Being Financially Prepared for Full-Time Travel: Part 1 - Budgeting and Savings

In Part 1 of my series on being financially prepared for a location independent lifestyle, I tackle the dreaded “B-word”….budget!  I will also discuss the emergency savings you need to be prepared with before you embark on this journey.

Do you cringe when you hear the word, “budget?”  For my financial planning clients, I prefer to call them “spending plans.”  Sounds a lot less restrictive, doesn’t it?

Regardless of what you call them, every household should have one.  Whether you are traveling full-time or not, your spending plan will form the foundation of your financial preparation and planning.  Think of your budget, or spending plan, as a roadmap for your money.

As Dave Ramsey says, “A budget is telling your money where to go instead of wondering where it went.”

Why Budget?

If you’re like most Americans, you probably make your spending decisions based on how much is in your checking account, or how much credit limit you have left on your credit cards.  Even if you’re one of the select few who has no issue spending like this, it’s not a good way to have control over your money.

I lived with a “play now, pay later” mindset ever since I left the nest and went off to college.  I figured paying your student loans and credit card bills was just the normal way of life.  Boy…was I in for a hard lesson.

I started with a decent paying job after I graduated college, but the more I earned, the more I spent.  I thought to myself, “I can make the minimum payments on my credit cards, I’m doing ok.”

When you see $2,000 in your checking account after pay-day, it’s easy to have a false sense of security.  That is, until your $800 rent payment is due, and then your $500 student loan bill, and then your $300 car payment…

I ended up using the cash in my checking account to pay off bills, and then using credit cards for my daily spending.  The problem was, I still wasn’t learning how to limit my spending.  Before I knew it, my cards were maxed out and the banks wouldn’t give me any more credit (and rightfully so!).

Putting together my first spending plan (aka budget) helped me instantly sleep better at night. I knew I was in control and on the path to financial independence.

Budgeting isn’t supposed to be a bad word, a punishment, or a restriction.  It’s a tool to make sure you are spending money on things that are truly important to you.

It doesn’t matter if you are making $1,500 a month or $1,500,000 a month, a good spending plan puts you in the driver’s seat to ensure you’re making smart decisions about your money each month.

How Do I Start?

The good news is, drafting your spending plan can actually be pretty simple.  When you’re first starting, the hardest part is going to be determining how much money you need to set aside for each category.  Don’t worry, it’s perfectly normal, and part of the process.

Track Your Spending

To start, you might find it easy to just track your spending for each month.  You can do this with pencil and paper, an Excel spreadsheet, or use one of many online budgeting tools. is probably one of the most popular online budgeting tools available, but it’s not right for everyone.  In fact, I rarely recommend it to anyone.

In Mint, you can connect all your online bank and credit card accounts up to the tool, and it will download and categorize all of your debit and credit card transactions.  From here, you can put together a monthly budget by setting the amount of money you want, or expect, to spend each month on utilities, food, clothing, travel, etc.

Mint can be great for someone who just wants to put together a general idea of how much they want to spend each month.  It’s a good first step, but I believe you should go a step further.

I want you to be more mindful of how you are spending your money.  You might even find that you will start spending less on junk, and more on what makes you truly happy!

Manually tracking each expense can be tedious, but it will eventually become second nature.  This is the best way of becoming more intimate with your spending habits.

Categorize Each Dollar

Every dollar in your checking, savings, and cash should have a purpose.  Some people accomplish this by physically dividing cash into separate envelopes, other people (like us), use apps to separate our money virtually.

My favorite all-around tool for tracking your expenses and your budget is called You Need a Budget (YNAB). We’ve been using YNAB for over 4 years now, and can’t imagine budgeting any other way.

Instead of plotting out where you expect to spend your money for the month, you only focus on the money you actually have in your account.  This way, every dollar has a purpose and can be set aside in its own virtual envelope.

For example, you might have $2,000 in your checking account, but you know that $300 of that is set aside for your upcoming car payment.  $150 for gas, $200 for groceries, etc.  This helps ensure you don’t spend money on a lavish dinner if you still needed that money for other important bills.

Plot Your Spending – Zero Based Budgeting

Even though we only budget the money we have in our accounts, we still have a monthly spending goal for each category.  For example, we know that don’t want to spend more than $200 a month on going out to eat, because we want to allocate more money towards savings for travel or paying off debt.

When you start to budget, estimate how much money you can expect to make each month.  From there, estimate where, and how much, you expect to spend during each month.  The goal is for your income minus your expenses to equal 0.  This is called “Zero Based Budgeting”

Budgeting this way ensures every dollar has a purpose, and you aren’t spending more than you are earning.

This is a great way for you to decide how you will spend your money, before you even have it.  Remember, you are in control of your money, not the other way around!

Budgeting for Location Independence

Budgeting for full-time travelers or digital nomads is no different from anyone else.  You still have income and you still have expenses.  No matter what type of lifestyle you live, it’s important to be realistic about your spending goals.

For example, if you are a Full-Time RVer, you might set aside extra money each money every month for maintenance on your rig. Your fuel costs would probably be higher than the average American as well.  It’s important to understand how your lifestyle will impact your expenses each year.

In many cases, living “houseless” can reduce your expenses by quite a lot!  For my wife Tracy and I, we lowered our expenses over $2,000 a MONTH when we started house sitting full-time.  It’s almost like getting a raise!

If you are saving money by not having to pay rent or utilities, it’s important to have a plan for the extra money laying around.   It’s tempting to spend that money on more travel or fun experiences, but it’s smart to at least spend a portion of that money on your future self.

This can be in the form of savings into a retirement account, paying off debt faster, or savings for emergencies.

Emergency Fund

Speaking of emergencies, you must have an emergency fund!  No exception in my book.

If you are interested in living a location independent lifestyle and haven’t started yet, don’t start until your emergency fund is fully funded.  If you are already a full-timer, take a look at your savings and make sure you have enough stashed away.  If not, it might be time to shift your spending plan.

The general rule of thumb is to keep 3 to 6 months’ worth of required expenses on hand for emergencies.   Required expenses would include any bills, food, lodging, insurance, or other living expenses.

If you a traveling full-time, I would suggest you lean closer to the 6-month benchmark.

Not only is an emergency fund designed to protect against unexpected expenses like a car breakdown or being stranded in another country, it also protects against lost income.

This is an important consideration for anyone living a nomadic lifestyle that still relies on work for income, not existing retirement savings.

What would happen if you or your spouse lost your job? It’s not always easy to quickly find a “work from home” job that will help keep you maintain your location independent lifestyle.

Tracy and I have experienced this first hand.  Only a few months after I left my job to build my financial planning practice, Tracy lost her job.  We had taken a huge cut to our income and had to rely on our emergency fund to hold us over as long as possible.

If we didn’t have that emergency fund, our digital nomad lifestyle would have been over in a heartbeat.  We would be traveling back home to find any job we could take.

Our emergency savings gives us time to focus on building our businesses quickly without sacrificing our lifestyle.

Building the Foundation

As I mentioned earlier, your spending plan helps lay the foundation for your financial wellbeing.  It’s important to make sure you stay mindful of what your hard-earned money is doing for you each month.  Does your spending align with your goals? Are you saving enough to protect you and your lifestyle?

In Part 2, I will discuss more about protecting your finances while traveling by using insurance.

If you have any questions about creating a budget or emergency fund, be sure to reach out! I’d love to hear from you!