Budget

Cycling the World on a Budget

When you a planning any major venture, budget is a key consideration. Cycling around the World is no different and when money is tight, it is even more important. The earlier you can connsider it the better. You have to be comfortable that your finances will enable you to achieve your dream without leaving you destitute in your old age.

Anyone who has had to balance the books of a company or run a household would agree that successful budgeting is not difficult and yet so many people seem to have a problem with it, struggling to make ends meet or ending up to their eyes in debt.

In our case we started to consider it well over two years ago. In fact it wasn’t until we read Tim and Cindy Travis’ book “The Road that Has No End” that we realised that it was indeed possible to travel the World on very little money. Before 2002 when Tim and Cindy were planning their trip they set themselves an amount of just $21 per day for the two of them – and they managed to stick to it. I know their daily budget is a little more now. We think they are much braver than we are as they are doing it earlier in life and presumably have not built up much of a pension provision to fall back on when they get too old to cycle.

We asked ourselves “Could we survive on that much?” “How much money did we have available anyway?” “Would we have enough left at the end?” “How long could we continue for and indeed would we want to continue?”

We didn’t know the answers to any of these questions. So we made a start by simply working out our pension provisions, savings, house values, etc; in fact, our total net worth. I.e. the amount of money we would have if we had to sell everything.

We looked at how much pension provision we already had accumulated and if we stopped paying into our pensions funds how much would we get at normal retirement age of 65.

We also researched the cost of living in different locations and realised that it is possible to live on a much lower income in areas outside of the UK, Europe or the US.

Should we sell the house or rent it out? We decided that we didn’t want the possible worry of renting out the house whilst we were half way around the World and we didn’t want to pay a manager to do it for us. Was selling a possibility?

We have been fortunate in that we have put money into our pensions since our very first jobs and although there were a few pension holes in the middle of our careers we have a reasonable provision already, but will it be enough?

All of these and many other considerations figured in our deliberations.

While many of you may think that we are taking big risks we still like a degree of security. I am not the guy that jumps off a cliff on a piece of elastic, without first doing my research. In fact my psychometric profile shows me as deliberating too long in making decisions. So I am careful.

Building Our Sense of Security

My first main concern was, assuming that we want to continue cycling until formal retirement age i.e.65, would we have enough pension provision if we stopped paying into our pensions today. We started by getting predictions of all of our pensions including state pensions.

We then considered the lifestyle that we would want to lead at age 65. We would have done all of our main travelling by that point. Right? We’ve done the house building thing. We have had the huge garden. So our lifestyle is likely to be at a much lower level.

Grandchildren will most likely figure highly. Possibly living nearer to our kids in a smaller house or living in a lower cost of living location, that’s warmer and sunnier. Perhaps helping to fund a business with one of my sons running it.

We worked out how much money we thought we would need when we retire and came to an amount of about £2000 per month after tax.

Our pension providers predicted that we would be looking at an annual pension of about £28,000 per year after tax. I.e. approximately £2300 per month

So we were happy that our pension provision, although not startling would be enough. This fact provides a large degree of security and demonstrates the benefit of paying into a pension scheme from an early age.

Setting a Daily Allowance

The next thing was to decide on what our costs would be as we were travelling around, bearing in mind that some areas of the World would be much more expensive that others.

E.g. in Asia it is easy to have a full meal for £3-4 each and get a bed for the night for £10 where as in Europe even staying in a hostel will cost £20+ and a meal will be £10 per head minimum. We felt that in the more expensive area, the more that we could camp (wild camp if possible) the more we could save. Thus every now and again we could check into a hotel for a bit more luxury.

We originally established a budget of £50 per day for the two of us, as an average global figure. Our sons, who had both done their gap years, reassured us that we could easily do it for that amount.

As the recession has struck over the last 9 months, we have now reduced this target to £35 per day and will need to be much more frugal. “Perhaps we shouldn’t go yet I hear you say?” We won’t be deterred from our goal. The budget will be tight but we will survive OK.

Capital Investment

Essential to the success of our venture will be how much capital we can raise and how we invest the money to give us the best return over the next eleven years.

As stated earlier, we decided to sell our house rather than rent it out. This also meant selling all of our belongings other than those we would take with us on the bicycles and a few boxes of memories and personal documents.

Our original plan was to have about £270k from the sale of our home and belongings.

How much interest we can get on this amount is determined from the best rates we can achieve over the long term and how tax efficient we can make our investments.

In fact, due to the drop in house prices we will probably realise capital nearer £230k. To be able to generate enough to cover our costs we would need to make a return of an 8% average annual return after taking account of inflation and tax. This would give us £1533 per month i.e. £50 per day and would mean that we would not bite into our capital. This is not impossible, but is difficult to achieve at the moment hence our reduced daily allowance.

£175k of our capital will be deposited in an offshore bond provided by AXA. The money will be managed by MCM who will invest it in a mixture of asset classes making up a cautious, balanced fund with a goal to achieve a minimum 8% return.

The interest earned from the capital is not subject to UK tax whilst it is held within the bond. We can return up to 5% of the capital annually to the UK to help fund our travel.

In addition to the income from our capital investments we also have a part share in a dive resort apartment in the Philippines which should also provide some rental income.

The remainder of our cash will be held in an offshore Euro account to make it easier to access money whilst we are in Europe and in a Nationwide Flex Saver account which has the lowest cost for debit card transactions whilst abroad.

We will retain our normal UK bank accounts for other day to day activities.

The resulting cash flow prediction looks something like this:

Budget Control

We will be closely monitoring our spend and our returns against our budget plan as time progresses, to ensure that we are on track to achieve our goals.

We will log our daily spend in detail and make efforts to stay well below our budget where possible.

We will keep you up to date with our budgeting progress.

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