September 15, 2020
Travelling is something most of us enjoy. But given the current travel restrictions, most of us won’t be able to go far from home for a while.
This is frustrating for many people. And depending on where you are in Australia, you may not even be able to take small trips within your own state!
Bottom line: spending up big on holidays isn’t really an option right now. So perhaps it’s a good time to step back and think about this category of our personal finances and how it relates to Financial Independence.
This blog post was actually delayed because we’ve been away. We just got back from a beautiful week visiting some lovely spots in South West WA!
The coastline is gorgeous and the towns have a relaxed, positive vibe. I especially love areas with huge forests, which then morph into coastal bush and finally, the land meets the ocean.
There were too many nice things to name, with breathtaking caves, walking trails, wildlife, forests, inlets, and of course, the odd brewery and a chocolate factory 😉 Here are some photos from our trip…
Mrs SMA also had some of that beer, I swear! Okay, that’s enough reminiscing and story telling – let’s get into this article
Travel can be a pretty costly exercise.
It’s not hard for a couple to spend $20,000 on luxurious overseas holidays each year. And some would consider that essential for a good life in the modern era.
But it only takes 25 years for this habit to have cost us $1.1 million in foregone wealth from investing (assuming 6% annual returns). So, clearly it’s worth thinking about the trade-off!
Which begs the question: How do we square this desire with the pursuit of early retirement? Can we travel and enjoy our time off work without killing our savings?
Let’s break this down a little bit and discuss how we might optimise this category of spending. I’ll also share observations from our own life over the last 10 years.
I think we forget that it was only a few generations ago that people basically never travelled overseas for pleasure.
For most of human existence, we simply explored places that were nearby, yet somehow folks managed to live perfectly happy lives.
This seems unthinkable today, but it’s true. Flying for the masses has only been a thing for the last 50-70 years. (I’m talking about rich countries like Australia here, much of the world’s population still can’t afford regular overseas travel.)
As our wealth has grown in society, we’ve been able to afford more and more luxuries. Increasing amounts of travel being one of them. This has been helped along by technology and competition, making travel more affordable.
Now, before your outrage spills over into a keyboard-smashing outburst of hateful comments, I’m not saying you have to give up holidays and travel to reach Financial Independence!
You don’t. But there are some very simple ways to optimise this particular area of our lives. Let’s look at those now.
Spend more time locally, visiting the many beautiful places we have in our own country, which, ironically, people from all over the world come to see!
I think we tend to under-appreciate what’s in our backyard because it seems normal to us. Amazing beaches, beautiful forests, fascinating wildlife.
You’ll often find that road trips, camping and exploring is just as much fun (if not more) as hotels and tours. You can even rent lovely short-term accommodation and take your dog. That’s what we do and we love it! Our dog is family so I’d hate to leave him behind.
You can use your annual leave for more time at home to get a real taste for early retirement. Whether you take off a few weeks or a few days here and there, it’s an easy way to bring more freedom into your life straight away without higher spending.
We did this while on our FI journey and I highly recommend it. Having lots more days off throughout the year was amazing. After all, if freedom is the ultimate goal, why not get a taste of it on a regular basis sooner?
More time off lets you recharge your batteries, take better care of yourself, catch up on things you’ve been meaning to do. When you go back to work, you’ll be genuinely refreshed. Sometimes travel itself can be tiring and you don’t feel like you got to properly unwind.
Even if you don’t want to drop international travel, you can definitely still have a high savings rate. Spreading those trips out more will help enormously.
Instead of an overseas holiday every year, do it every 2 or 3 years. Even better, take turns between doing local trips, having more time off at home, and international travel.
This strategy lowers your spending (and your carbon footprint), while also getting the best of all three things: having more free time now, enjoying the beautiful country we already live in, and then occasionally visiting other cool places too!
On top of the above benefits, there is of course a financial (and freedom) benefit to switching up our holiday strategy. Let’s consider the difference a few tweaks can make.
