringing something back. What we bring back to our friends and family are photographs and stories, mostly.
  • We borrow “just-this-once” items. When we go on camping trips, we borrow sleeping bags. I borrow my dad’s camera lenses when I go on big trips. I borrow clothing from my mom if I don’t have it in my minimalist wardrobe. Borrowing is such an important life hack, because it prevents us from purchasing things that we will only use once for travel.
  • We choose to disconnect. Going to a different country may require signing up for an additional payment plan in order to use your cell phone and other techy gadgets. Whenever possible, we simply go without. A trick would be to just opt for signing into the WiFi in cafes or our AirBNBs. Since a majority of our days are spent soaking in every last little detail of our current surroundings, we don’t really have a need for our cell phones. Planning the night before by looking up directions or the next day’s itinerary makes it a lot simpler too. Choosing to disconnect saves us not only money, but also, time since it keeps us from wasting time being “plugged in”.

These are just some of the ways in which we remain frugal while we travel. But like I said before, none of this equates to deprivation. It simply requires you to analyze what parts of travel you actually value, and what parts are simply excessive consumption. Once you’ve identified those priorities, it is very easy to cut down the spending in some areas in order to have enough in your budget to be able to see that one item on your bucket list. And if you need to, you can always borrow from other “envelopes” throughout the months leading up to your trip!

What about you? What are some ways to squeeze in a little extra money towards travel on a tight budget?

Finances: How YNAB Helped Us Pay $84,000 Towards Student Loans in One Year!

This post may contain affiliate links. Please see my disclosure to learn more.

Looking back on it, it seems absolutely nuts that we have been able to pay $84,000 towards our student loans in the last year. Prior to getting our finances in order, you could say that I was not one who was highly motivated in monitoring my spending. Or rather, I may have been highly motivated, but not entirely good at it. Honestly, I did not know where to start.

I was never afraid of budgets. Some people are. They are afraid that it would be too limiting, or depriving, to set financial constraints on their having fun in life. I get it. YOLO, right? But honestly, that’s just the rub. YOLO. You only get one life, and I don’t want mine consistently anchored down by debt. I want to be free. So it was not the budgeting that scared me, but the lack thereof. In fact, I was always in search of ways to budget. However, I had no idea how to do it efficiently.

We used to implement that all-too-familiar way of assessing our spending by guessing, eye-balling, rounding up and down (depending on our mood), or sometimes, ignoring all-together. Additionally, much of our analysis was performed retroactively. As in, “Oops, I spent too much on groceries last month! Roughly $100 too much.” The estimates, off course, were always too low, and the recognition harbored a bit too late, after the spending was already a done deal. Yikes!

Enter YNAB. YNAB is kind of like that high-school teacher that slaps your wrist and sets a vagabond teen straight. The acronym stands for “You Need a Budget“, and is better than an angel on your shoulder keeping your finances in check. It is a very easy system that is based on the age-old envelope system of budgeting. It used to be that, without computers and programs such as YNAB, people would use envelopes to budget their money. Each envelope would stand for a category. For example: “Groceries”, “Rent”, House Maintenance”, “Savings”, etc. With each incoming paycheck, a person would split the cash in between envelopes, allocating a certain amount towards those categories for the upcoming month(s). One can never accidentally overdraw from an envelope, because once the money runs out, that’s it! In order to overspend in a category such as “Dining Out” for example, one would need to proactively choose to take out money from another envelope, thus consciously deciding to decrease spending elsewhere.

With the invention of things such as credit cards, this becomes an obsolete practice, but I think it is one that is very useful. Instead of retroactively analyzing our spending, we should be proactively planning for our financial futures. In YNAB, you can create categories of your choosing that would be equivalent to those envelopes. You can be as precise or as general as you would like. We prefer to be more general, because it makes categorizing easier. Our categories are separated into “Needs”, “Financial Goals”, and “Wants”. A few examples include:

Needs – Rent, Auto Insurance, Utilities, Cell Phone, Groceries

Financial Goals – Student Loans, House Savings

Wants – Activities/Hobbies, Travel, Mike’s Fun Money, Sam’s Fun Money, Dining Out

So as paychecks roll in, we are proactively placing budgeted money into each category. Every dollar we earn is accounted for, down to the last penny. The goal is to budget appropriately, so that none of the categories need adjusting during the month. Metaphorically, you don’t want to borrow from any of the other envelopes. It did take us a while to get a feel for how much we spend in each category, but that’s the fantastic thing about YNAB. It summarizes previous spending in the months prior really well. Over time, we were able to know exactly what number we would need to budget in each category to be absolutely prepared.

