A girl in conflict...travel versus saving

I came across a recent post about "The Price of Luxury" over at Brave New Life that really struck a cord with me. As an avid traveler who is also trying hard to achieve her goal of early retirement (or financial independence) by age 38, I am often faced with the opposing forces of saving and spending in order to achieve my dreams. Therefore, I often think about what it's really costing me to indulge in trips to far-flung destinations.

On the one hand, I try to be very diligent with my monthly budget and even have a set amount of money that I automatically deduct from my paycheck - roughly $100 per pay period - to go into an ING travel fund. I use this money solely for vacations and mini trips I take throughout the year. This helps alleviate some of the anxiety I might feel when spending money on travel. On the other hand, I realize that by spending this money that could be better utilized padding a savings account or investing in stocks or mutual funds, I am only prolonging my path to retirement. (A $200 per month or $2,400 per year travel bill really translates into a savings cost of $80,000 assuming a conservative 3% return on investment.)* However, there are some things that are good for one's mind, body, and spirit. For me, it's travel.

I've always viewed travel as first and foremost, an adventure. I love to be immersed in new cultures, experiencing exotic tastes, smells, sights and sounds that both transform and transport me. There's no substitute for getting lost in a chaotic bazaar, weaving your way through narrow, unfamiliar streets, making a connection with strangers who don't speak your language, or coming upon a quiet, undisturbed place to take your breath away. Travel holds promise. Travel encourages me to learn from my past, to keenly look towards the future, but to always be aware and firmly present on the path I'm on. That way, I'll always appreciate where I am in life and where I'm going.

As I struggle with some of the guilt I feel about spending the money on travel, I have to remind myself that part of it is the price I pay for living in my hamster wheel. There is no way around it - I work to live, but in order to escape some of the realities of my cubicle nightmare, I use travel as an escape. Until the day that I can break out for good, where travel will be less of a coping mechanism and more of an immersive experience, I can only hold my breath and continue saving.

*In the world of early retirement, instead of trying to calculate how much you'll need in retirement based on a fixed percentage of peak income figures (i.e. I'll need 80% of my current income to live off of for the rest of my life), early retirees tend to calculate how much they'll need in retirement based on their current monthly expenses and aim to live off their investments. In my example, a monthly travel expense of $200 or $2400 per year using an ROI after inflation of 3% means that I'll need 3% of my nest egg to equal $2400.  $2400/.03 = $80,000. So I would need to save $80,000 in order to draw $2400 each year.

I've broken down the gist of the early retiree method in more detail below. Basically, the idea is that to retire early, you need low monthly expenses. If your monthly costs are low, you'll need a lower nest egg in order to retire. Conversely, if you use the conventional "percentage of my current income" method, you'll need a really large nest egg to retire.

Early retiree method:

• Bring monthly costs down as low as possible by doing such things as paying off your mortgage, living frugally, investing and saving early.
• Assuming $2000 in monthly expenses means an early retiree would need about $2000 x 400 or $800,000 to retire early. And by early, I'm talking mid-30s or earlier if you're diligent! The retiree could then withdraw $2000 per month or about 3% of his/her portfolio and expect that it would last the rest of his/her life.

Regular or conventional retirement method:

• Save the "recommended" 10 to 15% of income each year
• Live normally, don't take too many measures to reduce monthly expenses
• Aim to replace roughly 80% of pre-retirement income. Assuming a pre-retirement income of $80,000, a retiree would need $64,000 x 30 years or $1.92 million before retiring. And the retiree isn't leaving the work force early...he or she would need to work until 65 in order to accumulate the $1.92 million.