All content copyright © 2010-2019 Frank Revelo, United States copyright office registration number TX-7931345
Infrastructure expense are those which cannot be postponed indefinitely, and which provide the foundation or infrastructure for a lifestyle, whereas discretionary expenses are those which can be indefinitely postponed. Examples of infrastructure expenses: mobile phone service; mailbox service; personal domain and website; storage locker; apartment rent for renters; mortgage, property tax, insurance, utilities and required maintenance for homeowners; taxes, insurance and required maintenance for automobile owners; medical insurance. Examples of discretionary expenses: food, clothes and gear, transportation, entertainment, etc. (Eating is non-discretionary, since it can't be postponed indefinitely without starving to death. However, there are plenty of ways to eat for free in modern society, so buying food is discretionary.)
The more expenses that are discretionary, the greater the flexibility and resilience in the face of unexpected financial setbacks and disasters. Also, there is a psychological tendency in most people to focus on discretionary expenses and ignore infrastructure expenses. This is why people get angry when food and gas prices rise, but ignore much more significant changes in medical insurance and housing costs. When most expenses are discretionary, most people can live happily within a small budget. Whereas when most of the budget is comprised of infrastructure expenses, the typical feeling is one of being poor, limited in options, and generally miserable. Staying within the budget becomes difficult for most people under these conditions. If the budget is a hard one—no savings, no credit cards, a monthly pension and everything paid for in cash—then it doesn't matter if staying within the budget is difficult or not, since the budget simply can't be exceeded. However, most people reading this page and planning for a lifestyle of long-term travel will be financing this lifestyle at least partly out of savings. For these people, it is very easy to exceed the budget by simply dipping into those savings faster than was planned, with the final result being to run out of savings too soon. It is thus essential for these people to reduce infrastructure expenses as a proportion of the total budget to the minimum level possible.
As of 2017, my infrastructure expenses are under $1500/year (storage locker, mailbox, mobile phone service, website, see here for details). Add discretionary expenses of about $1500/year transportation (mainly air travel for annual Europe trip), $1500/year clothes/gear, $1000/year dental/medical, plus $34/day food/shelter/miscellaneous and total is about $18000/year. Infrastructure is thus a very small portion of my budget and most of my expenses are discretionary, which partly explains why I feel like a king living on a budget that is modest by American standards.
[Another factor is that, beyond the basics, spending money tends to reduce rather than increase happiness, or such has been my experience. Not owning an automobile makes me happier than owning one. Owning a single bicycle makes me happier than owning multiple bicycles. Having a single set of sturdy home-made clothes suitable for outdoor use and easily cleaned in the sink, plus spares in the storage locker, makes me happier than would a varied wardrobe of fancy store-bought clothes which can't be worn outdoors and which require machine laundering and/or dry-cleaning. Cheap motels are usually better for me than expensive ones, partly because the clientele at the latter tend to be insecure middle-class types terrified of falling and obsessed with rising in social status, an attitude which is contagious and which is definitely not conducive to my happiness, and partly because too much comfort sucks me into its vortex and makes me want to settle down, but being stationary is also not conducive to my happiness, which is also the reason for not having a fixed residence. Eating at restaurants is typically a nuisance compared to eating in the park with foods from the grocery store. And so on.]
The above budget could be cut to $12000/year, by trading time and discomfort for reduced transportation costs (long layovers, long bus trips), confining foreign travel to cheap countries in Latin America and eastern Europe instead of western Europe, being careful to stay in cheap motels while in the United States, and otherwise pinching pennies. In theory, discretionary expenses for a long-term traveler could be cut still further, bringing the total to say $6000/year, by living like the locals when traveling in cheap countries, and living like a homeless person while traveling in the United States (mostly wild camping rather than staying in motels), but not many are willing to live like that.
Medical insurance is a major infrastructure expense for most people. I haven't had medical insurance since 1995, when I quit my corporate job. Aside from reducing infrastructure expenses, lack of medical insurance encourages me to take care of my health and limit my risk-taking, which is desirable in itself, apart from money considerations. That is, there are times when neither the possibility of pain nor even that of being permanently crippled is sufficient to keep me from doing something rash that might result in severe body injury, whereas the prospect of paying huge medical bills might. Similarly, lack of dental insurance encourages me to brush and floss my teeth each night. Cost of medical insurance in the United States would be about $8000/year in 2017, and insurance provided is lousy, with $6000 deductibles and all sorts of exclusions. $8000/year saved amounts to $176,000 over the 22 years since I last had medical insurance, not counting investment gains. That should be more than sufficient to pay for any healthcare expenses I am likely to have beyond the $6000/year deductible.
