How to Afford Your Sea Change
“I’d love to make a sea or tree change but don’t know what it would cost.”
If you dream of a simpler, easier lifestyle but are held back by fear that you won’t be able to afford it, you’re not alone. Uncertainty about having enough money to make and support a lifestyle change can be a major worry.
Thankfully, a perceived lack of money doesn’t need to stop you. Whether you’re thinking of a sea change, tree change ‘escape top the country’ or any other life redesign, removing the financial barriers will clear the way. With the help of Caroline Bell, Financial Advisor from Summerhill Financial Services, we’ve made it easy for you.
Here are 6 simple steps to help you do the sums:
Step 1 – Work out your current financial position
See whether you have the asset base to support your future lifestyle costs.
- Prepare a ‘personal balance’ sheet listing all your Assets and Debts and their current value. Your Assets should include 2 columns – Investment and Lifestyle assets. Investment assets are those that generate passive income (eg investment property, share portfolios, savings and/or trust funds). Lifestyle Assets include your home, cars, boats etc – these assets are nice to have but don’t generate income.
- In the Debts column list all your regular expenses and any outstanding debts you may be paying off.
- Total both your Assets and Debts and calculate your net position by subtracting the total of your debts from your investment assets. This is the wealth you have to generate a passive income stream.
If you intend to keep working and know what your annual income from paid work will be, include your estimated income in your personal balance sheet.
Step 2 – Get clear about what your new lifestyle is going to look like.
Imagine a typical ‘day in the life’ of your dream lifestyle. The key here is to be as specific as you can.
- Where will you be living? Include your ideal location and home.
- What will you be doing? Include the work you’ll be doing, sport and leisure activities, travel, volunteering and anything you’d love to do, if it were possible.
- Who is there with you? Will you be sharing your new lifestyle with your family, friends and partner?
- What will you be looking forward to and working towards?
Step 3 – Prepare a projected budget and do your research
Calculate what your new lifestyle, outlined in Step 3, will cost. Your budget will have 3 sections:
- Fixed costs – those that won’t change as a result of your lifestyle change (eg if you’re going to stay in the same house, your mortgage or rent will stay the same).
- Lifestyle variable costs – these include costs which will change as a result of your lifestyle change (eg food and travel costs).
- Discretionary variable costs – these are costs you could cut back on to make your new lifestyle work (eg hairdressing, dining out, clothing, alcohol etc).
Where you’re moving to a new location, changing your career or retiring, research and estimate all of your expected costs. For example, find out what rent/property prices, rates, utilities and food prices are in your dream location.
Step 4 – Work out which costs will be different and identify any gaps.
With the information from Steps 1 and 3, prepare a comparison budget to see where your expenses and income will differ. Changing your lifestyle will invariably involve trade-offs.
Where you may need to cut back or stop a discretionary activity, think about what this activity gives you and how else you can meet this need through your new lifestyle.
Melburnians and avid Collingwood supporters Sally and Brian regularly attend Friday night football matches in the city with their friends. This gives them connection with their friends and the excitement of cheering their team on through the football season.
As part of their move to regional Bendigo, they’ll join a local football club to make new friends and feed their passion for football.
Net result? Their needs are being met yet the cost is much lower. They anticipate saving ~ $2,000 a year in football associated costs alone and will still follow their beloved ‘Pies’ on TV!
Step 5 – Add a Sea Change Relocation Bucket and 10% Safety Blanket.
Your Sea Change Relocation Bucket will cover the one-off costs of changing your lifestyle. This could include setting up a home office, selling and buying a home, removals and utility reconnection costs. Remember, these can be offset by selling possessions you no longer need.
Your Safety Blanket is your ‘sleep well at night’ strategy, covering you for any unanticipated expenses or where you may have underestimated the costs involved. Add 10% to your projected expenses as a buffer. If you’re setting up your own business, this could include a 3 – 6 month ‘buffer’ to cover expenses.
Step 6 – Develop new ways to increase your income or contain your costs.
There are now many ways to supplement your income. Your lifestyle change will provide opportunities you may not have considered. This can include passive income streams or lifestyle businesses such as growing your own organic vegetables and selling them at a local market.
Regardless of your current financial circumstances, you will be able to make changes. The key is to be realistic and regularly take stock of your finances to ensure you are living happily within your means. A sea change or other life redesign doesn’t have to involve ‘going without’.
Focus on what you will gain by living your ideal life. The real value ironically has nothing to do with money. Ask yourself the bigger question, ‘Can I/We afford to not change our lifestyle – what would staying here actually cost us?”
Need more help?
If you’re daunted by the prospect of working out how to afford your lifestyle change, don’t worry, we can help: