The idea is simple: if you spend $5 on a latte every day, you’re spending $150 per month or $1,800 per year that you don’t really need to be spending. Well, sorry, guys. I love expensive coffee and there’s just no way I’m giving it up.
How can something that I enjoy be a waste?
There's something about the process of getting a coffee. Standing in line, placing the order…the very first sip, and the froth on my upper lip. That ritual is comforting to me. It's a small escape from my day that clears my head, and allows me to decompress. For that alone, it's two grand per year that I’m willing to part with.
But I’ll be honest with you—it isn’t really about the coffee. It’s about the fact that I love coffee, and there are people out there who are telling me I have to stop drinking it if I want to save money for travel.
Well I think that’s bullsh*t. There is no reason we can’t enjoy the things we like and travel at the same time.
How to Save up Money for a Trip…or Anything, Really
The real problem we encounter when trying to save up money for travel isn’t actually our inability to save…it’s how good we are at spending.
We don’t take an honest inventory of what we’re buying and what we’re spending. We pay for things blindly, only thinking afterwards (usually with quite a bit of shock) about how much we actually spent.[quote]How many times have you opened your bills, winced, then shrugged and said, “I guess I spent that much?” –Ramit Sethi[/quote]
Ramit Sethi is the financial advisor we all wish we had. His New York Times Bestseller, I Will Teach You to Be Rich, has some insanely relevant and practical advice for 20- and 30-year-old’s like us. He’s also funny as hell.
The title is audacious, I know, but its pages are gold. This book has probably made more of an impact on my adult life than anything else I’ve read.
Sethi lays out exactly how we should be structuring our finances as young professionals. His advice isn’t about how to save as much money as you can. It’s about balancing your life and your finances so that you always have the money you need to do the things that you want.
The crux of his spending plan is actually quite simple. Instead of looking back at your spending at the end of the month, you look forward and decide how you're going to spend the money you have.
When you make more calculated decisions with your finances, you can be proactive about putting a certain amount of it away for savings.
Step 1: Restricting Spending vs. Prioritizing Your Interests
The problem I have with these guides to saving money for travel is that they focus on restriction. When we restrict ourselves, we don’t live an enjoyable life, yet the whole reason we’re traveling is because we want to have fun. Does that make sense to you?
My friend Kate, for example, saved $13,000 for travel in seven months. I enthusiastically applaud her for achieving this goal—it shows true grit and determination—but she admits to leading a very bleak and difficult life in the process.
If you want to save up money for travel, sure, you could cut every last expense you have and save every dime. But that's not a reasonable or sustainable approach for the majority of people.
You don’t have to be miserable during the saving phase just so you can appreciate the travel phase.
Plus, if you want travel to be a part of your life, you're going to be saving up for a long time, over and over again. You need a sustainable plan.
Instead of cutting things out and focusing on restriction, you should be more focused on spending money on the things you enjoy and not the things you don't. It’s pretty straightforward, actually. Make more room in your life for the things you love, which leaves less room for the things you don’t.
Not only is this good money advice, it's good life advice.
It’s funny because we learn so many things in school about how to make money when we’re older, but we learn almost nothing about how to actually manage the money that we make. My parents never taught me how to handle my finances, and I’ve made some costly mistakes because of it.
My guess is that nobody ever sat you down and showed you how, either, and that's exactly what I'm going to do now.
Let’s Do an Exercise…
Write down all of your monthly expenditures. Seriously, grab a piece of paper or open a text document on your computer and start writing. I’ll wait.
If you want to make things easier, you can try the spreadsheet I created to help you with this exercise. You just enter the numbers and it magically tells you how much of your income you can afford to allocate for different aspects of your life, including travel.
1. If you downloaded the worksheet, just enter your income in the first section and what you spend on your monthly essentials in the second. Essential items are rent, utilities, groceries, student loans, etc. If you're using a piece of paper, add it all up for a monthly total.
2. In the next section, start filling out your other monthly expenses (or create another column that lists everything else). It could be Spotify, Netflix, coffee, a gym membership, whatever. Write down every single thing that you spend money on every month, and add it all up.
3. Now figure out which ones are your high priority expenses and which ones are your low priority expenses, and put them in different lists. Do you see any trends?
Step 2: A Spending Plan That Helps You Save Money for Travel
Once you've figured out what you're actually spending every month, you can start to look at how you're spending it. Use the guidelines below and compare your current spending trends. How much more or less do you need to spend in each category to hit the targets?
- Rent, utilities, groceries, loan payments and other essentials should cost about 50% of your take-home pay. How does your total number compare to this? You might need to adjust your lifestyle if you’re spending more than this. If it’s less, good on ya!
- The money you spend every month should be somewhere between 20-30% of your take-home pay. Take a look at your list—is your total spent monthly about half of your rent/essentials? It should be.
- Your savings for travel should also be about 20-30%, but you can reduce this to as little at 10% if you're happy to spend more on your day-to-day life and save a little bit less. It all depends on your goals.
At the beginning of every month, pay your rent, pay your credit cards, and transfer money into your savings account. Once you’ve paid for your essentials, whatever is leftover in your checking account afterwards is everything you get for the month.
You can safely run your checking account down to zero, knowing that you've already paid for and saved everything you need to.
The rule with your leftover spending money is that you are only allowed to spend it in exactly the way that you decide ahead of time. Let’s say you have $500 leftover to spend every month. If you allocate $200 for going out with friends, once you use up the fund, you’re not allowed to go out anymore. You have to be willing to decline and spend a night in with Netflix instead.
If you overspend on going out, then you give up something else, which is exactly what we’re trying to avoid—giving anything up.
So you have to look at your list of high priority and low priority items, and decide how much you can spend on each item. Can you reduce any of your low priority expenses while keeping your high priority ones?
For instance, even though you might enjoy going to the gym, would you be willing to give up the monthly fees and work out at home instead?
What about TV? Could you give up everything but Netflix?
When you look at the numbers, you may realize that you have to restructure your lifestyle a little, but you don't have to give up the things you love.
Following these basic guidelines, I’ve managed to save a few thousand dollars in just a couple of months (while paying off credit cards and traveling at the same time). That's pretty good, as far as I'm concerned.
The best part is that you only have to do this restructuring one time with small bits of maintenance and tweaking along the way. In complete honesty (and I'm not just saying this because it sounds good), a couple hours of your time could end up paying for your next vacation.
Step 3: Saving Money While You’re Actually Traveling (aka The Same Advice)
A few months down the line, once you’ve reached your savings goal and you’re ready to go travel, please don’t see this as an opportunity to splurge. The basic rules of money (unfortunately) still apply.
You should follow the same structure of prioritization, and work out how much of your budget you’re ready to spend on each facet of your trip. Different countries have different prices for things like food and accommodation, so you’ll need to take this into account as well.
Sometimes, depending on the country, it can work really well in your favor.
If you decide that you’re going to budget $25 per day in China, work out how much everything costs ahead of time, allocate the appropriate funds, and whatever money is leftover is what you get to play with.
If there are certain things that you value, continue to prioritize them! Want to keep drinking $5 coffee? Include that in your travel spending plan up front.
If staying in hotels is a priority for you, then feel free to spend your predetermined amount on it! And if not, then you can stay in hostels.
I traveled all over Australia and instead of hotels I chose budget-friendly accommodation options from YHA. To be honest, I didn't feel like I sacrificed any comfort at all because YHA has a network of clean, well-maintained, and comfortable hostels all over the country. And they actually contribute positively to the travel experience!
When you follow the same guidelines while you're traveling, you realize that you’re not giving anything up at all—you get to enjoy everything that you want and you get to spend your money however you like. You just have to choose where it goes ahead of time.
Tools I Use to Manage My Spending
It’s hard, nay, impossible to keep on top of this stuff without a few tools in your arsenal. Here are a couple that I use:
Not only does Mint aggregate all of my transactions from all of my accounts, but their budgeting feature is how I keep track of my spending money. Since I rarely use cash, I set a budget for different categories (like restaurants, bars, and coffee shops). As each transaction gets categorized, I can see how much of each budget I’ve spent that month. Once I hit my limit, I stop.
This is how I keep track of my expenditures while I travel. TrailWallet supports multiple currencies with updated exchange rates, plus categorized transactions for easy organization and analysis of your spending—it keeps me cognizant of what I’m spending each and every day. For more information, you can read about their app and some of my other favorite apps here.
