When should i do this trip, and how much is it going to cost me?

The short answer is now. But it’s going to cost you $183,493. Please let me explain.

I’m talking about everyone’s dream trip. Once in a lifetime – or should it be? A couple months in Central America, followed by summer in Europe. Diving, exploring, mountain climbing, yachting, meeting new friends, exploring other cultures. A break from reality. A learning experience beyond anything you’ve seen at school or university. But what is the cost? Can anyone do this? Should everyone do this? When?

Given my background I’m going to take a pure economic perspective on this question. If I quit my job in Aus, jump on a plane and travel the world for several months – what affect is this going to have on me financially?

Well the idea behind budgetworldtravel is to calculate the absolute costs of this, and eventually provide a tool for anyone to quantify what the cost of their trip will be. But does anyone ever consider the opportunity costs of such a big decision?

I often think about the decisions we make in life and the impact they have on our future. People often blindly walk into situations that will have huge ramifications on the path they take in life. I’m talking about choosing your career path, taking on your first mortgage, or maybe proposing to the girl of your dreams. We tend to live in the present (which is great) but do we realise the impact that some of the seemingly small decisions we make have on our life?

Take my scenario where I am quitting what would have to be termed a comfortable job to travel the world. Without disclosing my income, let’s use a model Australian whom might be earning $60,000 per annum. If they were to use some of the tools (soon to be disclosed) to budget and save, I imagine that they might be able to save around $12,500 per year on average. Although this is not an actual expense, the fact that we are forgoing income means that it is an indirect cost, or a lost opportunity.

We now arbitrarily assume an amount of $20,000 for the actual expense of the trip. Add the two costs together and we have an amount of $32,500. It has almost doubled?!

Take it a step further and compare the effect this will have on my future wealth. Given my capabilities I believe that a long term return on my money (over 40 years to the age of 65) might be say 8% compounded yearly.

If I make the choice to continue working for just one more year, and instead put away that money until I retire – it will grow to the value of $706,046.95!! I know what you’re thinking… “but money won’t be worth that much in 40 years”. So we discount that amount using an inflation rate of 3% which gives us a present value of $216,443.52 in today’s dollars.

**Assumptions are that I reinvest my growth/returns, compounded annually over 40 years.

Holy S**t!!! Even as I write this article, I find this number staggering – let me clarify!

At the age of 25 if I were to take my $20,000 in savings and continue to work this year (deciding not to travel), thus saving a further $12,500 – I will end up with $32,500 ($20,000 in current savings plus $12,500 in future savings). Without adding any more money to this, except investing it in a diversified portfolio of shares and property (returning me 8%/yr) I will end up with $706,046.95 when I am 65 years old.

At the age of 65 years old, that amount of money will have the same purchasing power and thus be equivalent to having $216,443.52 today. Quite simply if I travel in 40 years time, rather than now, I will have 183,943.52 more to spend. I’m thinking… instead of going on a 7 day yacht trip, I’ll be able to buy one??

Again, as I write this I’m starting to have doubts about my trip. Have I worked out the numbers correctly? Wait.. yes I have. So why am I still even considering it. Surely it’s a no brainer? Surely I should just keep my job, slowly increase my income and build on my savings? That way, for the same amount of time off travelling to the same countries i will have an additional $183,943.52 to spend in today’s dollars!

Maybe I’ll go with “You can’t put a price on the experience”… or “I don’t even know if I will be alive in 40 years time!” …and these are both very valid explanations. Maybe you don’t need the extra money?

Whatever the reason.. I still have a huge desire to travel, but is it possible to do a trip like this and not incur the opportunity cost?

I think for most people you can’t avoid it. The lucky few may have set up an online business or the like that creates a passive income – but most people will have to forgo an income while they travel.

So with all this in mind, lets get back to the question of when is the right time to travel?

People are content to work their entire lives slowly accumulating wealth so that they can eventually retire with a nice house, family and millions in the bank. I imagine that most would see themselves travelling the world and experiencing new things at this stage, cashing in on all that hard work and finally enjoying the fruits of their labour. But how often does this happen? Are you likely to follow a systematic method of accumulating wealth as stated above? Not many do, but perhaps you are the exception.

All things being equal, it’s a simple equation where if you have money, you can afford to do the things you like. The main variable is time. Most people will either have the time, but no money. Or have the money, but no time. I imagine the latter problem is because of responsibility. They have entrenched themselves in business, family, commitment, perhaps liability and thus can’t find the time to do what they really want.

If i travel later.. i will have more money. If i have more money i will buy myself time and be able to travel longer. But here I am, denying some rather compelling numbers! Maybe it’s because I have the time and the money right now, and i’m living in the present. Maybe it’s because I value experiences more than money. Maybe it’s because I value my time above all else. Maybe I’m just insane?

Maybe the question isn’t about much will it cost? Maybe it should be how much is enough? My next article will look at this… stay tuned!