Using Betterment to Create a Travel Budget ‘Snowball’

“This heart of mine was made to travel the world.” – Mrs. Holden Alexander

For my birthday one year, Mrs. Holden Alexander painted those words on some old church windows. We now have them displayed prominently in our apartment to always remind us to enjoy the present while remaining focused on the future. I believe this is an important concept for all investors to remember. You can get so focused on the future that you miss opportunities to make memories now.

Advice That Stuck

I recently read two great articles on travel and budgeting, one by Rob at MustardSeedMoney.com and another by Justin at RootOfGood.com. Although I primarily talk about investing concepts and ideas on this site, personal finance and budget decisions directly affect both investing and state of happiness. I believe that for many of us, travel directly impacts our well-being and those experiences urge us onward toward our long-term investing goals. Travel paints a picture of what our future can look like if we stay persistent and disciplined in our investing goals.

Prior to getting married, I overheard a friend saying that a mentor of his advised he set aside $1,000 per year for twenty-five years after getting married. The mentor recommended that my friend use that $25,000 to take a vacation on his and his wife’s 25th wedding anniversary. I am not sure if my friend ever implemented that recommendation. However, little did the mentor know, I was listening.

Heartstrings

Traveling the world, experiencing new sensations, and getting to know different cultures pulls at our heartstrings. This can weigh heavily on you as you try to plan and prepare for the future as an investor. There are so many things to account for. Retirement. A house. Children’s college. Taking care of aging parents. Medical expenses. And the list goes on. None of those, except maybe the house, add value or memories in the near term.

So how do we fit travel, or whatever activity pulls at your heartstrings, into this plan called life? When Mrs. H.A. and I were putting together our budget for the first time, we talked about the aforementioned list. However, we made sure to prioritize a plan for ‘how’ and ‘when’ we wanted to travel. If you are like us, the ‘where’ was already taken care of.

The Plan: Travel Budget ‘Snowball’

The plan we came up with is divided into four categories of travel:

Travel CategoryBudgetDuration?Where?
The Annual$1,0003 to 7 daysLocal area
Driveable (within 4 to 6 hours)
Fly only if tickets are under $250 total
The 5th Years$5,0007 to 14 daysDomestic or International
Canada, Caribbean,
Europe
The 10th Years$10,00014 to 28 daysDomestic or International
Europe, Asia, Australia
The 25th Years$25,00028+ daysWhole world

Now I know what you are thinking: “That’s a lot of savings to allocate to travel! How can you budget for that and not forego other plans?” Although the numbers can seem daunting, the reality is quite different. I also understand that depending on your personal situation and finances, this may not be feasible but hopefully it will give you some ideas to start with.

When?BudgetAmount to SaveSavings Rate? (Annually)Savings Rate? (Monthly)Savings Rate? (Per Pay Period)
The Annual$1,000$1,000$1,000$83.33$38.46 (~$40.00)
The 5th Years$5,000$4,000$800$66.67$30.77 (~$30.00)
The 10th Years$10,000$5,000$500$41.67$19.23 (~$20.00)
The 25th Years$25,000$20,000$800$66.67$30.77 (~$30.00)
Totals$3,100$258.33$119.23 (~$120.00)

Using Betterment, we take a ‘snowball’ approach to our travel budget, starting with $1,000 annually ($83.33/month or ~$40.00/pp). This is the foundation for what we are building towards. Every year, we will travel using the $1,000 saved. *Side note: The Annual $1,000 is the only travel category that is stored in a savings account rather than Betterment due to the short time horizon (1-yr).

On year five, we will take a $5,000 trip. However, from the table above you will see that our saving allocation was only $4,000 for this travel category. Wait…wait! How is that even possible? Remember that we are still saving $1,000 annually in The Annual category. Instead of taking two trips on the 5th years (one small and one large), we combine the two. Same thing applies to year ten. We take a $10,000 trip but we only had to save $5,000 for it. This is accomplished by ‘snowballing’ The Annual and The 5th Years categories into The 10th Years. And the same strategy applies to The 25th Years, which, if I may add, are going to be epic trips! We are still planning those. Suggestions are welcomed.

The Investing Factor: Betterment

The beautiful thing about using Betterment for the longer-term travel categories is that you get a globally diversified, value-tilted portfolio that is automated, tax-efficient, and adjusts allocations as you get closer to your goal date. Because of this, the expectation is that each category will reach the targeted budget before the goal date. I have attached future projections of each category below.

The 5th Years

 

The 10th Years

 

The 25th Years

Global stock markets are not predictable in the short-term but trend upward over the long term. This upward trend, further enhanced by a value-tilt, will allow us to compound and build wealth on top of hitting our travel budget goals. For example, the average projected outcome for 2037 (five years before the goal date) in our 25-year category is $43,545. That’s $23,545 more than the $20,000 being budgeted for! Let’s say that we hit a market drawdown and the final amount is $25,000. That is still $5,000 more than what we were budgeting for. We could treat ourselves further by using that on the trip or we could invest that surplus into dividend growth stocks to further fuel our financial freedom.

What Adventure is Calling You?

There you have it. The exact plan the Mrs. and I implemented to travel the world while keeping a diligent focus on the future. What about you? Where does your heart long to go? Do you have any plans or strategies in place to accomplish those goals? I would love to hear about them. I hope the travel strategy of Mrs. H.A. and I will inspire or remind others to make memories along the way.

~ Holden Alexander


 

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4 Replies to “Using Betterment to Create a Travel Budget ‘Snowball’”

  1. Very interesting concept- I love it. At the same time, I’m guessing you are putting away money for retirement and other things. If you got raises at work, would you increase your vacation investing or your retirement or other investments?

    Thanks for sharing – I’m going to get out betterment.

    1. Thank you! It took some planning on our part but we thought it would be cool to have big trips ever half decade. Growing up, we did not travel much. Farming builds character and offers a lot of lessons at an early age but it limits when, how far, and how long you can travel. I did not travel more than two states away or outside of the country until college.

      Yes, we are able to contribute to retirement accounts as well. We receive 100% of our employer’s match, max out our Roth IRAs, and invest the rest in our taxable account. The travel snowball allocation then follows. Being debt free definitely helps. That goal was of utmost priority before we got married.

      Betterment is a great platform and tool. I highly recommend them!

  2. Thanks for the shout out!!! I love the thought of using betterment to hit your travel goals in the future. Super smart and definitely something that I need to steal moving forward 🙂

    1. Holden Alexander says: Reply

      You are welcome! You article inspired mine. You have my full permission to steal the idea 🙂 Thanks MSM

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