Reading the many sailing forum threads everyone seems to want to know how much it will cost to get out cruising. And, rightly so, the answer is always that it depends on the extravagance of the lifestyle you want to live and the locale where you will be cruising. For all those interested, here is how we estimated all our costs and determined whether this goal was within our financial means.
This will be the cost of “The Boat” (and the cost of outfitting said boat), which will need to carry us safely on our Journey. We’ve seen prices varying from $30k (or in some instances even lower) to $500k (or even ridiculously higher!). But we would say that vast majority of boats fall somewhere between $80k to $150K on the bell curve. Obsessively looking at yacht sail websites, such as: Yacht World, Boat Dealers and Sailboat listings, we think we will be on the high end to accommodate a family of four. We have decided to budget $200k to purchase and outfit our boat. Knowing that the less we spend on the boat the more disposable income we will have to do fun activities and go cruising longer.
Some people choose to sell their house to cover this large cost and when they return they sell the boat and get back into the real estate market. As we live in Vancouver, one of the most expensive cities in Canada if not North America, we feel that it would be risky to do this. So we are planning on keeping our house and using investments or possibly just re-mortgaging to cover this initial big capital expense. And hopefully the boat hasn’t depreciated too much when we return.
We’ve again seen prices varying from $500 to $5,000 per month depending on many factors, such as: how often one stays in marinas versus anchoring, how often one eats out and incurs other entertainment costs, whether one does their own maintenance work, etc, etc.
Our approach has been to base our budget on what our fixed expenses currently are. We have been tracking our expenses for over ten years so we have fairly good basis of historical data. We are currently using a program called YNAB (“You Need A Budget”) to track and categorize all our daily expenses. And no we are not getting any royalties for recommending this product (at least not yet anyways 🙂 ) This easily allows us break out and to see how much we are actually spending on expenses that will remain, such as: food, clothing, house insurance, strata fees, RESP’s for the kids; while ignoring expenses that will be left behind, such as: cable TV, Internet, phone and other utilities. Where it gets a bit murky is what will our new unknown expenses be, such as: costs for country entrance, marinas, boat fuel, out of country bank fees, increased entertainment and boat maintenance. Given all this, we were able to generate the following budget.
- Food: $800 / mo (This is more than current as our kids will be older and will eat more)
- Fuel: $200 / mo (This is less than we currently spend as we’ll try to minimize motoring)
- Entertainment: $500 / mo (We plan on doing more fun activities)
- Marina Fees: $200 / mo (We will try to anchor the majority of the time but still nice once in awhile)
- Government/Banking Fees: $100 / mo (Wild guess)
- House Insurance/Strata Fees: $260 / mo (We want to keep our house for when we return but plan to rent it out)
- RESPs: $420 / mo until they are 16 (We still want our kids to get an education after all this)
- Clothing: $100 / mo (We assumed that we will be spending less as we will be mostly in warm climates)
- Boat Maintenance: $2,000 / yr (Some people will say 10% of boat value but we believe this is a reasonable value given we will be doing most the work ourselves)
- Other: $250 / mo (life insurance, storage, house maintenance)
This give a grand total of $36,000 per year ($3,000 / mo), which we believe should be reasonable given that we will mostly be visiting countries where the cost of living is lower than Vancouver (e.g. Mexico, South America, Polynesia). It also falls smack dab in the middle of the $500 to $5,000 spectrum so it should be as good a “guess” as any.
That is what we are budgeting to spend but what about income? We are planning on keeping our house for when we return, so one source of income will be rental income. Looking at average rates, we think we should be able to rent our 3 bedroom townhouse for $1,700 to 2,300 / mo (including property management fees). For safety factor and to account for under-utilization due to vacancy periods we are assuming $1,800 / mo.
Another source of income be the interest and principal of our investments. Over the past 6 years, our investments have earned on average 11% return on investment. I would like to think this is pretty good, especially if you consider that the world economic crisis occurred during this period. However, again for safety margin we are only considering a ROI of 5.5% (half of actual) to account for taxes due to rental income and withdrawal of RRSP’s.
So how does this all come together you may wonder? Since we aren’t planning on spending every last cent we have on this adventure, we have put together a financial forecast analysis given the following parameters:
- Set Sail Date = 2020
- Boat and Outfitting Cost = $200,000 depreciating at 5% per year
- Expenses = $36,000 / yr inflating at 3% per year
- Income = $1,800 / mo rental
- ROI = 5.5%
This gives the following chart, which shows our expected liquid assets (i.e. not including the house but including the boat if it is sold at its depreciated value) versus time. Note dollar values have been equalized to today’s value (i.e. a value of 1.5 means we will have 1.5 times more $ then we do today). You can see that we should be in relatively good financial shape when/if we return and we haven’t lost too much ground on saving for retirement.
It all may be a bit on the simplistic side but we believe that there are sufficient safety factors and contingency that it is useful for budgetary and financial planning purposes and gave us confidence that this endeavor was economically possible. We have also done some sensitivity analysis to see how changing inputs affects everything and it all looks fairly stable within reasonable bounds for input accuracy.
This has evolved somewhat from what I originally submitted in the previously mentioned “detailed proposal“, but it follows the same methodology. This approach has been sanctioned by our family CFO (aka Shelley), who has added her input and it is sufficient at this stage gate. But, as with the schedule, it is still somewhat in flux, and needs to be updated as we get better numbers closer to our actual departure date. We will try to keep it up-to-date and you will be able to find the details on The Plan page.
We both know that goals without plans are just wishes and dreams and worth just as much as the effort put into them.