What Banks I Use and How I Use Them
Not all banks are created equal. As an American, these are what I believe to be the best bank accounts out there. Big banks (like Bank of America) like you hit you with unexpected charges. I use the banks below and I never get charged a thing. I also included my favorite service for overseas money transfers.
Charles Schwab High Yield Checking
I’ve talked about Charles Schwab before. Their High Yield Checking Account is the only checking account that makes sense for Americans who travel.
They don’t charge foreign transaction fees, their cards are chip-enabled (helpful in Europe), and you don’t get charged ATM fees anywhere in the world. That means you don’t get charged for using out-of-network ATMs in the US, either.
360 Savings from Capital One
360 Savings from Capital One has the highest interest rate of any online savings account I’ve found. Gone are the days of 3% interest, but Capital One 360 offers about 1% whereas many other savings accounts offer somewhere in the range of 0.5%. It's not a big difference, but their site is also really easy to use and they let you create sub-accounts, so you can save up money for various different things in different accounts at the same time, instead of putting everything in one big account.
TransferWise is the cheapest, most reliable, and user-friendly way to send money overseas and between currencies. Whereas many companies charge 3% or more plus inflated exchange rates (I’m looking at you, PayPal), TransferWise charges about 1% at the real exchange rate. Basically, they check all the boxes. Click here for my full review of TransferWise. PayPal is, unfortunately, the industry standard for sending and receiving payments online. I say unfortunately because they charge extremely high fees. I don't like using them because I sometimes end up paying hundreds of dollars per month in fees, but sometimes they're the most convenient. There are some workarounds for the fees, but it’s complicated. The Chase Sapphire Preferred is my favorite rewards credit card. They offer 50,000 points as a sign-up bonus, don’t charge any foreign transaction fees, and you get 2x miles on all purchases related to travel and dining. Whether you’re paying for flights, Uber, subway tickets, or cocktails, you get double the points. This makes the Chase Sapphire Preferred a great all-rounder card for racking up points every day. The SPG Amex is great for redeeming free hotel stays around the world at Starwood properties like The W. It’s harder to rack up large amounts of Starpoints, but that’s what makes the value of their points so high. Their signup bonus is 25,000 points with a $3,000 spend in three months. The best part about the card, though, is that when you transfer 20,000 miles to an airline, you get a 5,000 Starpoint bonus. Nothing beats that deal when you’re trying to score points! There you have it. My guide to managing your finances in a realistic way so you can save up money for a trip. If you have any tips to add, leave them in the comments below! Disclaimer: Some of the links used on this page are affiliate links. I may receive a small commission or bonus for referring you, but I never recommend a product I don't genuinely stand behind.
BONUS: My Favorite Travel Credit Cards
Chase Sapphire Preferred
Starwood Preferred Guest from American Express
TransferWise is the cheapest, most reliable, and user-friendly way to send money overseas and between currencies. Whereas many companies charge 3% or more plus inflated exchange rates (I’m looking at you, PayPal), TransferWise charges about 1% at the real exchange rate.
Basically, they check all the boxes. Click here for my full review of TransferWise.
PayPal is, unfortunately, the industry standard for sending and receiving payments online. I say unfortunately because they charge extremely high fees. I don't like using them because I sometimes end up paying hundreds of dollars per month in fees, but sometimes they're the most convenient. There are some workarounds for the fees, but it’s complicated.
The Chase Sapphire Preferred is my favorite rewards credit card. They offer 50,000 points as a sign-up bonus, don’t charge any foreign transaction fees, and you get 2x miles on all purchases related to travel and dining. Whether you’re paying for flights, Uber, subway tickets, or cocktails, you get double the points. This makes the Chase Sapphire Preferred a great all-rounder card for racking up points every day.
The SPG Amex is great for redeeming free hotel stays around the world at Starwood properties like The W. It’s harder to rack up large amounts of Starpoints, but that’s what makes the value of their points so high. Their signup bonus is 25,000 points with a $3,000 spend in three months.
The best part about the card, though, is that when you transfer 20,000 miles to an airline, you get a 5,000 Starpoint bonus. Nothing beats that deal when you’re trying to score points!
There you have it. My guide to managing your finances in a realistic way so you can save up money for a trip. If you have any tips to add, leave them in the comments below!
Disclaimer: Some of the links used on this page are affiliate links. I may receive a small commission or bonus for referring you, but I never recommend a product I don't genuinely stand behind.