How Much is Enough? Building a “Someday Fund”

We’ve written at length about how much it costs us to cruise. And we’ve shared our money plan for accumulating the assets that now support our lifestyle. But we’ve left out something very important: How much is enough?

If you want to plan a sailboat cruise of your own, or travel the USA in a van, or take a year off work to become a full-time volunteer, or sponsor a community garden—or pursue any other “someday” project that requires ongoing funding—how much do you need in your Someday Fund?

It seems like an easy question to answer. Just figure out what your project will cost per month (or year), then multiply by the number of months (or years) you want to do it! Simple, right? When Michelle and I began saving to go cruising, this was the money plan we had in mind. As it would turn out, an unexpected change in plans led us to discover a different approach that would give us more flexibility and more freedom. It took a bit longer, but it would prove to be worth the time.

We left our jobs and became full-time cruisers in 2017, but that wasn’t our original timeline. We had planned to go in 2015, aboard our old boat, Aegea. But in late 2014, as the one-year countdown approached, we found ourselves considering new opportunities at work. For Michelle, it was a promotion to an exciting global marketing job—a new team with more resonsibility and more overseas travel. For me, it was the opportunity to write Sprint with Jake, Braden, and the rest of the team at GV.

We decided to delay our cruising plans and take the work opportunities, which we thought would be fun, interesting, and challenging. And they were! But this change in plans presented another kind of opportunity—not a professional one, but a financial one. Two more years of paychecks and bonuses, a promotion, and a new stream of passive income (from the book) would add to our financial stability. Michelle and I are quite conservative with money, and we loved the idea of building a bigger cruising kitty before we left.

In those two years, we climbed the ladder of financial independence. As we built our Someday Fund, we invested in assets that would support a level of sustainable spending. Our perspective on money changed: Instead of a “fixed pot” mentality, where we’d save a bunch of money, then spend it till it was gone, we started viewing our Someday Fund as a sort of miniature endowment, to be drawn down slowly over the course of many years.

I’ll explain these two perspectives in more detail, plus talk about one more, below. But first, I think it’ll be helpful to set some baseline assumptions to keep in mind through the rest of this post.

What Do I Mean by “Someday Project”?

Let’s assume that your Someday Fund will be used to support a new project or chapter that:

• Takes you away from your existing professional work (i.e. it causes you to make less money; maybe a lot less).
• Requires ongoing expenses to maintain or pursue.
• Isn’t a one-time or one-off thing.
• Is, or could be, open-ended (i.e. you could keep doing it forever if money and interest allowed).

What kinds of pursuits fit this description? You could move aboard your sailboat and begin an open-ended cruise, of course 😉 You could pursue some other kind of long-term travel: cycling, backpacking, or old-fashioned touring.

But your Someday Fund can be used for less romantic purposes. You could use it to switch careers, from something that pays well to something that doesn’t (or doesn’t yet). You might keep everything else about your life the same, but instead of continuing in your career, start working as a volunteer, tour guide, barista, craftsman, etc. Your Someday Fund could support a charitable or social cause, from city farming to global health initiatives, or it could give you the flexibility to dial back your work hours and spend more time with your family.

I’m also going to assume that you know (or you can figure out) how much your Someday Project is going to cost. This isn’t always easy to determine, but it is possible. In our case, we blended information from other cruisers (Beth Leonard’s Voyager’s Handbook was especially useful), our previous short-term cruising experiences, and our expenses in San Francisco to come up with an annual cruising budget.

For setting your own budget, I have two pieces of advice: First, learn from the experiences of others. Find people with similar tastes, preferences, and styles who have done what you’re planning. Second, remember that you’ll still be the same person. For example, if you like nice clothes and restaurant dinners, your Someday Project budget probably needs to be higher than for someone who goes shopping twice a year and loves cooking at home.

With the baseline set, let’s look at a few money models you could use to figure out how much you need in your Someday Fund.

Model 0: Earn On the Side

I call this “Model 0,” not because it’s a bad idea or a worse plan than the others, but because there’s really no fund here at all. Instead of saving to build up a Someday Fund, you find a way to earn money on the side while you focus on your Someday Project. The people who succeed with this model are either:

1- Able to make a lot in a small amount of time, by specializing in a lucrative niche type of work. (This is how my friend Jake funded his “someday” transition from designer in the tech industry to full-time writer: He teaches workshops on the design sprint process, but this only takes up a few days a month.)

2- Able to spend a lot less money in their new lifestyle. This is the case for many travelers (cruisers included). Especially if you’re outside the USA, where costs are lower, traveling can be quite a lot cheaper than life back at home.

To be honest, we didn’t really consider this model. We’re too conservative (financially) to be comfortable with an earn-as-we-go approach. Even before we planned to go cruising, we began building up a Someday Fund that we could pull from for at least a few years.

