Hello EDANA readers! This is my first official non-picture post.  Now that I am more or less caught up with photos (thanks to having 2 computers again!) I will be putting out some written content of my own, usually with a technical or "how-to" focus. I am starting with a series of budget related posts since this has been one of the most asked about topics from friends, family, and strangers.  This first post will contain our mindset about budgeting, why we feel it is important, and some information to get you started with a budget for your trip.

"But budgeting is boring, why do I have to budget?"

The people who know us well know that not only do we treat our budgeting seriously, it is something we take pride in and value greatly.  I strongly believe a budget should be used by everyone, from rich to poor, and young to old.  Money is not the most important thing in life, but if you take care of whatever money you do have and spend it wisely, it will allow you the ability to do more of the things you want.  This leads me to the main point of why I feel a budget is important:

A budget's main role is to force you to choose what your priorities are. This allows you to make better decisions in your spending in the form of sacrificing things you decide are not important for things that are.

These priorities can be whatever you like, but it is critical that you spend some time to decide what they are.  Most people I know just spend money as the mood strikes, without too much of a direction or plan in place.  To each their own, but again, if you manage your money actively and with a purpose, you can do so much more with it.

I split people into several levels of budgeting competency:

  1. Non-Budgeter: Does not budget. Spends money with only a vague set of rules, at best.  Generally does not have a good sense of their overall financial situation, and has no plan for the future.
  2. Failed Budgeter: This person has at least put some thought into planning for the future, even if on general terms.  They have put together a budget of some kind but did not follow it for very long.  This group believes they a budget is probably useful but lack the discipline to make it successful.
  3. Reactive Budgeter: Someone who has set some kind of a budget but does not consult it before spending money.  This person doesn't have a strong sense of what they have left to spend prior to a purchase.  They at least have a good grasp if they are meeting or missing their budget targets at the end of the month. One tool that is commonly used by this type of budgeter is Mint.com.
  4. Proactive Budgeter: This person typically consults their budget before making a purchase with the aid of a well thought out system. This budgeter knows if they will go over their budget or not, and how a certain purchase effects their financial situation.  This means that they can choose to go over the budget because they already know where they will make it up. This person has much more control over their financial future because they rely on their priorities, rather than emotions in the moment, to make decisions.  For software, Mint can also work for this, but we have found YNAB to be the strongest solution.

Ask yourself what level you are at.  I encourage everyone to aspire to the level of proactive budgeter, but I realize that many of you will be too lazy to get to this level, or do not feel that you will benefit from putting this work in.  This is your choice to make, but in my experience spending some time to make and keep a good budget will pay off in big ways.  The more informed you are about your spending and how your decisions affect your bigger picture plans for the future, the faster you can achieve your financial goals.

Now that you are all excited about budgeting, let me discuss some basics as it relates to taking an extended trip.

"How do I even know if I can afford to take a trip? What will it cost? Where do I start?"

I did a lot of research on this topic and decided to follow a very simple rule of thumb to make a high level savings goal for a long term trip:

Budget $2000 per person per month, all in.  This includes everything, even international flights.

This of course will change based on how you like to travel, how many people you are traveling with, where you are going, etc.  So far we have been under budget, even travelling in Europe (which is a relatively expensive place to visit) using this estimate.  This confirms for me that it is a good general starting point.

"I read that you will want half as many things with you and twice as much money as you first plan on, is this true."

No. Simply, no.  If you plan realistically and conservatively you should find that you are coming in at or under budget in most places.  This is what we found, and I will write about our first leg's budget, Europe, in an upcoming post.  The budget is there to let you tell your future self what is important to you and how much you want to spend on something.  When you get in a situation that you want to exceed your budget, you will be able to easily understand what means in context to the rest of your trip.  It's all about being well informed.

If you are still reading this, then you should be realizing that these budgeting skills do not just apply to a big trip, but to small trips, and definitely to "regular" life, whatever that is for you.

"Great, I believe you, I will do a budget, forever and ever! How do I go about doing this?"

I am so pleased you have seen the light! :) Since I am going to focus primarily on how to manage a proactive budget, I will write a bit about how you may go about advancing to the other levels.  If you are a budgeter of:

Level 1: Start to improve by knowing the basics of your financial situation.  This includes the basics of your assets and liabilities, what you owe and what resources you have.  Making sure that you are not needlessly getting into debt and that you are living within your means.  If you carry debt, I personally do not recommend any expensive trips until you can get rid of it.  This could be a complicated discussion depending on what situation you are in, so I can really only give a sweeping recommendation here, but feel free to reach out to me if you have specific questions on your situation.

Level 2: Understand where your money goes!  If you don’t know what you spend a month on groceries and going out to restaurants, then this is your next step.  You can do this by hand (NOT ideal), or you can use the magic and convenience of free online tools.  I recommend Mint.com for this.  I no longer use Mint after switching to a program called YNAB, but for someone who is unsure of how to start getting control of their money situation, this is a great service to get you started.  You connect your online accounts here and it categorizes most of your expenses for you (there will be some things you need to categorize differently as you go, but it will learn from your corrections and get better over time).  You can then use Mint to gain insights about the state of your finances.  If you have not done this, make it so! Do it now, leave this page and sign up.  Do not let another excuse get in your way of a better financial future.

Once you have set up your accounts and feel comfortable with your current state of finances, use Mint to set a starter budget.  Unless it has significantly changed since I last used Mint about 2 years ago, the budgeting tool was easy but not very robust, and did not encourage me to check my budget before spending, hence making it more reactive than proactive.  I still feel that, for many people getting into the routine of budgeting, this is a good place to start as it make the setup very easy. Reactive or proactive, having a budget is the next step to getting your finances in order.  Set up how much you want to spend in the categories and do your best to follow the budget.  I will discuss how we budget with YNAB in a future post and many of the concepts will carry over so I will leave this discussion here for the time being.

Level 3: Follow your budget!  Do your best to check where you are with your spending before you spend money to make sure you will be within budget.   This one is completely up to you and your discipline.  There is a useful Mint.com app which will make this job much easier, I highly recommend you use it!  If you can use your tool proactively, then you are have reached the hallowed ground of setting and following an effective budget!  If you have been successfully using Mint for some time, consider switching to YNAB.  We found it has tools for budgeting that are more powerful.  For those of you interested in the tools I use now, including YNAB, stay tuned for a future post!


Thank you for reading! Please leave a comment or email me if you have any further questions on the information presented here or have specific questions you would like me to address about budgeting or general trip planning!