Updated: Sep 3, 2019
When we decided to look at living abroad we weren’t wealthy and certainly didn’t have a trust fund!. For us, traveling abroad was always associated as "huge expense" - paying for flights for four people; we usually had to dip into our savings just to spend our meager annual two weeks’ vacation abroad. We used to spend on average something like $10,000 on a two weeks’ vacation for our family. So of course, our initial assumption was that living abroad for a year would cost a multiple of that $10,000 per two week (in fact, as there are 52 weeks a year, our initial assumption was that it would cost hundreds of thousands of dollars) a huge amount of money that we obviously couldn’t afford! That’s why so many people associate being able to travel the world with those fortunate people who’ve won the lottery or sold their startup ( or were lucky enough to be born wealthy). Fortunately, traveling abroad can be much much cheaper than you think and, if you read this post, you’ll see – you too can afford it! Let’s look at the real numbers. The table below summarizes the actual costs of long-term living abroad. This data was gathered from 128 individuals, couples and families who live long term in Bali and also traveling the world in different ways:
Important Note: If you plan to travel in places like Western Europe or the U.S. that are more expensive, add 40% to the costs.
The cost that is mentioned above includes all expenses: long term rent, schooling, food , entertainment, transportation etc. During the travel period it includes flights, hotels, gas, food, entrance fees, border crossing fees etc. Obviously, the cost varies depending on where you travel (spending more time in Western Europe is more expensive, living and traveling in Asia and Central or South America reduces the cost dramatically) and how you travel (you may be shocked to learn that if you fly business class and stay in 5 stars hotels, your costs will be significantly higher!! shocking! ).
But, on average, if you travel using common means - flying in economy class, staying in 3 stars hotels or using services like AirBnB to rent local apartments, your costs would be in range of what’s listed above.
We met a family with two kids who have been living abroad and traveling for 7 years. They’ve kept detailed records of all their expenses throughout their living abroad and travels and, on average, they spend $3,100 per month. If you want more detailed information, relevant to your situation, on costs and tips that will allow you to reduce your taxes while relocating abroad or traveling internationally, set up a call with us.
Can you afford spending $1,000/month (as a solo traveler) or $3,100/month (as a family) to be able to have the experience of a lifetime? Odds are that you probably can! (Well, if you decide that you do indeed want to escape the rat race and try something new.) Most probably, you already spend that much (or more) per month just to survive.
Simply add up what you currently pay for rent or mortgage, grocery shopping, restaurants, utility bills, insurance, etc. and I’d bet you’ll see that you’re spending way more than $1,000/$3,100 per month.
And, odds are, you’re not having new and exciting new experiences that make you leap out of bed in the morning, excited to start the day, cheering, "I don't need coffee! Life is my caffeine!" (Ok, I still don't do that either, coffee is still my best buddy in the mornings).
If you want to see if you can escape the rat race now, use Wealthfront's plan-your-trip tool (I use it to link all my accounts -cash, stock, 401K etc.- and see how much more I save for our retirement by living abroad compared to living in the rat-race).
In California, between rent and normal life expenses I was spending $12,000 (!!!) a month just living ($144,000 a year). So, when we figured out that it would cost us just $50,000 to live in Bali for a year, we quickly realized that we’d actually SAVE money living an awesome lifestyle that we couldn't afford in California!
“If you can’t fly, then run; if you can’t run, walk; if you can’t walk, crawl; but by all means keep moving forward.” - Martin Luther King
So what prevents people from deciding to relocate abroad?
What limits you is the same phenomenon as is seen in captive elephants. When baby elephants are born in captivity, one of their back legs is tied to a pole with a chain. Initially, the baby elephants tries to walk out and break free from his limited world as defined by the length of the chain. But over time, the elephant gets used to his radius of movement, his sphere of living, defined by the length of the chain.
As the elephant grows to become adult, he can easily break the chain with the power of his leg and walk free, but he doesn’t. Why? Because he gets used to living within the radius of the chain and his childhood experience tells him that the chain can’t be broken. If he only tried, he would have seen it is actually breakable!
We are very much like the elephants. We get used to our routines and living conditions and can’t look beyond the perceived wall that we, mistakenly, think exists. But the wall is an illusion.
Most of us work harder and harder, trying to climb the ladder of success, believing we’ll be able to reach happiness and financial freedom once we reach the top of the ladder. Sadly, for so many of us, after years of climbing and climbing, when we finally reach the end of the ladder, we look at what we gained and realize that it wasn’t worth the lost years and personal sacrifice of not being with our loved ones along the way.
The faster you embrace the following insight, the better you’ll be: if the ladder you are climbing is not aligned with a personal goal that brings you happiness, every rung you climb up gets you farther away from where you really need to be.
More often than not, we incorrectly chase things we believe we want, but, later, when we finally achieve them, we realize will never make us happy.
For example, so many of us pursue Consumerism - the pursuit of material things. We want to buy fancy shoes, an expensive mansion or a yacht. We want power and success but fail to realize the enormous personal cost involved in obtaining those things. We work nights and weekends and, in the process, miss our kids’ childhoods. And why? To be able to afford material items whose glimmer fades away the second we have them.
