People frequently ask us how we can afford to travel all the time, so I thought I would share some of the basics of our experience, so you can see if it will work for you.
We are retired, we both worked, we both saved, we have no children. We lived and worked for 20 years in the UK, followed by a further 20 years in San Jose in California. We owned our own home in California, with a relatively small mortgage, which we were paying off on accelerated terms, plus two older cars. San Jose is a great place to live, provided you have a reasonable income, probably from a job, and your employer provides health coverage. Without at least one job in the family, your income drops alarmingly, and your medical insurance costs increase substantially. This, plus the costs of maintaining a house and car(s) were key influencers in our decision to sell up and travel, as not only was it something we both wanted to do, it just made better financial sense than keeping the house and mothballing it or renting it out while we travel.
A significant part of this is the question of owning a house, versus selling it and taking the equity freed up, and investing it.
Even when house prices are stable or increasing, unless you take out an equity line of credit, which of course you pay interest on, your house is actually a cash consumer, not a cash generator, which for someone living on a pension, or who has just lost their job, becomes a major headache.
*all figures in US$ *
Let’s look at some numbers:
Owning a house – annual COST
These numbers are taken from real houses in the San Jose area, all around the same value, with the variances depending on how much deposit was put down and when they were bought.
|Mortgage||$24,000 to $60,000|
|Property Taxes||$6,000 to $24,000|
|Insurance||$2,000 to $5,000|
|Maintenance||$1,000 to $6,000|
|TOTAL||$33,000 – $97,000|
This is a significant cost, which is difficult to cover by rental income, assuming renters actually pay the rent, and don’t trash the place while you are off travelling (this happened with Danila’s place in London, and with friends renting their house in California). The less costly house had a potential rental income of $36,000 per annum, so covered its costs, assuming it was rented 100% of the time, but still would not generate much in net income for the owner. The more costly house could only be rented for $60,000 per annum, falling well short of its actual annual cost to the owner. In both cases, selling the property and investing the proceeds is a much better option, in my opinion.
Selling a house and investing the proceeds – annual INCOME
The median selling price in the San Jose area is now (early 2018) around $1,000,000. Married couples can take up to $550,000 profit tax free from the proceeds of the sale of their primary property. Including the initial deposit, this means a couple should be able to walk away from the sale of their house with something between $250,000 to $1,000,000, depending on how long they have owned the property, plus the status of their initial deposit and the mortgage outstanding.
With that amount of money, there are investment vehicles available to provide returns of 4% to over 10%, either as income, or capital gains, with varying degrees of risk to the underlying capital. That provides an annual income stream of something between $10,000 to $100,000, depending on the capital realized from the house sale, and your appetite for risk. For example:
|Patch of Land||12 – 36 month partial real estate loans||8% – 12%|
|Peerstreet||3 – 12 month partial real estate loans||7% – 10%|
|Lending Club||3 – 5 year unsecured partial loans||5 – 8% net|
|Robo Investors||Dividend stocks & bonds, income||around 5% average, long term|
|Robo Investors||Capital Growth||around 7% average, long term|
|Dow Jones||Index ETF, capital gains||7% average, long term|
|Dividend Kings||Solid, dividend paying stocks||4% – 10%|
A retired married couple can expect around $30,000 social security annually, if they retire at 65. Take that, plus the income and capital gains from investment of the house sale proceeds, and they could have annual income somewhere between $40,000 to $130,000, averaging around $85,000. Retain 2% to add to the capital to account for inflation, and it’s still a reasonable amount. On top of this, you may have IRAs which you can draw on, for even more income.
So, by selling your house and investing the proceeds, the house has gone from being a cash consuming headache, to a cash generating benefit, providing you with the funds to travel around to see friends, family and places you’ve always wanted to visit, but never had the time.
Other things to consider
If you decide to travel, you will have to get rid of most of your possessions, and limit clothing to simple, multi-purpose layers, which can be easily adapted to the weather you are likely to encounter. We have two carry on size suitcases each, as these are easier to handle than one big one. When we fly, we check one each and take the other, smaller bag, containing laptop, travel safe, the few bits of paper we still need, plus essential clothes, toothbrush, etc., as a carry on bag.
We generally choose quality clothes and shoes, which last a long time, so overall we spend very little annually on clothing, the opposite of many people in Europe and the USA – see his packing list, and her packing list. An alternative approach is to buy cheap clothing as needed, and then donate it to a worthy cause when you’re done with it, so it doesn’t clutter up your luggage.
