A common question I get is how I can afford to live the life of moving to a different city or country every few weeks. My response to that is always the same, careful planning and budgeting. I usually receive an eye roll as if it were a sarcastic response but it’s the truth. Over the past year, I’ve lived in 9 countries – travelling around while in each – and have been able to do so while spending the same or less as I would have, I were living in my Canadian hometown.
After failing to stick to a budget for several years after starting my first job out of university – testing different methods, techniques, and applications – I’ve determined that budgeting is like dieting, the best way to see results is to select the method that is right for you and can be consistently followed.
Sticking to a budget is hard, doing so while living in different countries is even more difficult, having to consider the different costs of living, unexpected expenses, foreign currencies, etc. but because of these facts it is all that more important.
Here is a quick 5 step guide on creating a sustainable budget that will allow you to live aboard without draining your bank account:
1. Establish Your Goal(s)
First off, why are you looking to create a budget? Are you looking to see if you can afford weekly surf lessons while living in a beachside condo in Bali or if you can save up enough money to take a month off work at the end of the year for an expedition in Antarctica?
A study by Business Wire showed that 83% of Americans that set financial goals felt better about their finances than they previously had. By setting goals you will see progress which in turn will keep you motivated to continue with the budget. It will also help to determine what tracking method best suits your needs. For example, if you're on a tight budget and looking to drill down on debt then you may look at an application that assigns every dollar a job. Or, if you're just testing the cost of living in different locations to determine another city to settle down in, a simple spreadsheet with few categories may suffice.
2. Break down cash inflows and outflows
Next, make a list of all your incoming money sources (ie. salary/wages, side work, government assistance, etc) as well as your outgoing sources (rent, food, shopping, cell phone, travel, etc). It may help to go through your bank and credit card statements to help refresh your memory on where all your money has gone the past few months.
While going through your statements you should also note general spending trends for each spending source. I would recommend at minimum looking at three months of spending but the more the better.
After determining your total cash inflow and outflow sources and rough month spend for each, you are going to want to set categories for tacking your spending each month. For instance, if you simply want to ensure that your total incoming cash is more than your total outgoing cash, you could stick with two categories of fixed outflows and variable outflows. Otherwise, you could list each category or spending source noted above which will provide more detail on where your money is going but will take more effort to track.
Your fixed outflows would consist of amounts that are set each month and can be predicted for the period. These include costs like rent, insurance, health care, debt repayment, and phone and other utilities. Variable outflows would include costs such as groceries, travel, shopping, eating out, etc.
3. Determine a tracking method that works for you
Like the idea of a budget itself, the method of tracking means nothing If it’s not used. The process can involve little to no effort by using a software application that links to your bank accounts, investment accounts and credit cards and automatically fetches the transactions, which typically have limitations to the customization. You can also take the spreadsheet approach and track everything manually which is more labour intensive but allows you the flexibility to set your budget up as you please.
Before you laugh that the last point was even mentioned, I will explain how this method is beneficial below.
Software Apps such as Mint and YNAB (You need a budget), which I’ve both used, are a great solution for taking the manual work out of the budgeting process. With each, you get a pre-set interface customizable to your needs, linking to your various accounts to pull in transactions, and reports and notifications to track your progress. As they both go about budgeting in a different way and have a different price point, I will go through both. However, there are many more options out there as well so I encourage you do so some more research if you believe neither of these will help accomplish your goals
Mint takes the old school approach by first allowing you to set budgets for each month based on your categories then pulling in your account balances and transactions, which compares your actual spending to your budgets. It is easy to use, connects with many institutions and has a free version. There is not much customization or reporting offered in the free version but does the trick if you're looking for a basic hands-off approach.
YNAB on the other hand takes a different approach. Rather than budgeting out a month of total transactions, this platforms approach is to assign dollars to earnings. Say you just received your bi-weekly pay, YNAB would want you to assign every dollar of that pay a category whether it be food, rent, savings, or shopping. It is more hands on than mint but again syncs to your different institutions to lesson the amount of manual data entry required. YNAB has a 34-day free trial but afterwards come at a price of $15 per month.
