Join Date: Feb 2006
Location: London, UK
Thanked 0 Times in 0 Posts
Rep Power: 10
Burn Rate Kitty
Thanks for all the replies-- you all make good points.
David and Karen-- it's good to hear that your experience was so positive, and I'm impressed that your budget was so manageable.
Beth Leonard's article in this month's Cruising World is worth reading on these issues, but I am noting that she and others are revising the numbers upward for general cost-conscious cruising. Not many people post their actual monthly costs, but some note that the fees for entering countries, the cost of food and supplies, and most types of health insurance are going to be significant cost factors.
As for health insurance, there are several recent discussions about it at the SSCA board that are encouraging and offer good leads. Still, anyone enjoying themselves on $10k a year for two deserves praise and questions.
As for Trefethen, I think it's fair to critically assess a lot of his points. For example, few of us are going to be able to have a 1.5 million dollar kitty with even a five percent return to live on. As noted above, most investments are not risk free and fluctuate, and the fact that he talks about relying on a 14 percent annual return reveals both the uniqueness of his time (1997) and a lack of understanding of how things will fluctuate.
So, on paper it makes sense to live off the interest of your kitty, but in reality I doubt that it would work. If it did, we wouldn't need a retirement fund because our kitty would always be there. Instead, I believe most of us would have a "Burn Rate" kitty, in that I might accumulate $200k of disposable capital or funds that I would project to cruise for five years on. Even with no interest, that would work out to around $40k a year. If we can do it on $25k a year, then all the better, but with possible cost over runs (boat repairs, flights to see family, health insurance, etc.) will add up.
(Note: someone with different circumstances could take off with a $50k kitty or less, and have a great time for two or more years based on burn rate and additional income, so in no way is 200k or even 50k a minimum.)
How one manages to accumulates $200k of disposable capital in addition to a safe cruising boat is another issue. Trefethen argues that it best to save it up before you begin (2-5 years of minimalist lifestyle), even if that means selling the sailboat you own at the moment to save money. I do believe he has a point that buying your cruising boat too soon is an expensive proposition (boat loan, insurance, moorage, hours to clean and maintain, parts and supplies). He also notes the "trap" of becoming a liveaboard but not a cruiser.
So, at the moment I think it's fun to consider his minimalist approach. We've done it in the past (before our first home purchase), and I like the idea of actually selling everything down (including the house) before buying "the boat." A major benefit of this would be to be able to buy the boat with cash, and to buy the boat anywhere in the world we chose, since right after purchase we would move to it (and do several months of work before serious voyaging).
I also think he has a point about buying "the least expensive boat you need" and the "smallest boat you need." I actually like the thought of the boat as a disposable quantity-- only liability insurance, and only worth about 10% of our net worth. As long as it is safe, it doesn't have to be pretty, and boats in the price range that might fit are older Tartan 37s or Allied Princesses.
Anyway, lots of options, but I like to think them all through and try to avoid loans, cost overruns, and major depreciation hits if possible. The more I use and work on my current boat (1974), I also think my family could be happy in a solid older boat, even with the performance and space disadvantages.
Last edited by Jim H; 10-31-2006 at 01:37 PM.