Saving up enough money to travel the world is a common aspiration across students and people in work of all ages. Sometimes that might take the form of a ‘gap year’, in between study and joining the workforce, or it could take the form of a semi-retirement at middle-age. In this article, we will share some tips for saving enough money to travel the world.
What does travelling the world actually mean?
Let’s begin by ironing out what is meant by ‘travel the world’. Is this an extended holiday across a couple of months and multiple locations? Or travelling the 5 continents over a several year time period?
The ambition and scale of your definition of what it means to travel the world will impact the amount you’ll need to save.
You’ll also need to think about what lifestyle you’ll live while on your travels. Will you use backpacker hostels and simple accommodation to travel on a shoestring, or do you expect to stay at hotels at every location? Do you plan to live like a local, shopping for groceries locally and exploring the location area? Or do you have larger excursions in mind, punctuated by restaurant meals?
Some decide to get part-time work when they arrive in a country (VISA dependent) to help support themselves financially and create a more sustainable lifestyle. Work may subsidise or entirely self-fund accommodation and other costs.
You’ll need to have a clear idea of what travelling the world means to you before you can budget for your trip.
How much does it cost to travel the world?
For the purposes of this article, we’re going to assume that you will travel for 2 years without working, but sticking to basic accommodation and meals. A proper break from real life as we know it.
In far-flung destinations, accommodation and food tend to be more affordable. Therefore the basics can be covered by £40 per day in countries such as Thailand. This even leaves a buffer in the budget for unexpected expenses.
Across a year, this works out as £14,600. In addition, you’ll need to include the costs of flying between destinations and paying for any excursions which will form the highlights of your trip. Including these costs would come to £20,000 per year. That’s £40,000 in total for a two year adventure.
How long does it take to save up to travel the world?
We can use any good savings calculator to work backwards from this £40,000 total and work out how long it will take us to save up this amount.
You will want to ensure you have a separate pot of savings tucked away elsewhere to help you continue your normal domestic life when you return. Therefore it’s easy to think of your travel savings as a totally distinct savings pot to your pension, investments and so on.
Using a savings calculator and assuming an interest rate of 1%, we can crunch the following stats:
- To save £40,000 in a single year requires you to find £3,319 per month.
- To save £40,000 in 5 years requires savings of £651 per month
- To save £40,000 in 10 years requires you to put away £351 each month
This gives a rough indication of how aggressive you’ll need to be at saving money to be able to travel the world for a two year period.
If you want to travel as a very young adult, you may find it difficult to accumulate a large enough pot in advance of the trip. Perhaps you can scale back the size of the trip or economise more on daily expenses (£40 per day is a generous amount if you’re prepared to live frugally).
Alternatively, if time is of the essence or patience has run out, some travellers choose to use a loan to borrow the rest. This is commonly done when gap year students travel prior to landing a job. Of course, this creates a debt burden that may feel like a drain on your finance over the following few years. We would advise only taking a holiday that you have fully saved up in cash in advance of the trip. It’s generally a bad idea to take out a cash loan to pay for a consumable like a holiday.
Tips for long term saving
If you’d in your twenties and you’d like to ‘eventually’ travel the world at some later point in your career then you can really leverage the power of investing to get you there with the least amount of effort. Here’s our trips on how to save money for this goal.
When saving for over five years, investing in shares becomes a real option on the table. Shares have an expected return of 5% on average after accounting for the effect of inflation. This can allow your savings to compound significantly over a long period as you are drip feeding part of your salary into a travel fund each month. Investing books for teens and investing books for students all use travel as a good example of something worth saving for over the longer term.
Above, we calculated that you would need to save £351 per month for 10 years if you were saving at a 1% interest rate. If you create an investment portfolio that returns an average of 5% per year, you would only need to contribute £260 per month!
Investments carry much higher risks than savings accounts and aren’t appropriate for short periods due to unpredictable swings in their value. If you remain invested in shares, there is a risk that a late downward swing in market prices will scupper your travel plans before you leave the country.
To mitigate this risk, you should plan to transfer investments back into cash gradually as you approach your savings date. By the time you’re a year away from your trip, virtually all of your savings should be back in cash for the peace of mind that you will reach your savings target regardless of the financial markets.