Wednesday, June 18, 2008

How to Financially Plan a Mini-Retirement: The Uber-Basics

Before I took my year-long mini-retirement, and spent over nine of those months travelling, people frequently asked me how I could afford to take a year off. I was appalled when people would say “how much did you save?” or “how much does the trip cost?” That was information I’d previously only shared with a couple close friends.

But you, dear reader, get to learn the theory of how I did it.

First: I figured my daily budget was $50/day (remember, this was for a trip in 2004-5). I knew that some places would require far less money, and some would require far more (ahem, UK and Paris). This amount included lodging, food, local transportation, and whatever I wanted to do or buy.

Second: I figured out a travel budget based on where I wanted to go and what I had been able to price out online. My itinerary changed at the beginning of my trip (during the four months I spent in Argentina, the 2004 tsunami occurred), though I think I kept the same travel budget. I did this because I decided to just spend more time in Europe (5-6 months, instead of two), and I knew I would be travelling around a lot there.

Third: I figured out how much I needed to cover my bills each month, and then I dumped that money into a second checking account and set-up automatic bill pay for the first of every month. This was smart, though I needed to check the minimum balance of my main credit card more often, as I would use it to buy travel tickets (because of the insurance the card provided), and I didn’t always transfer that money over immediately. Thus, my minimum payments changed from time to time, and I didn’t always catch it right off…

Fourth: I put aside some money in a "Come Back Fund." The first time I went overseas, I spent every last penny (this isn't a joke) and came back penniless. I was barely 19, and when my flight from Sydney was delayed and we weren't given food vouchers, I barely had enough money to buy an apple for $1... This first trip was literally done entirely with cash -- I converted all my money to Australian dollars and traveller's checks before leaving. Traveller's checks! I didn't have a credit card and this was before bank debit cards were introduced. Thankfully my mother took me in when I came back and lent me money until I had worked enough to pay her back and get my own place.

That's really all there is to it: plan your expenses, plan to take care of any ongoing expenses (e.g. debt, insurance, home taxes, whatever it is), have a plan for coming back. Period.

Even if you don't plan on travelling, you still need to figure these things. When you have time on your hands, you spend your money differently and that sometimes results in more money being spent -- even when you stay at home.

While I had begun saving for my mini-retirement out of my work income, much of the mini-retirement was funded through a small inheritance and me selling some of my hi-tech stock.

For me, the hardest part was deciding where to go during my mini-retirement. Taking it was one of the most remarkable experiences of my life, and it really, truly changed me. I had had a lot of negative things happened in my life the year before I left, and taking my mini-retirement restored my sanity, my faith in myself, showed me that what I had gone through wasn't so important in the great scheme of the world, and (most importantly) it showed me the sheer options the world and life has to offer.

So, all you need to do is sit down and figure out the financial aspects of a mini-retirement and how you want to spend your time. While taking one is a big deal, figuring out how to do it isn't. For further reading, I recommend Six Months Off (especially recommended for those with families -- this book isn't geared towards younger or single people, though younger or single people may still find it useful) and Vagabonding (this is obviously geared towards long-term travellers, though it also has a wealth of general travel information and planning aspects, too -- the author is a well-respected and popular writer among travellers).

What would you do if you could take a year off?

1 comment:

Financial planning for retirement said...

Retirement planning is really a combination of an art and science. You have to estimate your expected retirement expenses and make sure you protect your retirement savings against inflation.