In late 2014 we decided that we wanted to take a family gap year and spend it traveling the world.
From the moment we hatched the idea my mind swirled with ideas, questions, and potential logistics. Where should we go? How should we get there? Can I finally convince Wandering Family Man to sell that stack of computer language books? What vacation savings account should we use for saving up money to travel? How will we afford a family gap year?
That last question is really always the first one, isn’t it?
There’s no get-rich-quick scheme for affording travel (or anything else). People who take a family sabbatical save up for it, pick up a side hustle to add to the coffers, and sometimes earn money while on the road.
Saving some starter money is always the first step, and choosing the right vacation savings account can help you reach your goal faster. Read on for our suggested approach to choosing the right savings vehicle by taking into account how much you need to save and how much time you have in which to save it.
1. Estimate how much money you will need to save
How much will the trip cost?
How much your trip will cost will depend on where you’re going, your style of travel, and the duration of your trip.
In our case, Wandering Family Man I had to guess how much money we would need to save for a year of travel with our two kids, ages 7 and 2. We are flexible as to where we go, and are budget-to-midrange travelers, with the occasional splurge.
I have previous experience with a few longer trips, the most recent being a 3 month backpacking trip through Western Europe with my 60-year old mom, and so had a vague idea of how much a year of budget travel might cost. My mom and I traveled by train and stayed in guesthouses, apartments and hostels (AirBnB didn’t yet exist), and spent USD$5000 each for 90 days.
Wandering Family Man and I decided that we would spend our family gap year somewhere cheaper than Western Europe (ie. anywhere else), and figured the year would cost us $40,000 (ish).
Will you earn any money while you’re traveling?
Next, consider whether you will earn money while traveling, such that you don’t have to save up all the funds required in advance.
People earn money while traveling in a million ways. Some arrange to telecommute to their job, some have a passive income stream from a business or investments, and some pick up temporary jobs along the way. Nora Dunn of The Professional Hobo has written a series of financial case studies series outlining how people support themselves while traveling.
We can’t count on income during our gap year. My job is not portable and my employer likely wouldn’t allow me to take a year-long leave; even if it would, I don’t want to come back to 50+ hour weeks of sedentary work with a long commute. Been there, done that.
Wandering Family Man is a freelance web developer, but keeping his clients might prove difficult when he suddenly moves to a different time zone, and we don’t think it’s as easy as many people think it is for a developer to pick up part time telecommute work.
And finally, for us, working during our gap year kind of defeats the purpose. We want to free our minds of work to see what other perspectives and priorities creep in. We want to enjoy our children for a year without spending 20 to 40 hours a week with our faces stuffed into a laptop.
For the purpose of financial forecasting, we assume we’ll have no on-road income.
How much time do you have before departure?
Planning well ahead for a trip gives you more time to save up for it, which can make the belt-tightening that is required a little less painful.
We started saving for our family gap year when Wandering Family Boy was two. We thought that seven was a good age for travel, so that gave us five years to save the money.
One has to save $666 per month in their vacation savings account for five years to amass $40,000, not counting interest or investment income earned on the savings. I didn’t want to jinx the plan with such a mark-of-the-devil monthly number, and we had a bit of money set aside already, so we set ourselves a monthly savings goal of $500.
2. Automate your savings
We didn’t know where exactly we’d find $500 each month. We just jumped in and did what we do whenever we need to save for something medium to long-term: set up an automatic monthly bank transfer.
Thank goodness we live in the age of automatic bank transfers. They are the only reason Wandering Family Man and I have any savings at all. Setting up automatic transfers and bill payments is, I believe, the strategy that has had the single biggest positive impact on our finances.
We get paid twice a month, and the day after our paycheques go into our bank account, most of it comes out again, delivered by electronic minions to cover all of our recurring bills (ie. mortgage, utility bills, insurance premiums) and retirement savings. Whatever is left (and no more) is what we get to spend on groceries and discretionary costs.
We pay ourselves first and live on what’s left. I think I may have gotten this idea from the original personal finance blog – you know, back when they were printed on a bunch of papers all attached together down the left side – The Wealthy Barber. My parents made me read it as soon as I finished high school. It’s a great book for young people to read, because it’s both easily digestible for someone with no financial background, teaches some savings habits, and is pretty short.
When I finished university, my parents tried to reinforce the message by taking me to their financial adviser so he could set me up with a Registered Retirement Savings Plan (RRSP; the Canadian equivalent to the US 401k or 403b). He reminded me of the pay-yourself-first model, told me I should always save 30% of my income for retirement, and then peered over his glasses and said,
“There are two main reasons why young people don’t save enough for retirement.”
“Friday night, and Saturday night.”
(Perhaps this is a bad time to admit that I didn’t actually start putting money into that RRSP until I was 35….)
Anyway, given that the auto-payment strategy had always worked well for Wandering Family Man and I, we decided to set up our vacation savings account the same way. We opened a new high-interest savings account for what we soon started to call The Big Trip.
We never put any money in it.
Step 3. Seek the best vacation savings account for your individual circumstances
Here is the
Consult your bank or financial advisor. We are so fortunate to have shared our dream with a very smart person we know who suggested – rightly – that the best gap year savings account for us is actually our RRSPs – specifically, the RRSP of the higher income earner. Why? Because we’ll end up paying thousands less in tax on that money.
An RRSP is a tax-deferred investment account that is normally used to save for retirement. We don’t pay income tax on the money we put into an RRSP until we take that money out.
But there’s no restriction on when you can take money out of an RRSP (so long as it’s not of the “locked-in” variety), and since we won’t have income during the Big Trip, the RRSP is a perfect savings vehicle. We put our $500 per month in, don’t pay tax on that money, and when we pull money out of the RRSP during the Big Trip, we’ll be taxed on that money at the lowest tax rate, instead of the rate at which our earnings are taxed now.
The only downside to this approach is that we will have to pay income tax during our family gap year, even though we will have no income from outside sources at that time. That means we have to save another $10,000 for our sabbatical, just for taxes. Easily done, though: saving in our RRSP netted us a tax refund each year, which we duly deposited into the RRSP as well.
If you’re not Canadian (sorry to hear)
I’m not Canadian, you say, although I wish I was. I don’t have access to an RRSP. Or, I’m not taking a whole year away, just a few months. What’s the best vacation savings account for me?
For Canadians taking less than a year away the best place to save is likely in your
For non-Canadians, at a minimum choose a high-interest savings account that is separate from your other bank accounts. Prioritize no fees over a half-percent difference in interest rates – you’ll come out ahead.
And if you can find a no-fee, high-interest account that has low international
For Americans, a quick check over at Nerdwallet’s list of high-interest savings accounts shows that potentially, your best bet for an account wiht both high interest and low international fees might be a Synchrony High Yield Savings account. It offers over 2% interest, no monthly fee for up to six
Further, I highly recommend exploring your savings options with your bank and/or financial advisor, as they may suggest options that you would not otherwise be aware of. For example, perhaps an
Step 4. Go find the money!
This is where the rubber hits the road! Setting up the account is one thing, but finding money to put into it is quite another!
Once our vacation savings account was set up, we set up an automatic transfer that would put $500 each month….great, but wait a minute: neither of us had received a $500/month raise. Where does the money to put into a travel account come from? Click here to read about 57 ways we cut costs to save for travel!