Let’s assume a household spends a comfortable $10,000 per year on nice overseas holidays. That’ll sound too high to some people, and too low for others. But it’s just an example, so stick with me.
Maybe they decide to put their optimisation hats on since they want to retire early. Instead of the annual overseas trip, they do the following: over 3 years they’ll do one overseas trip costing $10,000, one local trip costing $2,000 and use their remaining leave for extra days/weeks off at their leisure.
Instead of spending $10,000 per year on holidays, the annual cost falls to $4,000. A difference of $6,000 per year. That’s pretty good. Invested and assuming 6% returns, these savings compound to $100,000 in just 12 years.
But it gets better. Thanks to the lower spending, they now need $150,000 less in investments to retire. Remember, any annual saving has a benefit of 25x. And considering this might be 10-15% of what they need in total to retire, this really boosts their progress!
And you could hardly argue they’re missing out. They’ve simply modified their holidays and travel to have greater variation and more quality free time.
Most of us are human. As such, we like seeing new places and having positive new experiences. Whether it’s a new restaurant that just opened up, or an exotic island on the other side of the world, these things give us great memories and a thrill from the novelty of it all.
In the 1990s and 2000s, society was hooked on material consumption. Now, much of our focus seems to be on experience consumption.
This is arguably healthier and more rewarding. But it can still be a slippery slope of chasing one experience-high after another, rather than actually building a meaningful life.
Think about it. Would you rather your life was amazing for a few weeks and moments of the year? Or would you rather a beautifully enjoyable daily and weekly lifestyle?
I’m not saying you can’t have both. But rationally, the one we experience more often is worthy of greater attention. The occasional outings and highlights will form great memories. But at the end of the day, those are only relatively small snippets of time.
That’s why I focus my energy and attention on where I spend the bulk of my existence: everyday life. Any additional positive experiences are a bonus on top of the enjoyment I get from each day.
Travel is yet another perk of affluence that we’ve become accustomed to. So the secret, as with most things, is do to it in moderation.
Interestingly, we went on a few overseas trips during our FI journey, including to Africa, Bali and twice to Singapore. These days, we only travel locally so we can take our dog with us! And I have to say, even though seeing other countries was great, I’m actually happier spending time at home with the dog.
One seemingly radical option is to save travelling for later on. I get that patience has almost gone extinct as a character trait, but this option shouldn’t be ruled out completely.
I’m not saying you shouldn’t travel or that you should stay home for the next 50 years. But there shouldn’t be a mad rush to experience everything now either.
If you died in your sleep tonight, would you be depressed that you didn’t visit 30 countries?
If so, then it’s possible you’re searching for meaning through travel. There are many things in life that are far more rewarding and long-lasting in our lives.
Don’t get me wrong, travel can be a meaningful experience. But these events are short-lived and unfortunately, our memories of them do fade. Then we’re looking towards the next exciting trip. Doesn’t this sound eerily familiar to our relationship with shopping?
Again, I think our daily lives should be what we derive meaning from, so this area deserves more attention.
If travel is a huge passion of yours, try to go on the lower cost trips while you build up your investments. Later, once you’ve established yourself financially, you’ll have more time and flexibility over how and when you travel. Not only that, but you won’t be sacrificing years and years of freedom to do it.
You can take your time, do some ‘slow travel’ and really enjoy the experience. Alternatively, we can choose to see travel as a lifetime goal instead of an immediate and fixed part of our annual spending. This way, we’re not forgoing travel, simply changing when we do it.
Having said all this, if spending up big on travel is super important to you (and it can’t wait), then okay, fair enough. But consider the different options and how it fits with your longer term plans and goal of financial independence.
As you can see, there are numerous benefits to tweaking our approach to holidays and time off work. Like me, you might actually find greater joy in carving out more time to enjoy everyday life.
However you choose to do it, you can definitely still enjoy some travel without killing your savings!