How are we ever going to be able to afford to quit our jobs to live on a sailboat? How are we going to be able to afford THAT boat? In this blog I want to share the steps we took in creating a financial strategy that could connect our sailing dream to cold hard dollars.
In the beginning it seemed impossible as we were facing four kids entering college, trying to save for retirement and the everyday budgeting for a family of six. But, to my surprise, it can be done and I wanted to share our experience in how we did it.
Growing up without much, financial insecurity has plagued me and while I can be lavish with gifts for people I love, I tend to be conservative when it comes to financial matters. My process for anything of financial substance is to parkour my way through the numbers nine ways to Sunday until I satisfy myself that even in the face of an apocalypse, I can feed my family.
We've met and read about many cruisers who aren't burdened by these mental hopscotch...but I am not one of them. When we began to wonder what it would actually take to have a life aboard, objections and obstacles hurled through my brain like a meteor shower. I ordered the book 'World Cruising Destinations' but just flipping through the pages, got slammed back to earth by the thought of the work I had to get done for a meeting on Monday and the thought of kids going to college. What am I doing, this is crazy! That was me. Lucky, my husband has an imagination bigger than mine and we always ended up wandering back to the book of destinations and wondering if we could afford it...ever.
Sailing was once a retirement plan, something way off in the distance. Then we had an experience that made us realize how delicate and precious time was and the reality of our bodies aging by the minute. We started to ask ourselves what it would take if we wanted to leave tomorrow? Shifting to that mindset helped us break through the mental hurdle of doing the hard work of figuring out a financial plan and suddenly everything became more tangible.
We were optimistic about leaving once all the kids left for college, but I needed more than optimism and hope that things would work out in the end, financially. I needed to satisfy myself that if the boat sank and we were penniless, there would be some way to rebuild a life that would take us into old age...with healthcare options.
So first thing first, I had to get serious about a budget. Like most people, you do this, usually sometime in late April of every year, after tax day, when you decide to get serious about a good budget...but the discipline goes out the window the second summer hits.
Okay, now I’m going to cover how we went about developing our financial strategy.
The first thing I did was set out to map out a ten year budget. Five years to transition and save, five years living on the boat. At the time I started it, we had five years to go with kids in some form of school, one in college, one getting ready to enter college, one just entering high school and one in middle school. Our children (two of his and two of mine) were spread out roughly two years apart with various forms of financial need. This meant drivers with cars, insurance, college, mortgage, bills, etc. This was a big mental barrier I had to break down in my head because all that was too overwhelming as it was. Some families do household budgets, some don't. Up to that point we never really did since we managed our own money matters separately as a blended family. He paid his stuff, I paid mine.
We took actuals of our fixed expenses and projected those forward, things like mortgage, insurance, taxes, utilities, etc. and we added our 'investment expenses' like money we put into retirement or savings. Then we each documented what we called 'individual temporary expenses' which included things we would be each paying for a fixed period of time, like college, etc. for our kids. We also added a section for 'individual discretionary' because it seems I buy more things on my credit card than he does, (some self-awareness gained there). What mapping a long-term budget did, is it helped us think about how much we would have to save up in order to not work for a period of time, and pay all of our bills while we were gone. Initially, we set a target of two years to be on our sailing sabbatical, which eventually evolved to a ten year plan over the course of the process.
Estimating the Cost to Cruise
In order to map out the cost of cruising in the second time horizon, you have to do the estimations to determine what it will cost you to cruise. There were two phases of this for us. The first phase was general costs, then we had to go back and do one after we determined what boat we were budgeting for. In the first pass, we did rough estimates, then we went back later and got more specific based on the type of boat we decided to shoot for, which I’ll talk about.
It took quite a bit of time to research the actual cost to live on a boat. There's a lot of conflicting information out there about liveaboard living expenses and it depends on what kind of life you want to live so we just picked one based on how we live today (what we eat and do in our everyday life). For this purpose, we just went on current habits, so as not to pretend to ourselves that we would suddenly change once we got on a boat. There was a lot of information about living and maintenance expenses, but not enough detail for me on what it would take to move on to and operate the boat so I spent some time tracking this information down. Here’s the general buckets we had to consider.
Regular Living Expenses
- Local Transportation
- Personal Items
- Regular Medical Insurance/Out of Pocket
- Catastrophic Medical
- Travel (flights/hotel/car)
Sailing Operating Expenses
- Periodic Boat Storage
- Canal/Special Passage Fees
- Weather Services
- Regular Insurance
- Supplemental Insurance
Maintenance Expenses - this depends on the type of boat.
- Spare Parts/Oil
- Special Purchases
Estimating the Cost of a Boat
This also means you have to decide what kind of boat you want and whether you are buying used or new...cash, finance or boat as a business? I’ve covered how we determine what boat we want in a previous post, but the net of it is, to do our budget modeling I chose to pick the most financially aggressive option. The logic was that if we picked the hardest one to achieve, at least we would get somewhere within range of what we wanted to do. For this, I estimated not only the boat, but the options and all the equipment. The scenario was to buy a new catamaran, fully equipped and try to pay cash - gulp!
