“Wow, you guys are just traveling full time?! That is so great! How do you do that?”
Often when people hear about our nomadic lifestyle, they get excited about the possibilities. Many assume that you have to work 40 or more years to retire, or that long term international travel is only for college drop-outs and dirty hippies living on rice and beans. So when they meet us, two (somewhat) normal looking, articulate, and fun people, traveling the world in the lap of luxury, sometimes they start to wonder… “Could I do that?”
The answer we’ve shared with inquisitive fellow travel lovers over and over, is Yes.
What is the secret? It doesn’t require winning the lottery, inheriting a windfall, or getting lucky on some penny stocks. There is really only one thing that determines how quickly you could join us on the road: Savings Rate. What percentage of your income are you saving?
Let’s think of this in the most simple way possible:
If you save 10% of your income, after 9 years you could not work for 1 year.
If you save 90% of your income, after 1 year you could not work for 9 YEARS!
It really is that simple.
“Yeah, but who can save 90% of their income?!” Not me, and not most people. But how about something more than the average American savings rate of less than 5%? Being able to live an unconventional life requires doing unconventional things
“Yeah, but what about taxes, inflation, and the economy, man?” Interestingly enough, the higher the savings rate, the less these things matter. The higher the savings rate, the less the economy and record low interest rates and dividends matter.
Let’s use the below chart to explore some examples. This chart assumes that you are saving after tax income and receiving a real 6% future rate of return (an assumption I borrow from Warren Buffet.) It also assumes zero consumer debt, so it will take longer for people with existing non-mortgage debt.
A more modest 50% savings rate would enable cutting the cord after 16 years, and a 65% savings rate would get you out the door in just over 10 years.
On the other extreme, a person saving 5% of their income will likely be working their entire life.
As we approach our 1-year anniversary of full time travel and look back, and to answer the question we’ve heard from fellow travelers of “How do you do that?”, we can use the above graph to look at our own situation.
From the day that early retirement and full time travel became a real goal to the day that I submitted my resignation, it was exactly 10 years and a day. This was during a horrible economy, a stock market crash, a housing crash, record low interest rates, and a record low dividend payout. Factoring in inflation, the stock market hasn’t even returned to its high in the year 2000, 13 years ago.
Despite the economy and poor investment returns, we still made it. Our overall savings rate started relatively low (albeit high by average American standards), but as income rose and we learned how to be more efficient with our spending, our savings rate passed 70%. In hindsight, I even worked a few extra years while effectively saving our whole income.
To get to a high savings rate, we cut spending in the areas that are typically the largest money drains: transportation (a car), housing, food, and entertainment. By using a bicycle and the bus for transportation, living in a comfortably sized apartment in a walkable neighborhood, and finding joy in home-cooked meals and nature instead of consumerism, we eliminated or significantly reduced our cost of living while increasing overall happiness.
So to answer the question we’ve heard over and over again, “Could I do that?”
Absolutely you can. Start saving a high percentage of your income, and in a short period of time your investment income will start to pay your bills. What do you say, shall we meet up on the road in 10 years and A Day?
Curious to see exactly how high savings rates lead to Financial Independence? Read another post, Financial Independence: How Long Will it Take?