If we get to a net worth of $100,000, we want to reach $1,000,000. If we are lucky enough to achieve a million-dollar net worth, we’ll want to reach $10 million, yet we’ll always feel poor compared to the those who have billions.
But let’s be real with ourselves, do we really need so much money? I mean sure, we all want a pet tiger name Richard and a velvet portrait of ourselves, but what do we really need?
Let’s say you won the lottery and got $100 million. After making a handful of purchases to enhance your comfort (let’s say you use a million or so to really upgrade your life), how would your day-to-day be any different from what it is right now? Not much. You can (and for your health, should) only eat 3 times a day, so having infinitely more money wouldn’t ultimately add much value there. You’d still sleep under one roof - even if you upgrade to a slightly nicer roof.
Would you still work? Doing nothing is boring and most wealthy people find it unappealing. Research* shows that being unoccupied cause loneliness, depression and overall reduces your quality of life. So maybe dreaming about being rich so you retire early is not such an amazing proposition!
Instead of trying to work harder to make more money, maybe the solution for a higher quality of life is to reduce our spending on unnecessary expenses so we can actually work less, live in an area with lower living expenses and enjoy what life has to offer – on your terms and not on your boss’ terms.
So how can you reduce your expenses?
For most Americans, the largest expense (about a third of their income) is their mortgage. So let’s analyze home ownership for a second. Most people believe that their house is their greatest asset, and the larger the house they own, the more financially secure they are. Beyond that, a large house situated in a good neighborhood is a status symbol, something society tells us we should desire.
But what most people miss is, that the house that you sleep in is not really an asset, but rather your greatest liability!
"What?!" I hear you yelling, "How come?!"
First of all, please keep it down. You'll wake up the kids.
Kidding aside, I’ll explain. According to the U.S. Census Bureau**, the average number of people living in a household has been declining from 3.01 people per household in 1973 to a 2.54 people in 2013. Despite fewer residents, the size of the average house actually doubled, increasing by 1,000 square feet.
When people move to larger houses, they increase their monthly bills in the form of higher mortgages and real state taxes. The bigger your house, the more furniture you purchase. The initial cost of furniture is high and it depreciates by 80% in value the second you purchase it. (Try selling furniture on Craigslist and see what people are willing to pay for it…!) A big house also means more maintenance, cleaning, lawn mowing and larger utility bills for heating, cooling and water. Large fixed cost reduces your flexibility and freedom to change career, switch jobs or simply try out a new location. It enslaves you to the rat race – you need to earn a higher income to pay for growing expenses.
Unfortunately, people buy larger homes and commit to larger bills because they think their long-term net worth is increasing (with the greater house value) which makes them feel good and secure. But that feeling is deceiving and dead wrong! Don’t you fall into that trap!Why? Because you will always need a roof above your head. So even if your house value appreciates, when you sell it (to realize the gain), you’ll need to replace it with another roof. If you stay in the same area (as most people do to keep kids in school or maintain proximity to family or friends), you’ll need to pay for a similarly priced house, which will wipe any gains your house might have had. Research shows, in fact, that people tend to opt for a bigger house, which will be even more expensive and put you in a bigger financial hole!
Most people don’t realize that they actually gain very little from owning their apartment or house and risk quite a lot. Just look at the millions that had their homes foreclosed on during the 2008 mortgage crisis – they all thought they were proud and wealthy home owners until they realized that their “asset” was a mirage. The only people who benefitted were the Wall Street financiers who collected fees in the process of the purchase of that mirage.
So what’s the alternative? While many people think that buying is better than renting a house or an apartment, reality proves otherwise! In 62% of the zip codes in the US, it is actually smarter financially to rent than to buy!!!
Take, for example, Millburn Township, New Jersey. In 2014, Millburn had an annual property tax of $21,706 on homes that were worth, on average, $740,800. This means that people who purchased a house in Millburn would pay to the state an additional $650,000 in property tax over 30 years. By the time they finished paying off their own mortgage, they would have paid the state the equivalent of a second mortgage (in total the $740,800 house actually costs $1,362,500 – almost double!). This tax isn’t paid by renters!
The monthly rent of a house of similar size and quality in Millburn Township is $2,000 a month, which is $24,000 a year. So, over 30 years, you’d spend just $720,000 on living in the same place and benefiting from the same public school system (that is paid for by the home owners) while saving $642,500! This is an amount which can easily allow you to travel around the world for 10 years!
The same is true in many areas of the world. I encourage you to google “rent vs buy calculator” and enter your zip code to see if it makes financial sense to rent in your neighborhood vs. purchasing a home (below is an example of our old zip code). Changing your mindset to lower your fixed expenses is the first step toward obtaining a location-independent lifestyle and allowing you to afford long-term travel or relocation.
To get more details on how to afford living internationally and having a more balanced and fulfilling life, get the Ultimate Guide To Moving To Bali below:
References:* The Early Retirement Decision: New Empirical Evidence on the Influence of Health by Gloria J. Bazzoli** American Enterprise Institute, Mark Perry, February 16, 2014