Five Ways to Make Long-Term Travel a More Profitable Investment
Even for experienced personal finance gurus, long-term travel while on sabbatical can be disruptive to (routine) money management. Similar to our anti-budgeting approach to saving and spending more intentionally, these five habits have helped us fund worldwide travel without sacrificing our goals for financial independence.
<<1. MAXIMIZE EXCHANGE RATES>>
When geoarbitrage planning leads you to an international locale, you have to deal with foreign currency. The upside is that you have most likely chosen a place where the US dollar (or your home currency) is strong. The risk is in the daily rise and fall of exchange rates. Trading in the global markets means that currency exchange is never a fixed rate.
On top of constantly fluctuating exchange rates, banking institutions and businesses base transactions on different prices. A market movement of a few cents up or down might seem nominal, but it can add up to a big difference—especially if you have many or larger purchases to make.
The two fundamental forms of payment are either credit (ideal, if it’s an option) or cash. In any case, the general rule of thumb is that it’s better to pay in local currency.
To get cash when needed, ATMs managed by international banks usually offer better exchange rates than independent or locally serviced machines. It should be relatively easy to avoid walk-up money exchanges but, if you have to use one, always shop around to get as close to the mid-market exchange rate as possible.
The next two tips will cover cash withdrawal and international credit cards more specifically. But, the first important takeaway is that it pays to stay current with exchange rates because it empowers you to maximize your purchasing power.
<<2. AVOID FOREIGN TRANSACTION FEES>>
For your next line of travel fees defense, be aware of the foreign transaction policy for all of your credit cards. Many credit AND debit cards will charge an extra 2-3% on every transaction made outside of the US. That’s $20-30 you’d end up forfeiting for each $1000 you spend. Don’t let that hard earned money go to waste!
Keep at least one or two credit cards with zero foreign transaction fees in your arsenal. We have been traveling happily with Chase Sapphire cards.
Personal finance best practices advocate to pay with credit as much as possible (never carrying credit card debt, though, of course). However, many places around the world are still very much cash-based economies. It’s not good for your credit card rewards, but still an opportunity for financial optimization.
<<3. USE FREE CASH MACHINES>>
The same strategy for credit cards applies to your debit card(s): know the international usage policies and make sure you have an option that works worldwide.
When you see an ATM with the logo of your debit card payment network (e.g. Visa, Plus, Cirrus, Star etc.), then that’s the sign it will accept your card. However, there are often additional fees charged by either your home bank, the local bank, or both. Withdrawal fees can vary from a fixed amount per transaction to a percentage of the total withdrawal. For example, Chase charges $5 PLUS 3% on all international ATM withdrawals. Eek! That’s a lot of money to pay just to access your cash.
Some debit cards also charge a foreign transaction fee in addition to the cash withdrawal fee. So, when choosing a bank for your checking account, make sure to look at all of the fine-print regarding non-network ATM usage and international transactions. We have a Schwab high-yield checking account, which refunds fees charged by 3rd party banks for debit card usage worldwide and does not charge any foreign transaction fees.
Being able to make fee-free purchases with credit or cash helps optimize your spending for fulfillment. Still, sometimes you need another option.
<<4. MAKE SMART MONEY TRANSFERS>>
Everyone’s “big 5” spending categories involve bigger purchases. For those who owe their rent, car loan, etc to the same bank every month, recurring payments can easily be automated. But, long-term travelers who move around relatively often have more variability in who and when they pay for these bigger ticket items. And sometimes cash really is king when negotiating.
Most banks limit your daily ATM withdrawal to around $500 or less. If your bank charges a percentage-based transaction fee, then a maximum withdrawal could really sting. Plus, walking around with wads of cash is not recommended.
Peer-to-peer money transfer offers an easy way to quickly and inexpensively transfer funds online. Setting up an account with these services can usually be done in just a few clicks. Unfortunately, just like credit and debit, costs do vary depending on how much money you are transferring. Not all peer-to-peer money exchanges are the same, so shop around for the best no/low fee option and exchange rates. We had been using PayPal most frequently but were excited to discover TransferWise.
<<5. SIMPLY TRACK CASH>>
When we’re living in the Motherland, we typically spend a couple hundred bucks (or less!) in cash per month. Low monthly cash expenses aren’t worth the hassle of trying to categorize in Mint. But, when cash purchases amount to a meaningful percentage of costs, then it’s time to start tracking some details about where that money is going.
Tracking cash expenses doesn’t need to be a pain in the arse, though. We use a basic notes app on our phones to record purchases over a few dollars. This is kept relatively easy by just writing down how much was spent (in local currency) and which category it belongs under (restaurant, rent, etc). After the withdrawn amount is spent down, the list is converted to US (or your domestic bank) currency and then uploaded to Mint. Then stop by the ATM again, and repeat.
Get Our Easy Cash Spending Conversion Spreadsheet with Step-by-Step Instructions
Simply recording cash spending for easy upload to Mint is a low-stress way to help make sure we are staying within our intentional spending guiding principles.
Geoarbitrage can be an effective financial independence and quality of life hack. Just because you’re living somewhere with low cost of living doesn’t mean you can forget all of your money saving habits, though. Fees and expenses that come with life and travel abroad can add up to unnecessary costs if you aren’t familiar with them.
Once you’ve mastered your money with these travel budget hacks, sustainable and cost-effective long-term travel becomes a matter of routine.