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I’ve touched on money a few times on this site, most notably when I wrote about Rule #39. Get Rich. But I have to be honest with you — I’m not the best when it comes to money management or financial planning. I’m only now really starting to get the hang of it, so when it comes to sharing information about financial planning for adventurers, I’m probably not the most knowledgeable source.
That’s why I decided to call in a professional.
I hope you enjoy this guest post from Mr. SR from SemiRetirePlan.com, who knows a whole heck of a lot more about money than I do. I’ve learned a lot from him and his website.
If you find this post useful, consider it a jumping off point for financial planning — the place to start, not the finish line. And even if you’re not actively thinking about retirement yet, his site is FULL of useful financial planning tips for adventurers.
Financial Planning for Adventurers: Four Money Tips for A Rich Life
Adventuring is about having new experiences, gaining perspective, and appreciating the beauty in the world. It’s difficult to do any of these things if you’re distracted.
So, what does financial planning have to do with adventuring? Appropriate financial prep can help relieve you of worry, reduce distractions, and enable you fully experience your next adventure.
Wade has described in a previous post that you often “don’t know what you don’t know.” In the post, he recommends learning as much as possible so you can minimize that knowledge gap. Consider this Financial Planning for Adventurers 101. Mastering a few personal finance basics can pay dividends in many areas of your life, for decades to come.
1. You need to budget
At first, the word “budgeting” might make you think of spreadsheets, calculators, and boring arithmetic. Maybe it doesn’t feel sexy. But budgeting doesn’t have to be time-consuming or painful.
Why is budgeting important?
Budgeting matters because it’s the only way for you to stay in control of your money. You won’t know if you can afford your next big trip if you aren’t keeping tabs on your cash flow!
Personal finance personality Dave Ramsey says “Budgeting is telling your money where to go instead of wondering where it went.”
Whether you’re trying to get out of debt, save up to travel, or invest for the future, budgeting is the best way to get there.
If you’re new to budgeting, you might want to check out Ramsey’s free budgeting tool, EveryDollar to get started.
The verbal budget
I promised you that you don’t have to use a spreadsheet or a calculator to complete your budget. If you want to achieve the majority of the benefit of budgeting but with minimal effort, try doing a weekly “verbal budget.”
My wife and I manage our own funds this way. Every time we get a paycheck, we sit down and talk through our upcoming expenses. We start with all the money in our bank account and, verbally only, we subtract each of our bills and upcoming expenses.
If there’s any money left over, we use that to save for a home improvement project or future travel.
Another benefit we’ve found from budgeting is that it creates an opportunity to talk about our future plans and goals. We’re more aligned in the non-financial parts of our lives because of these conversations.
Wade has written before that luck favors the prepared. That truth applies to budgeting as well. My wife and I have found that preparing a budget has helped us identify more opportunities and manage obstacles in our financial lives.
2. Understand frugal vs cheap
The guys on one of my favorite personal finance podcasts, How to Money, like to play a game — frugal vs cheap. They’ll swap stories and evaluate each other’s decisions. Was that choice frugal — a thoughtful way to save money — or cheap — an unnecessary or inefficient way to save money?
If you’re being frugal — great! If you’re being cheap, you might want to re-evaluate.
I try to develop this skill in my own decision-making, too. Choosing to vacation with friends so you can split the cost of an Airbnb house might be a frugal option. But if it’s a trip to celebrate your anniversary with your spouse, then you’re being cheap!
Evaluating if a decision is frugal vs cheap is all about value. What’s most important to you and your family?
As an example of value, a lot of people with mechanical skills might choose to do basic maintenance on their own cars. This can save money compared to going to an auto shop to get the work done. I do not have these mechanical skills and, personally, it’s not a skill I’m very interested in developing. I’d rather spend my time on other interests. So I don’t mind paying a little more for a professional to do the maintenance on my car.
Frugal vs cheap when adventuring
This mindset shouldn’t feel limiting, but empowering. Recognizing frugal vs cheap should give you confidence and comfort to spend money on experiences that are truly valuable to you.
When I was in college, I did a study abroad trip and we spent a weekend in Paris. We went to the Eiffel Tower, but the ticket to take the elevator to the top cost $30. I remember thinking “Am I really going to spend $30 for an elevator ride?” And I decided… yes! It ended up being the highlight of the trip. The $30 cost paled in comparison to the value of the experience.
So, if you’re planning to drive through northern Arizona and debating if you should stop at the Grand Canyon, go for it! Take the extra day or two off of work and spend the time and money.
Frugality isn’t a matter of never spending money. It’s about only spending money on things or experiences that are meaningful.
3. Consider protecting your trip
Insurance can be a difficult topic to navigate, but it’s worth considering before your next trip. Insurance is all about risk management — you’d be paying for the insurance company to assume some of the risk.
