Anyone can prepare a budget. Research flight, hotel, dining, attraction, and activity costs, then enter the numbers into an Excel spreadsheet. The financial challenge is managing your actual expenses to stay within the established budget. It’s bad enough to be $500 over budget after your first week, it’s worse to not know you are $500 over budget and adjust accordingly. Monitoring your actual expenses and reflecting these expenses in updated forecasts will help to ensure your costs stay inline over the course of your around the world travels. To stay within an overall budget, it is essential to understand the interrelationship between the following financial terms: budget, actuals, and forecast.
A budget is the original, initial cost estimate. It is prepared prior to commencing an activity, whether that is a business’s financial year, a vacation, or a personal strategy to save money. The original budgeted numbers should not change over the course of performing the activity. Once the activity starts, you need to track actual expenses and compare them against the budget. If you budgeted $10 per night for accommodation in India, once you begin booking accommodations and charging your credit card, you need to compare how the actual expenses compare to the original budget. A forecast is an updated budget based upon actual expenses incurred-to-date and expected future expenses. If your actual India hotel accommodations for the first week are $15 per night, instead of the $10 originally budgeted, the forecast takes the $15 per night expense into account, and you need to decide whether to find cheaper accommodation going forward, adjust your future expenses in other areas, such as reducing the amount that will be spent on food, or tolerate the expense increase.
Similar to budgeting, anyone can monitor actual costs and forecast their future expenses. Unlike budgeting, monitoring and forecasting requires an ongoing effort and focus. Like developing a habit of backing up photos, monitoring and forecasting your expenses should be part of your travel routine. Once a week review your bank and credit card accounts for past activity. Note how much cash is on hand, the unpaid credit card expenses, and compare those amounts to your budget or latest cash forecast.
The expenses will not be incurred evenly over the course of the trip because budgets vary country to country—that is to say, month one will not have 1/12 (8.3%) of your expenses, month two will not have 1/12 of your expenses, and so forth. If you are going to spend the first month in the United Kingdom, and your budget or forecast projects 11% of your expenses to be incurred in the United Kingdom, then your actual expenses for the first month should be around 11%.
If you are running over budget after your first few months of travel, there are several financial levers you can pull to reduce your daily expenses. The first lever is evaluating your accommodation spend, which is likely your highest daily spend and therefore any reduction in this expense category will result in your greatest savings. If you’ve been staying in four-bed rooms at a hostel, start staying in the eight-bed or more rooms at a hostel.
Another area where a lever may be pulled to reduce expenses that have spiraled out of control is the activity expenses line item. It’s tempting to view activities through a “once-in-a-lifetime” lens since you are on a “once-in-a-lifetime” trip, which results in participating in many more activities than your budget anticipated. When I reflect on the year I spent traveling around the world, the once-in-a-lifetime activities (beyond the actual, planned trips to places like Patagonia and the Himalayas) were quite few—snorkeling with whale sharks and attending a sumo wrestling match are the two activities that immediately come to mind. Bungee jumping, parachuting, and other adrenaline based activities, while one may argue these are once-in-a-lifetime activities, they are not activities that can only be experienced during an around the world trip. Signing up for these types of activities and excursions, particularly on the spot, are non-essential and expensive, regardless of the location.
You should be able to offset any overages in your attraction or dining expenses within those budget categories within a day or two. For example, if you eat an expensive dinner, eat cheaper meals over the next day or two. If you are going to splurge for chili crab in Singapore, plan to eat a few meals at the hawker centers before and after.
Take the budget, actual, and forecast tracking seriously but don’t let it consume your decision making or increase your financial stress. These are financial tools to help, not infuriate. Keep in mind that the alternative to forgoing these activities, running out of money, is much worse that the pain of tracking actuals and updating your expense forecast.
A budget is the original, initial cost estimate. It is prepared prior to commencing an activity, whether that is a business’s financial year, a vacation, or a personal strategy to save money. The original budgeted numbers should not change over the course of performing the activity. Once the activity starts, you need to track actual expenses and compare them against the budget. If you budgeted $10 per night for accommodation in India, once you begin booking accommodations and charging your credit card, you need to compare how the actual expenses compare to the original budget. A forecast is an updated budget based upon actual expenses incurred-to-date and expected future expenses. If your actual India hotel accommodations for the first week are $15 per night, instead of the $10 originally budgeted, the forecast takes the $15 per night expense into account, and you need to decide whether to find cheaper accommodation going forward, adjust your future expenses in other areas, such as reducing the amount that will be spent on food, or tolerate the expense increase.
Similar to budgeting, anyone can monitor actual costs and forecast their future expenses. Unlike budgeting, monitoring and forecasting requires an ongoing effort and focus. Like developing a habit of backing up photos, monitoring and forecasting your expenses should be part of your travel routine. Once a week review your bank and credit card accounts for past activity. Note how much cash is on hand, the unpaid credit card expenses, and compare those amounts to your budget or latest cash forecast.
The expenses will not be incurred evenly over the course of the trip because budgets vary country to country—that is to say, month one will not have 1/12 (8.3%) of your expenses, month two will not have 1/12 of your expenses, and so forth. If you are going to spend the first month in the United Kingdom, and your budget or forecast projects 11% of your expenses to be incurred in the United Kingdom, then your actual expenses for the first month should be around 11%.
If you are running over budget after your first few months of travel, there are several financial levers you can pull to reduce your daily expenses. The first lever is evaluating your accommodation spend, which is likely your highest daily spend and therefore any reduction in this expense category will result in your greatest savings. If you’ve been staying in four-bed rooms at a hostel, start staying in the eight-bed or more rooms at a hostel.
Another area where a lever may be pulled to reduce expenses that have spiraled out of control is the activity expenses line item. It’s tempting to view activities through a “once-in-a-lifetime” lens since you are on a “once-in-a-lifetime” trip, which results in participating in many more activities than your budget anticipated. When I reflect on the year I spent traveling around the world, the once-in-a-lifetime activities (beyond the actual, planned trips to places like Patagonia and the Himalayas) were quite few—snorkeling with whale sharks and attending a sumo wrestling match are the two activities that immediately come to mind. Bungee jumping, parachuting, and other adrenaline based activities, while one may argue these are once-in-a-lifetime activities, they are not activities that can only be experienced during an around the world trip. Signing up for these types of activities and excursions, particularly on the spot, are non-essential and expensive, regardless of the location.
You should be able to offset any overages in your attraction or dining expenses within those budget categories within a day or two. For example, if you eat an expensive dinner, eat cheaper meals over the next day or two. If you are going to splurge for chili crab in Singapore, plan to eat a few meals at the hawker centers before and after.
Take the budget, actual, and forecast tracking seriously but don’t let it consume your decision making or increase your financial stress. These are financial tools to help, not infuriate. Keep in mind that the alternative to forgoing these activities, running out of money, is much worse that the pain of tracking actuals and updating your expense forecast.