First, there’s estimating the initial costs of getting on to a new boat and undocking the lines. A caveat, this is our own scenario estimating for a new catamaran, so the budget of course here will vary, but just so there’s some kind of comparison.
I’ll do another blog on outfitting separately, but here’s the general categories for now.
- Base cost of the boat
- Manufacturer options, depending on the boat there’s more or less included
- Broker options, additional commissioning, rigging, outfitting, installation, etc.
- Other major equipment; sails, customizations, hull treatments, dingy, spares, etc.
- Transit and commissioning fees, on top of everything else, even if you are picking up the boat at the boatyard, these are costs that get the boat lifted into the water
- Personal sailing equipment (lifejackets, safety equipment, first aid, etc.)
- Household, tools and recreation equipment (dishes, linens, paddle boards, etc.)
- Registration and flag fees
- Sales tax
- Initial insurance
- Legal and accountant fees, budget for some advice you will ultimately want to get on whether to put it in an LLC or tax implications that may exist
- Travel costs to visit the factory, your dealer, commissioning agent or other suppliers including hanging out during the commissioning process, you will want to be there in person for that
- Shipping costs for anything you want to take with you
Determining Re-Entry Scenarios
I also wanted to estimate what we would need to eventually come back to living on land, assuming at some point we would come back. It caused a lot of discussion about what to do with the house; sell, rent, etc. What a pandora's box this was! And I covered the emotional drama already in a previous podcast so I’ll keep this topic bound to the financial nuts and bolts. First of all, I wasn't going to sell the house to buy the boat. We live in California so the house IS the retirement plan! To really understand the long term implications of the house decision, I needed to map out the various options.
- Try for a moonshot to pay off the house and rent it, this would give us good rental income while we were gone and fund us for an indefinite period of time (and also involve a miracle dropping from the sky but worth looking at)
- Keep the house indefinitely at current fixed expenses, explore different mortgage rates and potential for refi, rent the house to cover expenses
- Sell the house, put the money in investments, figure out where to live later
- Sell the house, downsize by buying a condo, rent the condo and we would be able to return to the condo later; which included a condo in an exotic place where we may want to live later...with a boat dock!
For each of these I mapped assumptions, equity potential over time, taxes, deductions and implications of rental income, etc. Doing this, I was able to bring to light questions I didn't consider before like turning the house into a rental property and the capital gains implications of that after three years. I was also looking at an aging adjustable rate mortgage that was stupid low, but at this time the mortgage rates looked to be trending upwards. So the decision was time sensitive as well. I'll be honest, this exercise took months and my accountant and realtor friends nearly fired me for all my questions on this matter. Anyway, this helped us make a decision what we would do with the house and what made most logical sense for our personal situation.
This was SUPER helpful and took the constant emotional flip-flopping off the table, but was very time consuming. The net of it was, converting my existing property to a rental would not be the best leverage for our money, or our objectives. The rental rates on this property were high, but the expenses are also high, so it didn’t do much for cash flow. Also, the property had nearly doubled in value over the last 20 years and there just wasn’t much more headroom, as we started to see a recession on the horizon that would limit our options later, because we would be forced to hold onto the house for potentially another eight years.
With all this basic information, and the discussions my husband and I had in this part of the process, we could get on the same page about our plan assumptions. With all the basic costs mapped out on what we were actually going to need to spend money on in the pre-liveaboard timeframe and what it would take to live on the boat for a 5 year period of time, we were able to have discussions about where we might want to cut expenses to save, whether it made more sense to buy a used boat or switch to a monohull for cost purposes, or rethink our re-entry plans.
It took us some time to get through all the topics and get on the same page but this was time well spent. For couples who have been together for a while, perhaps this would come more easily, but my husband and I are together 10 years as a remarried couple with a blended family so up to this point we managed all our money separately. I hadn’t before this time even asked him what he had saved up in his retirement accounts.
Now that we had the basic assumptions mapped out, and our priorities set...for example, we would rather have the option of more time on the boat and figure out how to augment our income, than cast off for a shorter amount of time and not think about work at all. It was important for us to be clear on our priorities when it came to things like this.
So the lesson up to this point that I learned was, there was definitely a way to consider living on a boat. When I first set out, I didn’t think it would be possible at all, and through these first five steps, I started to see how it might be possible. Of course, it’s always possible to sell everything, buy a boat and worry about the rest later. But for me, I really needed to know that I wouldn’t be moving in with my adult kids 10 years from now so they could take care of me, did you hear that kids...you’re welcome!
Okay, so I’ve covered what it takes to get the first pass at a financial strategy in this blog. In the next posting I’ll talk about pulling it altogether and putting a financial plan into action.
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