Then there is the manual approach, typically in the form of a spreadsheet. This will take time to set up and you will need to track every inflow and outflow manually, but this is good for a couple of reasons. First, when tracking manually, you will be inherently more conscious to your spending as, well, you need to input it each time. Also, you can customize it how you want by adding different graphs, formulas and even macros if you know your way around spreadsheets. Google docs are good as you can add, edit, or delete directly from your phone.
I personally found the spreadsheet approach works best for me as it helps keep me honest with my spending. Send me a message if you'd like me to send a google docs template that you can use, for free.
4. Be realistic, honest, and flexible
You probably won't be able to cut your food expenses down to $100 per month, or completely cut out all fun and entertainment. Plus, why would you want to? Creating a budget isn't about seeing how you can sacrifice living to instead just survive on the bare minimum. On the flip side, if you’re total cash inflows are $2,000 a month, renting a $1,500 apartment in Barcelona probably isn't the smartest move.
A budget isn't meant to see how you can live as frugally as possible and without having any fun (unless that's your goal of course) but it should help mold your spending habits in a sustainable way. To do so, you need to be honest and realistic in what you can afford, where you can make sacrifices and what your true spending is. There's no point in budgeting $200 on eating out, hitting that within the first week then not recording anything for the remainder of the month.
Some months will be better than others. It won't be the end of the world if you blow your budget up in a category or two. The earlier you can recognize it then the better you can plan. Maybe this month you don't meet the full budgeted savings amount because you're staying in a higher cost of living city with higher rent. Or you could be spending the month in Bermuda where everything is expensive, so you run into a deficit for the month. Just means down the road whether it be next month or the month after you should offset that by living a little more frugal.
5. Plan for unexpected occurrences
Let's face it, things happen. Over the past year I've had three infections in three different countries thanks to taking up Jiu-Jitsu as a hobby. Due to poor planning (I don't always take my own advice) resulting in having no international health insurance plan, the doctor visits and medical bills were paid out of pocket. As I knew given my history of injury proneness that I was bound to run into some medical costs at some point, I had budgeted a fixed amount each month for such costs, thus it wasn't too detrimental of a blow to the wallet.
As you most likely have a cleaner medical track record than me (or are smart and budget for a fixed insurance cost each month), you most likely don't have to worry too much about surprise medical bills. However, there are other travel related costs you should consider when allocating your funds, some of these include:
- Extra flights in case of cancellation or long delays (airline refunds usually take a while to process)
- Replacing lost, damaged, or stolen equipment
- Impromptu trip costs (train, flight, hotel, etc)
- Tour or excursions
- Unexpected roaming charges
- Taxes or duties owed when entering/leaving a country
Whether you have a rainy day or emergency fund stashed away for these items or create a category with a fixed amount allocated to them each month, something is bound to come up and planning for that early on will certainly lessen the blow when it happens.
6. Bonus - Tips for success
Now you have all the tools to create and follow a budget while travelling. But as the old saying goes, "you can take a horse to water, but you can't make it drink". To help stick to your budget and see your goals come to fruition, consider the following:
- Don’t worry about every cent – You’ve had a busy couple of weeks which involved a lot of eating out, some drinks, a few Ubers, and a mini shopping spree. Thing is you spent cash and didn’t save any receipts. Don’t worry about having to think back and try to remember each exact amount you spent. Rather, make a bulk estimate for each category (if you’re separating those). It is better to have something tracked even if it isn’t 100% accurate
- Incorporate budgeting with your travel plans – While looking into the next city to visit make sure to note the accommodation rates and flight/ground transportation costs. These are typically the two largest outflows in a month so if you can start with these two items you can then work around them when determining spend in your other categories
- Walk more – When on the road it’s easy to rely on Uber and taxi. Even if they’re a lot cheaper in most countries compared to North America they still add up. Walking is not only free but also a great way to see more of a new city. A lot of cities also have free walking tours where for a nominal tip you can kill an entire afternoon and learn a lot about the city’s history
- Pay yourself first – If your goal is to save some money each month, you first should do so in a separate bank account from your everyday banking. Even better, a separate bank with a high-interest yield. At the beginning of each month, have a recurring transfer from your spending to your savings account. This way it will be automatic and there will be no temptation to spend it elsewhere.
- Treat yourself – You just hit your third month of sticking to your budget, great job! Reward your hard work with dinner at a nice restaurant, going to a movie (yes, those still exist), or another type of activity