Let’s not mince words. Iceland is not cheap. But you have heard this already. However, this should not put you off from visiting the country. Iceland is vividly beautiful, so it is worth exploring the unspoiled nature and glaciers.
Go ahead and plan that trip. Just keep your wits about you, and plan your trip wisely. There are always ways to cut costs, assuming you don’t expect 5 star luxury all the way.
In Iceland, most of your money will go towards traveling, lodging, and if you’re not careful, food.
Can you save money with public transportation? Hardly. Public transport is non-existent in Iceland the moment you leave Reykjavik. If you aren’t planning on spending your entire holiday in the capital, you will need to add car rental costs to your budget. That is not necessarily cheap, but it is still more affordable than booking a tour. There are other ways to cut on cost though.
When should you go to Iceland? If you're on a budget, go in the off-season when everything is cheaper. Iceland’s off-season for travel is between September and May.
If you plan on exploring Reykjavik, invest in the Reykjavik Card or the Voyager Card. This card grants you free access to over a dozen museums, as well as the use of any public transport facilities. This way you are saving money on gas expenses if you do have a rental car.
Book your car well in advance. The beast deals can be found online, do not rely on the tourist center to do this for you. This will already cut the cost in half. Ideally, collect the car at Keflavik International Airport, since you will be going there anyway. It is about an hour's drive from Reykjavik.
That way you save money on the Reykjavik airport shuttle to and from the airport as well. The longer you keep the car, the cheaper the day rates become. It might be cheaper to add a day to your rental even if you don't use it, and by doing so, get the better weekly rate.
Don’t forget to factor in the cost of gas. It is surprising how many travelers forget this vital piece of detail. Work out an estimated traveling distance, and base your calculations on that.
Food in Iceland is not particularly cheap, so forget about eating out every night. You are planning a budget trip, after all. If you managed to book yourself a self-catering room with a kitchenette, buy your food at local grocery stores. Bonus and Kronan is one of the cheapest supermarkets in the country, with lots of daily deals and specials. Buy local greenhouse-grown fruits and veggies and meat like lamb and fish. Pretty much everything else is imported, making it much more expensive.
To satisfy fast food cravings, try one of those Iceland hot dogs. Made from lamb and pork, they are excellent and cheap. Hot dog stands are in abundance all over Reykjavik. You can also find some chain take outs like Taco Bell and KFC.
Seek out Thai food restaurants if you want to dine out.
There are many of these restaurants over the city, and they offer healthy and more affordable food.
Save money by carefully choosing your accommodation. Avoid large hotels and stay in small hotels or guest houses. They are a fraction of the price, and guest houses in Iceland are decent, offering the same quality as that of a 2 1/2 star hotel.
If you're open to an alternative and want to go all out, here's another idea. To save bucketfuls of money, why not consider camping? Assuming of course that you have the right gear to brave the weather. Camping here is highly recommended, and Iceland has some of the best facilities in Europe. Most campsites are also attached to youth hostels, so you can rent a room if the weather gets really bad. Hostels usually have free WiFi access as well, so you don’t need to make expensive phone calls to people back home.