Health & Insurance:
Being in good health is key to enjoyable travel, and we are fortunate to be generally fit and well. We’re careful about the water we drink and tend towards cooked food, to reduce the risk of contracting stomach bugs. We walk a lot and swim when possible, for general exercise. We have dental checkups and cleaning every 6 months, which we pay for – $30 to $100 depending on where we are. Our annual health insurance covering everywhere in the world, except the USA, with a $500 deductible, costs about what it would cost us for 1 month’s coverage in the USA. When we travel to the US we buy an add-on policy. This is a substantial saving. It is worth remembering that the number one cause of personal bankruptcy in the USA is medical expenses. Medical costs anywhere else in the world are considerably cheaper than in the USA, and the service is generally as good as, if not better, than in the USA. We have had need for hospital care in the Galapagos Islands for liver function screening and dehydration (all tests and treatment free, as standard for everyone, including visitors!) and Eastern Australia for a gall stone attack (emergency, all tests and treatment free) followed by gall bladder removal (private, covered by travel insurance. Quickly scheduled, competently done, at a fraction of what it would have cost in the USA).
As you are no longer tied to an area with probably poor public transport, you can sell your car(s), another money saving benefit, and roam around the world by a combination of hire cars and public transport, or rent apartments or houses longer term in areas that do have good public transport – think London, Paris, Tokyo and other large cities. When you do need a car, use Uber/Lyft, or one of the “rent from a neighbour” on-line schemes, which works out a lot cheaper than owning a vehicle that simply sits on the street most of the time, quietly depreciating and running up maintenance costs. And of course you can walk, which is great exercise too – walk to and from the markets to pick up supplies, walk to the places you want to visit, walk to and from restaurants when you fancy eating out.
Where to stay?
So, where do you stay now you don’t have a home? We prefer slow travel, generally staying in one place from a week to a month, or more. We typically use AirBnB (read about our experiences) and HomeAway for most of the places we want to visit, and have found a wide variety of interesting apartments and houses to stay in. Renting like this is generally a lot cheaper than owning, especially in out of the way places, where you can often end up in amazing properties that you enjoy staying in, but are glad you don’t own, as they would likely be expensive to maintain. For example, just outside Delhi in India, you can rent luxury apartments in beautiful complexes with all the amenities you could want, for an annual cost of around 1% of their value – a huge multi bedroom apartment costing $2M to buy can be rented for $2000 per month. In Italy and Portugal, by visiting outside the high season, we rented lovely one and two bedroom apartments and houses in central locations for under $100 per night – had we stayed longer, those prices would have been discounted. In Indonesia and Vietnam you can get very nice A/C apartments for around $50 per night. I’m currently writing this in a lovely new air conditioned apartment in Sri Lanka, close to the beach, restaurants and shopping, with large lounge/kitchen, bedroom and bathroom in a small complex with pool and restaurant which for two weeks costs $32 per night, including breakfast. We generally aim for places with kitchens so we can cook in and better control our food intake, have washing machines and wifi, and are near useful amenities, such as supermarkets, restaurants, public transport and places of interest, and we’ve been more than satisfied with our choices 99% of the time. And on the rare occasions when we stay somewhere for only a few days, we do use hotels and B&Bs, using booking.com and agoda.com for research and bookings.
House sitting can be another interesting option, where you typically are asked to look after a pet or two plus the house. Usually your only costs are your food and entertainment, and houses/apartments often include the use of a vehicle plus internet and utilities. We have house sat dogs and cats in California, New Zealand and Australia, and found this a great way to get to know an area, and a real win-win for all concerned. We also get the added bonus of the love of furry friends while we’re there! This obviously reduces your outgoings considerably, so you have more to spend on your next travels, without blowing your budget.
Which brings us neatly to BUDGETING
It is very important to establish a budget that works for you, and to diligently track your expenses, to ensure you keep within budget. I update expenses daily, and maintain a monthly spreadsheet of how our investments and pensions are doing, to ensure we stay within our established guidelines. Our expenses look like this, for the past year:
|US Taxes + prep||10%|
This past year we’ve been flying and eating out more than in previous years, so these areas are a bit higher, and I expect these to fall in coming years, as we spend longer in fewer places.
We’ve been doing this for 4 years, have had some wonderful experiences, met many friendly and engaging people in 20 countries, and by a balance of slow travel – staying in one place for weeks or months – sensible budgeting and reasonable investing for a mix of tax efficient income and capital gains, we have more funds than we started with, even allowing for inflation.
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