With tariffs bringing chaos to the market, this is an entertaining time to take a look at our budget for the upcoming premature FI experiment where we will travel internationally for a full year. I find the budgeting aspect of this interesting because we have different moving parts that we don’t normally deal with in our monthly budget. We’re trading income from jobs for rental income plus dividends/gains from investments. In the place of monthly income surpluses will be tighter margins, and our budget procedure will have to switch from an end of month retrospective to a beginning of month proactive plan.
We have two categories of expenses for this year of travel. The first category is fixed expenses which are the same regardless of what location we are in. The second category has location specific costs such as groceries and lodging. When we are actually executing the budget each month we will combine all of these together, but for now it’s helpful to separate them in order to swap one location for another as things change. That could be our desire for certain locations changing, or market losses compelling us to cut costs.
Category 1 – Fixed Expenses
| Cost | Notes | |
|---|---|---|
| Cigna Global Silver | $612.18 | Includes US coverage, Inpatient, Day patient, Outpatient, Emergency evac. |
| House Escrow | $607.64 | Sinking fund. taxes 4091.68/yr and landlord ins. 3200/yr |
| Storage Unit | $124.00 | 10′ x 20′ |
| Clothes | $100.00 | Sinking fund. Half of our normal amount. Likely still too much (cheaper prices, less buying) |
| Life Insurance | $99.81 | Probably unnecessary at this point |
| Phones | $90.00 | Google FI, 3 lines, 3 international e-sims. BC does not have a phone. |
| Gifts | $60.00 | Sinking fund. Half our normal amount. No classmate b-days, fewer gifts to purchase. |
| Sponsored Child | $43.00 | |
| Virtual Mailbox | $20.00 | |
| HOA Fee | $15.00 | Awkward secondary quarterly fee that we can’t easily pass on to the renters |
| Amazon Prime | $11.59 | May drop this, not sure if it’s useful internationally for shipping |
| Cloud Storage | $1.99 | |
| Vaccines | $0 | $95.11 if we made a sinking fund to travel forever, all four of us. More on that later. |
| ============ | ======= | |
| Total | $1,785.21 |
Category 2 – Location Expenses
We have analyzed the cost for 27 potential destinations so far. Our plan is to stay in each chosen location for a minimum of one month but possibly longer. That’s partly to take in the experience of each place, but also to reduce flight costs which can really add up. What is shown below is our plan at this point in time. We expect it to change some, but not significantly.
There are just five things making up the cost for each location:
- Flight from last location
- Groceries
- Lodging
- Transportation
- Discretionary spending
We calculated these costs using numbeo, comparing them to our current location.
| Location | # Months | Cost |
|---|---|---|
| Lima, Peru | 1 | $2,514.00 |
| San Jose, Costa Rica | 1 | $3,111.10 |
| Tokyo, Japan | 1 | $7,574.20 |
| Manila, Philippines | 1 | $2,919.20 |
| Da Nang, Vietnam | 1 | $2,628.90 |
| Bangkok, Thailand | 1 | $2,873.70 |
| Colombo, Sri Lanka | 1 | $2,488.70 |
| Cape Town, South Africa | 1 | $3,929.60 |
| Split, Croatia | 1 | $4,880.50 |
| Lisbon, Portugal | 1 | $3,376.80 |
| Barcelona, Spain | 1 | $3,111.60 |
| Flight Home | $2,000.00 | |
| ======= | ||
| Total | $41,408.30 |
Total Expenses vs Total Income
| Expense | Amount | Income | Amount |
|---|---|---|---|
| Monthly Fixed Expenses | $1,785.21 | Monthly Rental Net Proceeds (Gross ~3K) | $2,272.00 |
| Average Monthly Location Expenses | $3,764.39 | Monthly safe withdrawal from investments | $3,254.00 |
| ====== | ====== | ||
| $5,549.60 | 5,526.00 |
You’ll notice our expenses ever so slightly exceed our income now. Pre-tariff we were firmly in the black on this scenario, but a crash was not unexpected. The US stock market was (is) overpriced by the indicators I know and understand. Expecting a downturn, I have already run workable scenarios for up to a 40% crash from the peak. We’re about half way to that already.
Note that the list of months in that table only adds up to 11 months. That’s because one month of the year we will be going to Guam with my mom, and we have money set aside in a fund just for that. We have been planning that for years, before this gap year even became an idea. Guam is also an outlier cost-wise in an otherwise sustainable travel plan. Between the flight and cost of living, Guam is not a location we would normally consider.
Takeaways
We’ll adjust locations as necessary to keep costs down and stay within a 4% withdrawal rate. In reality that’s not how the 4% rule works. We could really keep pulling 4% of the highest amount our investments ever reached. I prefer to take a safer approach though. By recalibrating the 4% amount every month based on the value of our investments at that point in time, we are ensuring the preservation of our investments.
If the worst happens and the market declines 40% or more, we have a plan to take advantage of that bad situation. Nearly 10% of our money is sitting in money market funds, and at various market drop percentages we will deploy that money into stocks to ride the inevitable wave back up. This wasn’t an attempt to time the market. The money market rates were just good enough to tempt us to keep more money there, and the uninvested funds will be convenient while traveling.
I’m feeling good about the financial picture despite the tariff-induced pain. There’s no doubt we will have budget related pressures forcing us to change plans accordingly, but it’s a fun puzzle to solve.
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