A word on those summaries. This is a wonderful way to get a picture of how much of your spending is going towards your “Needs”, your “Wants”, and your “Financial Goals”. For us, because of our student loans, 50% of our income goes straight towards hitting our “financial goals”. We try to keep “wants” to a low 10% of our income, travel included, which is why travel hacking is so important for us. Also, there are graphs to show you how much your net worth is rising, as well as comparisons of “Income VS Expenses”, if those are motivating at all for you.

All of this can technically be done on an Excel sheet, but it would take a lot of time and effort. What I love about YNAB is that it can link to your bank accounts and automatically record every transaction, whether that’s money going in or money coming out. The only thing left to do is to categorize each transaction. Also, YNAB will remember which transactions fall under which category. For example, we frequently shop at Mother’s Market and Whole Foods for our groceries. I no longer have to categorize those things, since YNAB will automatically do that for me, thus making my job easier.

Off course, YNAB comes with a fee, which luckily for us, is waived by our financial planner. The cost to use YNAB is $89.99 annually, which seems like a lot, but when I look at the number we paid towards student debt ($84,000), I don’t feel bad at all! I think that fee is totally justified, plus it makes the whole budgeting process easier and much more motivating than if I had to go through all of our bank accounts and credit cards and physically input each and every transaction, create analytical comparisons and graphs and pie charts, and let our financial situation take up all of my free time.

If you are someone who wants to know where their money is going, wants to plan for the future, or is already doing both but wants a simpler process, try out YNAB. I hear too frequently the saying, “I don’t know where my money goes!” It’d be nice if we never have to say that ever again. Plus, once you know where it goes, you have the power to redirect it, kind of like we have!

The First 5 Steps to Getting Our Finances in Order

Right after I graduated from dental school, I knew I wanted to get our finances in order. We were six months away from swearing eternity to each other, and I wanted to be clear about what our current financial status was and where we want to go from there. They say that finances are one of the biggest stressors in a relationship, and I knew I wanted to nip that one in the bud and move on to living happy eternal lives.

There were a few key steps that, on paper, seem super elementary, but I guarantee that the majority of the people do not have these five steps down. I am not saying these are the first five steps everyone should take, but they were the first that we took and it worked out really well for us! If you are looking to get your finances in order but aren’t sure where to start, hopefully one (or all!) of these will give you the boost you were looking for.

