RV Travel Budget – part 1

One of the major considerations in making the decision to retire, sell the house, buy an RV, and hit the road is if we can afford it.  With our income drastically reduced, having a good idea of our expenses becomes very important.

I went through many different iterations of this budget before we finally set sail.  In this post, I will try to share some of those thought processes and the final budget that we are trying to maintain. 

This has turned out to be a long post and I still did not cover everything I had planned.  It has been in the “draft mode” for weeks now and keeps growing.  Be forewarned, grab a cup of coffee and settle in.

Background

We have been on the road for just over six months now and the actual expenses are surprisingly close to the budget.  That is the good news.  The bad news is that we have underspent in some areas and vastly went over in other expenses.  I will share our actual spend history in the part 2 of this post.

I had developed our full-time RV travel budget over the last couple of years of working before I retired.  This was obviously difficult to determine with good accuracy due to not have any experience with being a full-time RVer.  Although, I have many years of work experience in budgeting and tracking the actuals.

I had also done a ton of internet research looking at the blogs of other RVers who are on the road full time.  These published budgets vary widely from about $1,500 per month up to $7,500 per month.  There are many drivers of these expenses including how often you move, if boondocking (free, no hook ups), and if you have any RV payments.

Also, how often you go out to eat versus cooking at home.  We try to eat at home about 5 days per week.  And we do not scrimp on our food expenses.  Many fresh fruits and vegetables along with meat and seafood.

I am publishing this information as a guide to other future RV’ers as a resource for their planning.  I also need to add a disclaimer that my advice is only that from a layperson who has some limited experience in the RV life, but a world of life experience.  Please seek out a professional financial advisor for your specific situation.  Of course, I would be more than happy to answer any questions.

We purchased both the truck and the camper new and financed both of them initially, but decided to pay off both of them after a couple of months.  So, there are no expenses for either of these except for taxes, insurance, and maintenance.

I have also separated the expenses between the items that behave in a fixed cost manner and those that are more variable.  Some will say there are no fixed costs in the long term, which can be true, but I am focusing just on one year.

There are also many one-time expenses to properly set up an RV.  Such as the power surge protector, hoses, and other supplies.  This budget excludes any of the initial one-time expenses.

Our total monthly budget or target spending came out to about $5,300 per month and that is actually higher than the average full-time RVer that I have seen published.  Our actual spending over the first six months is about $5,500 per month.  This is close but there are some vast differences by line item that I will get into in the part 2 of this post, in a few weeks.

Fixed Cost Budget

These costs are either monthly or annual and do not vary.  They are also not discretionary.  That is you will incur the expense until you make some change.  With that said, here are the fixed expenses section of the budget.  Remember that some of these I got right, but others were way off.

Variable Expenses

Our variable expenses turn out to be the largest portion of our spending, which is good as we can adjust as needed.  Again, these are the estimates before we actually started.

How to Fund the Expenses

There are many different options to funding these expenses, for others who may be considering this RV traveling lifestyle.  One option is to workcamp, which is sign up for a specific period of time at a campground to exchange your time for free camping.

Another option would be to have an occupation that can be performed from any location with a good internet connection.  Many people that we have met are doing this remote work.

For us, we decided to take our Social Security retirement benefits early and then cover the remaining expenses from our savings.  With this approach, one must be careful to make sure to have enough savings to last for your expected lifetime.  None of us know how many years we will have, but there are some actuarial tables to help predict based on your current age and sex.

We just recently began to receive Social Security after a few months of weighing the pros and cons of taking it early.  The bottom line is that you take a reduced amount by each month before your Full Retirement Age (FRA).  That reduced amount is then over your lifetime, which can be significant.

We are about 63.5 now and FRA is 66 for us.  I estimated the amount of the total SS reduction over 20 years and then compared that to using more of our savings up front and the loss of 20 years of earnings on them.  The scales tipped in favor of early SS.

Safe Withdrawal Rate

I have done a ton of research on this item over the years.  Probably have forgotten most of it.  My point is to spend some amount of time every week to read internet articles about what would be a safe retirement rate to not outlive your nest egg.  There are many books and articles published.

I am using the 4% rule that was first discussed back in the 1980’s by a graduate from MIT.  My guideline is to never exceed the 4% withdrawal rate.  Other people have formulas to increase the rate during the high return years and then reduce it if in a bad stock market year.  At this point, we are using something less than the 4% amount, but it may increase in the future with other plans.

For example, using round numbers, if your monthly budget is $3,000 per month and your social security is $2,000 per month, then you would need to withdraw $1,000 per month to cover expenses.  To be able to have a safe withdrawal rate, then your savings needs to be at least $300,000.  ($300,000 X 4% = $12,000 per year / 12 months = $1,000 per month).

Diversified Investments

On this topic as well there are thousands of books and online resources.  I use a few well diversified mutual funds that are parked in our IRA accounts.  I have also rolled over all 401k and pension funds into the traditional IRA.

The target that I try to maintain is a 70/30 ratio of stocks to bonds/cash ratio.  Now, I’m sure some folks will say that in retirement this ratio should be a more conservative ratio like 60/40 or 50/50.  It just comes down to a personal choice and your risk tolerance.

The goal is for your investments to provide an income and to be able to offset inflation.  On the inflation topic, I have assumed a 3% inflation rate within my worksheets.  This assumes that my total budgeted spending will increase by 3% per year.  Maybe not, but at least we will assume this.

Emergency Fund

Another facet to our strategy is to have a “bucket plan.”  That works this way.  You keep a one year of expenses in some sort of a cash account that is a zero risk investment.  Obviously, the reward will also be low.  I actually forget the interest rate, but some of this is in Treasuries.  Maybe something better to park this?

If we enter into a market decline, I will use the funds from this cash account “bucket,” and then refill this bucket with some other lower risk bond type of funds.  The plan is not to touch the principle in the stock funds in the down market years.  And there will be the down year.  I remember the 2008-2010 hit that my 401k took.  Brutal!  But at that time I was still several years from retirement, so not a huge concern.

During 2017, I have sold some of the stock funds that have been up as much as 25%.  So our nest egg is still growing, even with a few distributions.

Wrap Up

That was a lengthy post!  I’ve shared many of our strategies and thoughts.  Some were presented very briefly without much detail.  Let me know if have any questions or you feel that I am way off in some manner.  I try to learn something new every day!

Sometime soon I will post the result of our actual expenses compared to this budget.  I got way behind in placing our expenses into a worksheet and into categories.  Too much exciting things to do every day!  Now having to do it the old fashioned way of data entry into excel.  For the future, I’m looking into something like Mint, a budgeting app/tool using credit card downloads.

I hope that this information is useful for readers of this blog whether RV’ers or others nearing retirement or well into their retirement.

Take care and God Bless.