Modern medicine does well fixing straightforward problems of an acute surgical nature: broken bones; lacerations; appendicitis; plastic surgery for cleft lips; removal of basal carcinomas; etc. But it is not so good when the problem is chronic and systemic: metastatic cancer; strokes and heart attacks due to long-term degradation of the circulatory system due to poor diet; worn cartilage and torn ligaments due to abuse of the joints; systemic infections that are resistant to antibiotics; etc. Many of these chronic and systemic problems can be avoided by good health habits, which has nothing to do with medical insurance. Indeed, if money is tight, far better to spend it buying decent food and otherwise preventing illness, than on curing illness with medical care, to speak nothing of buying medical insurance, which provides neither prevention nor cure but merely a roundabout way of paying for the cure (assuming a cure is even possible).
Even for problems where modern medicine can do something, it is often best to let the body heal itself rather than run the risk of an incompetent doctor making the problem worse or of contracting a hospital infection. For example, most minor lacerations will heal themselves, especially if you give the body plenty of bed rest. The pain of a kidney stone is indeed intense (I'm speaking from experience), but most stones pass naturally in a few days. Intervening to speed the process up can cause other problems. Best to wait a week or so before visiting the doctor. This is what I did, and the stone was gone before the week was up. Saved myself money, saved myself a bunch of hassle waiting around in the doctor's office and filling out forms, and ended up healthy again once the ordeal was over.
Some will say my perspective is skewed due to my good health, which is a matter of good luck. My response is that the role played by luck is over-estimated where health is concerned (and under-estimated where wealth is concerned). Those who want to be healthy generally are healthy. And those who want to be sick (and many do, for complex psychological reasons) generally do become sick.
Automobiles are another major infrastructure expense that can easily be eliminated for those who are retired and traveling much of the year, and sometimes even for those who are still working. For example, I gave up my car in 1990 while living and working in Washington, DC and also lived without a car for many years in San Francisco, while working from home, before moving to Reno, Nevada when I retired. For the most part, I've been transporting myself since 1990 the old-fashioned way—by foot—though I also used mass transit frequently in Washington and recently I've been using my bicycle in Reno. There are websites which rate cities by "walkability", but the ratings are frequently misleading, in my experience. For example, Reno is poorly rated for walkability and yet I find it very walkable.
Housing is a major infrastructure expense for most people. For renters with a lease and for homeowners, housing expense is mostly infrastructure, since it can't be postponed or reduced easily. For travelers with the options of expensive motel, cheap motel, camping in organized campground, or wild camping for free, housing expense is mostly discretionary, since wild camping makes it possible to reduce the expense arbitrarily low.
To perform a full analysis of housing costs, we must first discuss the concept of "safe withdrawal rate" or SWR. It is difficult to consistently earn high real (after tax and inflation) rates of return on passive investments, such as stocks, bonds and real-estate that is managed by someone else. Furthermore, even to get modest real returns, it has historically been necessary to accept either significant volatility (as with stocks and long-term bonds) or illiquidity (as with real-estate). Volatility or illiquidity, combined with the modest average real returns the average investor can reasonably expect to achieve, means that even spending just 4% of starting capital per year will eventually deplete the capital. However, provided the volatility/illiquidity is not too extreme and we only need the spending to last 30 or so years, then 4% is a safe withdrawal rate. That is, a person who retires about age 60, and invests in a mixed stock/bond portfolio, can spend 4% of initial capital per year, without too much risk of running out of money before reaching age 90, which is a realistic estimate for average life expectancy in the developed world at age 60. There is much more that can be said on this subject, but the 4% bottom line is what matters. That 4% figure is a real wake-up call for the average small saver or retiree, who typically has delusionary notions of being able to spend 10% or more of initial capital per year. Indeed, even the 4% figure may be optimistic as of 2017, as it is possible that we are entering a long period of low real returns on capital.
Anyway, suppose a person travels 9 months per year and spends the remaining 3 months in a fixed location. What is the best option for housing while not traveling? Assume we have $100,000 starting capital for housing. (Note that the SWR accounts for inflation, so no further adjustments are needed in the calculations below.)
For both houses and RV's, preparing the plumbing for sub-freezing conditions is quite a nuisance. If the RV has to be driven to a storage location, that is a further nuisance. There is no preparation needed with an apartment, other than notifying the landlord. Preparation with a motel consists in carrying a few boxes of belongings to the storage locker, which takes a few hours if the storage locker is not too far away.