Model 1: Pull From the Pot

In our original cruising plan (aboard Aegea in 2015), we had a simple approach to money: We’d stock a savings account with 3–5 years of cruising expenses and just withdraw the money as necessary.

As mentioned above, we set our annual cruising budget by reading reports from other cruisers and looking at our own spending. Whatever your Someday Project, there’s probably a similar approach you can take to estimate what it’ll cost. Multiply that number by your expected timeline (however many months or years you hope to continue your project), and that’s how much you need. Put the money in a bank account, and when you’re ready for your someday, starting spending it!

Model 1 is simple and low-maintenance. Like a pot of soup, the level of your Someday Fund will go down as you draw from it. You might top it off by pouring in money from extra work on the side or a windfall of some kind. But when it’s gone, it’s gone.

And that’s the big problem with the Pull From the Pot model for funding your someday: It puts a fixed timeline on your plans. And if it turns out your project costs more than expected, the timeline gets shorter. (The opposite is true, too. But honestly, when has anything ever cost less than you thought it would?)

Even before we left, this approach caused us anxiety—we didn’t like the idea of a ticking countdown on our cruising timeline.

Around the time of our “one more year” deferral in 2014, my reading in the personal finance world led me to discover the FIRE (Financial Independence, Retire Early) community. Those folks were pursuing a much broader goal—to retire from full-time work and never have to work again—but many of the principles were the same as the Someday Project I defined above: lower earnings, ongoing expenses, and a potentially open-ended timeline.

Three Magic Letters: SWR

I realized that the financial requirements for retirement were the same as for cruising—only the timeline was different (20–50 years in the case of retirement, likely 5–10 years for cruising). And as I read more about early retirement, three little letters kept showing up: SWR. It’s short for “safe withdrawal rate,” and it’s the mathematical answer to the question of How much is enough? for retirees, cruisers, and anyone else who wants to maintain a Someday Fund that never runs out of money.

A safe withdrawal rate (or SWR) is the rate at which you can safely withdraw money from a portfolio, such that the investment gains from that portfolio will offset the withdrawals. In other words, your investments make more money (on average) than you spend.

Your SWR depends on how your portfolio is invested, as well as individual factors like passive income, future earnings, Social Security, inheritance, etc. But there are some general guidelines: Lots of research has indicated you can withdraw 4% per year from a stock-heavy portfolio for 30 years and never completely run out of money. The 4% SWR has become known as the “4% Rule”, but it really should be called the “4% Rule of Thumb.”

(Newer research points to a SWR around 3.25% or 3.5%, especially for early retirees who need their money to last a lot longer.)

Model 2: Endow Your Someday

Our delayed timeline for cruising (leaving in 2017 instead of 2015) gave us more time to make—and save—money from our new opportunities at work. With the additional savings, and our new understanding of SWR, we became excited about the possibility of giving ourselves a lot less anxiety and a lot more freedom.

We began to wonder whether we could save enough to fund our cruising with the SWR from our portfolio. This is Model 2: Endow Your Someday. Much like a university or foundation that pays the bills from an endowment that never goes to zero, we wanted a Someday Fund that could pay for our cruising lifestyle without ever drying up. Did I mention that we’re financially conservative? ☺

That brought us back to the original question behind this post: How much is enough?

Having read about the 4% Rule of Thumb, we started there. In other words, we considered whether we could save 25 times (100% divided by 4) our annual cruising budget. (p.s. That’s a lot of money! Yikes!)

Fortunately, our situation doesn’t require a 4% SWR, for a couple of reasons: First, we don’t plan to cruise forever. We expect to work again. We don’t want to spend our entire Someday Fund, but we also don’t need it to last 30 years. Second, we have other income, from my books (Sprint and Make Time) and from my investments at GV (where I used to work). It’s not a regular paycheck, but it will help to offset our spending for years to come.

Given those factors, we decided on a 5% SWR, at least for now.

Every month, when we analyze our spending, we compare it against our SWR to see how we’re doing. Obviously, if our income is less than expected, or if the stock market declines, we’ll need to cut back. And we’ll try to spend less than 5% per year—it’s an extra dose of caution that gives us even more flexibility.

That’s the real reason we shifted from Model 1: Pull From the Pot to Model 2: Endow Your Someday: flexibility. We were fortunate to have the opportunity to make the leap (and the rising stock market certainly helped), and we seized the moment knowing what it’d mean for our future plans.

We don’t know exactly how long we’ll cruise. We don’t know what we want to do when we’re done. But we love the freedom and stability to not have to decide. With a conservative SWR, we can keep sailing, traveling, whatever—and spending from our portfolio—without worrying about running out of money. At least, not worrying too much…

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