But you’ll have to decide: is it worth it?
Check out policy details because they can vary widely, but travel insurance can include damage to property or rented equipment (like rental cars), ransom requests, trip cancellation, personal belongings coverage, medical coverage, and accidental death coverage.
Honestly, I’m not a big fan of travel insurance generally, especially if you already have other insurance policies in place (like medical and life insurance). I’ve never purchased it, myself. But travel insurance can be a good option if you’re in a particularly risky situation, like planning an expensive trip to the Caribbean during hurricane season.
Editor’s Note: Like Mr. SR, I haven’t insured most of my trips. That said, many of my friends who have done more extensive overseas travel have ended up saving themselves a lot of time, trouble, and cash using travel insurance. When I surveyed my network for those who use travel insurance, the majority recommend World Nomads. Especially in the crazy times in which we currently live, it’s worth considering this option if you’re investing a lot of time and money in your trip.
Personal property insurance
If you travel with expensive gear that’s at risk of being damaged, you may want to consider personal property insurance. If you’re a frequent adventurer, your gear may be even more likely to eventually be lost, damaged, or stolen.
Personal property insurance can be very inexpensive. The policies can be especially affordable if you add it on to your existing renter or homeowner policy. I have a personal property policy for my wife’s engagement ring and my guitars. We’d be devastated if those items were lost or stolen, but not paying out of pocket to replace them would soften the blow.
As with any insurance, you’ll want to balance the cost with the benefit. You don’t want to over-insure, so it’s best to get a policy only on items that would truly hurt your budget to replace!
If you die while you have life insurance coverage, your policy pays out to a beneficiary.
Life insurance is most beneficial if you have people who depend on your income — often a spouse or children. Life insurance can be appropriate for anyone with a dependent, but if you are a frequent adventurer (particularly if you’re doing riskier activities during your travels) a policy may be even more important.
Eventually, you may be able to self-insure. Self-insuring is when you no longer need a life insurance policy because you are already wealthy enough to cover your dependents’ needs if you die.
Because you should eventually be able to self-insure, I recommend term life insurance policies. With term policies, you can purchase coverage for the period when you’ll need it most. For example, if you recently had a child, you might opt for a 20- or 25-year term. These policies can be very affordable, even for large amounts of coverage.
The alternatives to term policies have names like universal life or whole life insurance. These plans can cover you for extended periods of time and also often have a cash value or investment component. However, these types of plans have notoriously high costs and inefficient fees on the investment portion.
Personally, I strongly recommend against whole life policies, but I think an affordable term policy can be a good option for most adults with dependents.
4. Don’t forget to plan for the future
Part of the appeal of adventuring is the beauty, adrenaline, and intrigue it brings to your life in the present. And that’s an incredible benefit. But I also want to encourage readers to plan for the long-term.
Financial planning can include saving for a new home or car, for your next trip, for your children’s education, or for your eventual retirement. Accounting for each of these areas is valuable, but retirement can be the most tempting to delay preparing for.
There’s always an unknown element to the future. What will your income look like for the duration of your career? Will you have significant health problems? Will your employer offer an early retirement package? Will you need or want to be semi-retired later in your career and work part-time?
Despite the number of unknowns, proactively planning is still the best approach. Your plan can (and should!) be adjusted over time to reflect the gradual changes in your life.
Get started with saving for retirement
Don’t delay planning for retirement, even if it feels like a lifetime away. If you’re a young adult, retirement age can feel so far away that procrastination can be a temptation. However, starting now is truly in your best interest.
Compound growth is when your investment grows, then the growth itself also grows. Because of compound growth, time is a powerful factor in retirement planning. So if you invest for multiple decades, even a small regular investment can amount to significant wealth later in life.
Here’s an example…
Imagine that you invested $500 per month into your 401k account at work, for 35 years. That means that, over the course of your career, you will have put in a total of $210,000.
The S&P 500 stock market index averages about 10% annual growth since it began in 1926. So let’s use that growth rate here, assuming monthly compounding.
In our example, even though you’ve only personally contributed $500 per month, your account value would be nearly $1,900,000 at the end of the 35 years. That’s an incredible $1,690,000 in growth over time compared to the $210,000 you invested.
Many employers also match contributions to the employer-sponsored plan, so that can be another way to get free money and boost your investment.
Even if you have fewer years until you’d like to retire, the point is to start now. Time is on your side.
Ultimately, life is one big adventure, right? So take steps now to be financially equipped to fully enjoy the ride.
Big thanks to Mr. SR sharing his knowledge in this guest post! Mr. SR writes about personal finance, decision-making, and early semi-retirement at Semi-Retire Plan. He has been featured on MSN, Yahoo Finance, and Best Company and holds a master of science degree in business marketing. Mr. SR is a fan of college football, Taylor guitars, and extra-large coffee mugs.