  1. Build up an emergency fund, and then never touching that money unless it’s a TRUE emergency. For my entire life, I knew in the back of my mind that I needed an emergency fund, but never have I had one. I assumed that there will be some money left in the bank in the case of a true emergency that I could rely on until the emergency is solved. Off course, I was underestimating the cost of my potential emergency. I assumed an emergency constitutes of a flat tire, or the need to buy something right away (this was before I became anti-consumption and was practically throwing my money out the window). In light of the recent fires in Ventura County, it is safe to say that a TRUE emergency can constitute of a fire affecting your city, so that your home burns down, along with the office that you work at, thus putting you out of a home, without belongings, and without a job. Recovery from such an emergency could take multiple months. Or an accident that could leave you with hospital bills and a disability that prevents you from going back to work. When put in that light, I never thought a true emergency could happen to me. Well, it can happen to me. Most certainly, it can happen to anybody. So one of the first things we did was build up our emergency fund. Our emergency fund is enough to last us through three months’ worth of living expenses. It sounds easy to do, but in order to find the correct number, you actually have to track your monthly living expenses. There is a tendency to underestimate the correct figure. Saying yes to dining out with friends and purchasing random items during a Target run can quickly increase that number significantly. So we started to track our finances (See item #2 below). Once we got our number, we saved up enough and then did not touch that money. It still sits in our bank accounts today, which is a great thing because that means we have been emergency free for the past year and a half! I’m not talking, “I am out of money in my bank account, let me just borrow from my emergency money.” Ideally, you don’t ever want to get to the point where you run out of money in your bank account, but we will get to that later.
  2. Track your money by budgeting. We started to track our finances with the budgeting tool called YNAB. You can use any budgeting tool alternative, such as Mint.com, or your own homemade spreadsheet. We decided to go with YNAB only because it was what our financial planner set up for us. I fell in love with budgeting! I was always interested in numbers, organizing, and planning, so this was just my cup of tea, luckily for Mike. The tool tracks money going in and money going out. By linking your bank accounts, the tracking is almost immediate. The only part you have to do is categorize your spending and income, so that you can see how much you spend on things such as rent, groceries, gas, dining out, and any other category you can think of. You can be as specific or as vague as you want. I prefer to be vague so that it makes the process a little bit easier. I was amazed at how much money we were hemorrhaging through, and that’s quite a realization since, compared to a majority of our friends, we were pretty frugal. This was the part of the process that pushed me towards minimalism and anti-consumerism. Thinking about my past habits with spending money is almost nauseating. To multiple that by the number of Americans who do the same or worse makes me want to cry and beg Mother Earth for forgiveness. To this day, we continue tracking our spending. It’s taken the guesswork out of finances, and we no longer have to think about whether we have money or not for a certain something. We always have the money, because it is already allocated for. We follow the simple envelope system, which long ago would consist of one taking their income and placing them into different envelopes based on spending categories. There would be an envelope for utilities and for auto-registration, etc. In order to pay for something, one would take the money out of the appropriate envelope. If a person tries to overspend on dining out, they can’t, because there are no physical dollar bills left in the dining out envelope. It would require for them to physically take money out of a different envelope to cover their spending, or force them not to dine out for that day. That’s the simplified version of the envelope system and it’s the categorization system that YNAB uses. Because of this, once we get our paychecks, every single dollar bill is allocated for a future expense. So that when the expense comes, the money is already there. What about in the cases of unexpected expenses? Well, that would be called an emergency, and that’s also already saved and built up from step 1. And no, there is no such thing as a shopping emergency. There is no such thing as an unexpected expense unless some drastic unforeseen natural disaster strikes in your neighborhood. The whole point of the budgeting process is to teach us that there is not one thing that we absolutely need, and those that we want, we have the time to plan ahead for and save up.
  3. Put everything on Auto Pay. Life gets hectic and busy, and sometimes we miss a payment and get charged a late fee. Ugh, those late fees kill me. It’s another way of throwing money straight down the drain. Stop that right now and put your worries to rest. Take the minimum payment for every credit card, utility bill and loan and place it on auto pay at a particular time of the month, every month. Just make sure it draws after your paycheck is deposited in your account, at a time when you know the money will be present in the bank account. The last thing you want is an overdraft fee.
  4. Start paying off your debts one by one. Since I opened my first credit card at age sixteen, I have never been debt free. The first thing I wanted to do was start our debt snowball. Credit card interest rates are insanely high, and it was crazy to think that I was throwing away so much of my money at the same time that I was spending money I did not have. So we tackled our credit cards one by one until we brought them down to zero. After we cleared all our credit cards, we kept them clear every month by paying off the total. By doing this, we were also reaffirming that we were spending well below our means. After all our credit card debt was paid off, we only had two debts left. My student loan, and Mike’s car loan. We decided to tackle the student loan first. The reason was because it had a much higher interest rate than the car loan, as well as a higher amount. The amount of money we would be gaining in interest by letting my student loan sit is way more than the amount of interest we would gain by letting the car loan sit a little longer. Don’t get us wrong, we are still paying down the car loan at the same time, at a speed fast enough so that it will be gone in three years. But we are funneling all our extra money towards paying down the student loans instead. Once you start paying things off, it becomes more addicting than spending your money. I get such a thrilling, spine-tingling joy when I pay off debt. The debt snowball is well on its way, and my goal is to make this snowball the biggest and fastest snowball possible!
  5. Hire  a financial planner. It’s the last on the list, but it was actually the first thing we did. It was how we began this journey. So why is it listed as number 5? I hesitate to put this on here because some people believe that hiring a financial planner is not a worthy way to spend money. Some may argue that paying for such a service could cause you to lose out on money that would be better served invested or paying down debt. I am not completely disagreeing by the way. If you are really good at this type of stuff and can do an equally great job on your own, I would back up your decision not to hire a financial planner. I would agree that your money is way better spent towards investing or achieving your dreams. So it isn’t for some people, which is why I hesitate to put it as number one, for fear that somebody will just shut down this post’s tab and move on with their lives. For us, this was the right choice, and I think it IS worth the money. One hundred percent! First off, notice that I did not write financial investor. That is a different type of service, one that focuses solely on investing money. A financial planner, when you’ve got the right one, does more than investment management, although that is part of their job description as well. A good planner will start by helping you discover your goals, and then trying to get you to your goals by tackling your financial life. It isn’t about the money, but about the end result. Where you want to be, and how you can shape your finances to get you there. Ours is particularly good at analyzing what we truly want and asking us the right questions to re-evaluate every few months if our dreams are still our dreams. We create the vision, and he helps to give us the path to make that a reality. The planner will keep you accountable, and is useful as a resource to guide you towards new and innovative ways to approach your goals. People can say it’s a mistake, we don’t care. Let’s just say, it’s a mistake we have to make. And if we had to choose all over again, we would do it just the same because frankly, I wouldn’t even be here, writing about all of this, if we had chosen differently.

So those are our first five steps, and now you know that the list is not in a particular order. Happy budgeting!