What’s better than a vacation? How about a vacation that doesn’t break the bank? Most people feel that they need a vacation every now and then for the sake of their sanity, but there’s absolutely no point in escaping from the office for a week just to end up working longer and harder to pay off debt from vacations. That doesn’t mean you should never take a vacation, however. Vacations can be rejuvenating, fun, and truly freeing–that is, when they don’t add to your overall debt level. Here, you will discover a few ways to skillfully manage your travel finances.
How Much Should You Spend on Vacations?
According to the 2017 LearnVest Money Habits and Confessions Survey, 74% of people say they’ve gone into debt to pay for a vacation. Further research reveals that Americans spend a shocking 10% of their annual income on vacations. There is no definitive guideline about how much you should be spending on vacations. However, in general, if vacations are impeding your ability to pay for necessities such as your rent, mortgage, bills, etc., you’re spending too much.
A good rule of thumb to follow for all your finances (not just travel finances) is the 50/30/20 rule. You may have heard of it before. The 50/30/20 rule is a wise and easy to understand method of allocating money. 50% of your income should be spent on needs, 30% should go toward wants, and 20% should be put into savings. The needs category is for utilities, clothing, groceries, gas, etc. Your savings are for debt repayment and investing in the future. Things that fall in the savings category include student loans, credit card payments, emergency funds, and retirement accounts. Vacations fall under the wants category, along with movies, restaurants, and cable TV. As such, whatever you decide to spend on your vacation, it should never exceed 30% of your income. Keep in mind that the money you spend on vacation will take away from the amount you have left to pay for other wants. If you simply can’t say goodbye to Netflix, Oreos, or cute clothes, you should be more frugal with your vacation spending.
Research shows that 66% of Americans do not have a concrete budget in place. Be smart. Creating a solid budget plan could be just what you need to avoid falling into debt.
Calculate The Cost of Vacations
You need to be aware of exactly how much money you want to put into a vacation. Open up a blank spreadsheet and write down every expense you expect to pay. Find out about the hotel where you’ll be staying. How expensive is it? How long will you be there? Will you need to rent a car? Which dealer would be the cheapest? Are there any promotions available? What type of vacation are you taking? Are you researching affordable cruise vacations to look into? How much money will you allocate toward souvenirs? Don’t forget to include the cost of passports, visas, or vaccinations. You may also need to calculate the cost of baggage fees and airport parking. For car travel, determine the cost of gas and rental. For food, you’ll need to estimate a cost based on local prices.
Once you have a spending plan, stick to it; don’t buy anything impulsively, and don’t book at the last minute if you can help it. All these things could result in spending much more than needed.
Start a Travel Fund
Create a savings account separate from your main checking account. This will serve as your travel fund. Keeping your savings separate from your main account will help stave off the temptation to spend those funds on something else. To ensure that your savings account is growing, set up automatic transfers at an interval of your choosing. You can choose to have money transferred to your travel fund every time you get a paycheck, if you like. When you automatically divert a percentage of your paycheck to a savings account, you’re putting money away before you have the opportunity to spend it.
Ask yourself if there are areas of your life where you’re overspending. Do you buy a lot of clothes? Do you get your internet from an expensive provider? In cases like these, it’s wise to cut back on frivolous spending and redirect this money to savings instead.
While you’re building up your travel fund, it’s important to also contribute to a separate emergency fund. You don’t want to have to dip into your travel money if an emergency situation arises.
Take Your Vacation
Don’t let work become your prison because you’re afraid to spend money on a vacation. According to the Expedia 2013 Vacation Deprivation Study, Americans actually failed to take over half a billion vacation days in 2013. On average, Americans only use 10 of the 14 vacation days they are given. Saving money is good, but try to find a balance between being frugal and being overly-cautious. If you are concerned that a vacation will break the bank, do your research and look for legitimate ways to take a much-needed, affordable break.