With a house or apartment, there is the possibility of a fire or burglary or other catastrophe that might require the tour to be interrupted. Problems like this are unlikely with well-run storage facilities made of steel and concrete, which have been designed with round-the-clock security in mind. There is the possibility of spontaneous combustion of items stored in a neighboring storage locker, which could cause smoke and smell contamination. So clothes and electronics should be protected by plastic containers inside the storage locker.
RV's are discussed because there is frequent mention of RV boondocking as the ultimate low-cost housing option. And indeed RV's can work out well for those whose preferred mode of travel is via RV, and who migrate south in the winter and hence never have to prepare the plumbing for sub-freezing storage conditions. But there doesn't seem to be much cost advantage for those, like me, whose preferred mode of travel is via foot or bicycle. If housing cost is an issue, it seems simpler to just travel and camp more and thus spend less time living in a fixed location in motels. RV's as a housing option are vastly more trouble than motels, and so only make sense for someone who actually wants to travel in the RV, as opposed to using it as a housing option when not traveling.
The simplest and least troublesome solution is thus also very economical. Namely, just live in a motel when not traveling. This fits in with a general trend nowadays towards the "sharing economy"—think of AirBnb or Uber. From the owner's perspective, don't let valuable resources, such as housing units and automobiles, sit idle, but rather rent out these resources on a short-term basis when not using them. From the renter's point of view, rather than buying excess capacity just because everything is cheaper in bulk, rent only what you need when you need it.
Obviously, as the amount of time spent spent in a fixed location increases, the balance of advantages tips towards an apartment that is simply left vacant while traveling, rather than a motel. The issue of fires, burglaries and other catastrophes that might require a tour to be interrupted, can be dealt with by simply maintaining a storage locker in addition to the apartment, and keeping the number of possessions in the apartment to a minimum while traveling. Then again, some of us would pay extra to live in a motel versus an apartment, simply because we feel more at home in motels.
Owning a house usually provides the highest standard of living for a given monthly cost, assuming the initial choice of house is a good one (no unpleasant surprises with respect to repairs or neighbors) and the owner has a personality such that basic house management (including preparing the plumbing for sub-freezing conditions before leaving on a tour, and possibly interrupting the tour in the event of a fire, burglary, tree falling on the house or other catastrophe) is not seen as a burdensome chore. (Maintaining a house is especially difficult for elderly people.) For those concerned about leaving an inheritance to their children, the house option has the further advantage that only the capital subject to the 4% SWR will be gone after 30 or so years, whereas the house itself should still be around and worth more than what we paid for it, assuming it was properly maintained, since houses tend to keep up with inflation unless the neighborhood becomes blighted.
Condominiums and coops, or apartment building units that are owned rather than rented, are something a compromise between owning a detached house and renting an apartment, and sometimes make sense. Though be careful about the board of directors elected by the unit owners. A harmonious group is normally far stronger and more effective than would be suggested by simply summing the individuals who compose the group, since the individuals can complement one another. Weaknesses in one individual can be offset by strengths in another, and vice-versa. Members of the group can stagger their traveling, so that the group as a whole is never entirely absent. Illnesses will also normally be staggered, assuming the group is careful to quarantine those who are sick with contagious diseases. As individuals age and die off, the group can be replenished by new and younger members, so that the group as a whole is never old and feeble. Belonging to a group can thus be a great advantage to the individual, PROVIDED the individual blends into the group harmoniously and behavior of the group assists in satisfying the individual's desires, as opposed to frustrating the same. Woe be to the individual when there is conflict between individual and group, since the group's strength and effectiveness now becomes a double-edged sword that turns against the individual. In other words, membership in the "right group for you" is typically a blessing, membership in the wrong group is typically a disaster.
Changing the 4% SWR number to 3%, to account for a low-return environment, tends to enhance the attractiveness of owning versus renting. Then again, if the market is efficient, prices for housing might rise by exactly enough to leave the rent versus buy analysis unchanged. One thing is certain: changing from 4% to 3% SWR reduces cash inflows from a given amount of starting capital, and thus makes it more important than ever to minimize ongoing non-discretionary cash outflows (infrastructure expenses). That is, it becomes more important than ever not to get locked into high ongoing expenses, regardless of housing option chosen.
The preceding section is negative towards owning a house, but doesn't give the full story, since it assumes a fairly well-funded traveler, such as those with a good pension or social security benefit, or those with substantial wealth in the form of financial assets. For those with a small pension or no pension at all, and with moderate or small wealth, there is another way of looking at things.
