One of the most frequent questions I am asked is how I can afford to travel, so I have decided to field that one in a post, and it’s a bit lengthy.
For starters, I am a minimalist. I truly believe that having more ‘stuff’ only complicates my life, so plain and simple, I don’t buy things that I don’t need.
Really, it all comes down to opportunity cost, if you want to go on a trip, you need to give something else up to save for it, which comes easier to a minimalist that isn’t buying much in the first place.
Here’s what I have done over the past few years to improve my financial situation:
You Can’t Afford That Car!
Sure, you can afford to make payments of $400 a month for six or seven years, but who in their right mind would do that?!
This one is a big one for me. I don’t have a car payment.
This one is about finding a happy medium. You don’t want to throw away money on an old used car that isn’t in great shape to try and save a ton of money upfront, but fail inspection every year with hundreds of dollars in repairs. That being said, you also don’t need a top of the line new vehicle with an added sports package either.
My car is a base model, I bought it used, and I have paid it off. It’s a 2008 and I plan on driving it until it starts costing me more yearly than it would to make payments on something newer. When I do NEED something new, I’ll try and find something off a lease, only a few years old, low kms, and try and get lucky with some warranty left. I’ll make sure that I can pay it off within two years of the purchase.
Personally, I think if you can’t afford to pay your vehicle off in less than 3 years, then you simply can not afford the vehicle.
Say you find a car for $12,000, and you plan to drive the car for 6 years but pay it off in three – there’s your travel money.
Bottom line. Stop wasting money on depreciating assets that you can’t afford in the first place.
Investments That Count.
I realize not everyone is a finance guru, so I’m not talking stocks and bonds here.
Three years ago I installed a ductless heat pump in my home and got rid of my old oil tank. I have been saving money monthly ever since. Sure, there was an upfront cost to buy and install of about $2,000, but it paid itself off within a year and I continue to save hundreds in heating costs each month. Another great benefit is my house is actually warm all winter because I don’t have to constantly worry about my heating bill! Not to mention this is a great selling feature when the time comes.
Ask around and look on government websites for any tax breaks or cash rebate programs before you make any changes to your home. I learned of a provincially sponsored program that paid me back for installing insulation in my basement, the program paid the entire cost of installing an even higher grade insulation than I had originally planned, and I’m still saving from it!
Ask yourself before spending, is this an investment or an expense? If it’s an expense, ensure it’s a required expense before moving forward.
Consolidate Debt.
Are you paying on student loans at 5%+, a line of credit, credit cards, and/or any other form of debt?
Take a look at your options, because having multiple debt sources at varying rates is rarely an intelligent financial move. If you don’t understand financial jargon, have a finance professional look at your situation and help you identify where you can save money. Your best bet is finding a relative or friend who knows someone in the industry to find you a contact that you can TRUST. I very rarely recommend going to the commercial banks unless you have a trusted contact that will act in YOUR best interest, and not for their commission.
I refinanced my student loan and my student line of credit into the equity I had built in my mortgage at a new lower interest rate – and I’m paying LESS interest on the new total loan than I was on ONLY my house before! Understanding amortization is important before agreeing any sort of refinance. It could work out to be more expensive if you don’t act with a healthy skepticism and read all of the fine print.
I read every word in every contract and I ask lots of questions about anything vague before signing. I have sat in banks and read every word of 30+ page documents before signing.
You have a right to read, ask questions, and understand what you’re signing!
Small Purchases Matter.
Latte every morning? I wish!
Buy a cheaper coffee every morning? Nope! Even a $2 coffee equates to $60 a month!
I wait until the k-cups at my favorite coffee spot go on sale (once every few months) and I stock up! I keep them in my desk drawer and use the coffee machine at work. Okay, okay, once in a while I splurge and get a latte… but at 0.35 cents a coffee on a regular day, I don’t mind once in a while!
I pay $10.5 for coffee per month. I only drink one a day, and if I start drinking two, I ween myself back to one – for both health and cost reasons I don’t think I need more than one per day.
Look at your monthly expenses, take a run through bank and credit card statements and add up what you spend on food, entertainment, coffee, etc. and see where you can reduce costs.
Other items:
- I call and get new insurance quotes for car and house insurance about once per year and I switch or get my current company to match if I find a better rate. I also call and argue ANY increases.
- Fight your property tax bill! If you haven’t completed any renovations and they’ve increased your bill more than a percent or two, call them up and ask them to come assess your property.
- Cable – I realize that the “whole package” is only about $20 more a month than if you only have internet, but I still cut cable and home phone anyway, because that’s $20 a month that I can save!
- Set an entertainment budget – we all want to enjoy a meal out or an event once in a while, just budget for it so you’re prepared, if you don’t spend your budget then that’s a bonus.
- Girls, stop wasting so much money on makeup! I wear it myself, but I just don’t go crazy.
- Going over the top at Christmas time. I realize this is a time for giving, and I am guilty of overspending in the past, but set a spending limit and keep to it.
- Take advantage of bank accounts/credit cards/combinations of the two that give you benefits. I received a $350 rebate to switch banks, and having my type of account reduces my $120/yr fee credit card to a $0 credit card.
Thinking long term is key to saving for trips. It’s all about getting your finances in order, as boring as that may be!
Then of course there is travelling on your budget, which I will save for another day.
What have you done, or what do you plan to do, to improve your financial situation?
-H.B.
Redefined Timeline 