Currently, and likely in the future as well, the tax and government welfare systems of the United States favor those who are rich in income-producing tangible assets (real-estate, motor vehicles, tools, machinery) but poor in financial assets (bank accounts, stocks, bonds) and cash income. The underlying reason is because these "yeoman" types tend to identify with the plutocrats who run the show. In exchange for supporting the plutocrats, the plutocrats have created a system that favors yeoman types over commoners who are cash-rich but poor in income-producing tangible assets—the salaried wage slaves aka proletariat. Britain has a similar culture, because unlike the other European countries and Japan, Britain never had a revolution or lost a major war or otherwise went through a social upheaval in which the hereditary landed aristocracy was fully stripped of its ancestral privileges in favor of the industrialist bourgeoisie. I'm not sure about Canada, Australia and New Zealand, but I would imagine they all resemble the United States with regards to favoring yeoman types over salaried wage slaves. That is, all these countries likely have low property taxes and special privileges for owner-occupied real-estate and activities which tend towards self-sufficiency, but high taxes on cash income and commerce.
Let's cut to some specifics. Eligibility for earned income tax credit, food stamps, supplemental social security, medicaid and other government welfare programs is normally based strictly on cash income and financial assets, with one unit of owner-occupied housing, plus the land on which that owner-occupied housing sits (up to some limited number of acres), plus one motor vehicle, excluded from consideration. Other tangible assets, like clothing, tools, machinery, livestock, etc may or may not be excluded from consideration according to law. However, in practice the government is typically incapable of appraising the value of small quantities of used tangible assets other than motor vehicles, even assuming the government is aware of their existence. Because of the interaction between the income tax system and eligibility for welfare programs, the effective tax rate on low-income people is often extremely high, like over 100%. That is, situations frequently occur where a person is worse off financially if their cash income increases, due to losing eligibility for all sorts of welfare programs.
For a person with limited wealth and limited or no pension, who wants to travel much of the year, the best advice is to put all wealth into income-producing tangible assets, and to especially favor income that is imputed rather than in cash form and thus taxable. For example, owner-occupied real-estate produces imputed rent income, which is the value of the housing services received by the owner-occupant, in excess of expenses (taxes, insurance, utilities, maintenance and repairs). The savings are two-fold with imputed income. First, the owner-occupant is not taxed when he earns the income necessary to obtain cash to pay a landlord, because there is no landlord and hence no such cash is necessary. Second, the owner-occupant is not taxed when he receives the imputed income (the housing services) whereas a landlord would be taxed. For cultural reasons, I think it unlikely that either imputed rent or other forms of imputed income will ever be taxed in the United States. (Imputed rent IS taxed in some countries, such as the Netherlands currently.) In general, the more things you can do for yourself, using tangible assets that you own and thus the greater your imputed income, the less taxable income you need to obtain cash to pay other people. The lower your taxable income, the greater likelihood that you will be eligible for welfare programs.
However, you'll surely need some cash. Try to obtain it by running a small business, where once again the tax structure is set up in your favor, courtesy of the plutocrats who know that small business owners tend to support plutocracy. (Mind you, what the plutocrats give the small businesses with one hand, they take away with the other. Thus politicians who answer to the Walmart heirs are happy to give small businesses a few tax break crumbs, but then give even bigger tax breaks to Walmart and also do nothing to protect small businesses from the brutal competitive pressures of Walmart. Though the tax breaks for small businesses are mostly crumbs, they are better than nothing, which is why I recommend scooping them up if possible.) In particular, renting out rooms in your owner-occupied real-estate is an excellent way to earn money in a way that is tax-favored and won't upset your eligibility for welfare programs if you do it right. Even better, exchange housing services for other services via non-cash transactions. For example, allow roommates to live rent-free or with reduced rent in your house in exchange for maintaining the house while you are traveling and providing you with garden-grown vegetables when you are not traveling. Using your motor vehicle (a truck preferably) as part of a small business is another smart move. In general, share tangible assets (real-estate, motor vehicle, tools, machinery) between a small business and your personal life. The cash income these tangible assets throw off as part of the small business can be offset by business expenses. The imputed income these tangible assets throw off when used in your personal life is tax-free to begin with, because it is imputed rather than real. Skate close to the edge of the law, but be careful about going over the edge. The Internal Revenue Service is well aware that many small businesses are in violation of the law, and audits them heavily.
The motel and apartment options that work best for me are bad choices for people of limited means, because these options require a substantial cash income, and, as noted, substantial cash incomes are often subject to extremely high marginal tax rates for people of limited means. There is no circumstance in which my own income would be low enough to make me eligible for welfare programs, thus there is no good reason for me to limit my income. Rather, my efforts are best directed towards limiting my cash expenditures.