We go on vacations to relax and enjoy our hard-earned time off. So why do they often end up being anything but? From unexpected price increases to poor planning and overspending, vacations present plenty of opportunities for financial stress. Fortunately, there are many steps you can take to ensure that your holiday plans don’t get derailed. Here are essential tips to keep your vacation free of any anxiety tied to finances.
Create a household budget to save for your trip
If you don’t have a clear picture of your overall financial condition, just checking your bank account balance while you’re away can be a source of anxiety. Traveling brings many different and sometimes unexpected expenses and without proper planning, it’s easy to overspend. Here are some steps to get you started with budgeting and saving for your trip.
1. Determine your monthly income
Know the net income of your household each month. In addition to salaries, additional income sources could include freelance wages, government benefits, tax bonuses, and passive income streams (rental income, resale income, investment income, affiliate marketing, etc.)
2. Track your monthly expenses
You need to understand where your money goes each month. Tally up all of your expenses over a 30-day period and subtract from your monthly income. This will tell you whether you’re spending more than you make (deficit) or making more than you spend (profit). Of course, you want to be making more than you spend.
3. Split your expenses into fixed and variable costs
Understanding your fixed and variable costs is essential if you want to save for your trip. Fixed costs are all of the monthly expenses that are recurring and difficult to change, such as a mortgage payment, car loan payment, insurance payments, cell phone payments, etc. Variable costs are monthly expenses that fluctuate from month-to-month. These expenses are easier to minimize and offer savings opportunities. Examples are groceries, gasoline, entertainment such as going to a movie or dining out, clothing purchases, etc.
4. Cut back where you can
Zero in on your variable expenses and look for ways to reduce or eliminate them. You don’t have to deprive yourself of every “extra,” but cutting back a little in each category adds up over time. Here are a few ideas:
- If you currently eat out 2-3 times per week, cut back to 1-2 times.
- Keep your thermostat 1-2 degrees cooler or warmer than you typically do.
- Review software and publication subscriptions and eliminate the ones you no longer need.
- Cancel memberships you no longer or rarely use, such as gyms and clubs.
- Figure out how much you want to save and create a timeline.
After you have a clear idea of where you can save each month, you could simply assign a savings target. Or you could adopt a budgeting model like the 50/30/20 rule. This method splits your monthly income into the following percentages:
- 50% goes towards “needs” (fixed costs such as rent and recurring bills)
- 30% goes towards “wants” (variable costs such as groceries and entertainment)
- 20% goes towards savings
After landing on your maximum budget and how much you need to save, make yourself a timeline. If you need to save $4,000 for a trip to NYC next summer, assign a monthly savings goal to get you there. You can set yourself up for success by opening a savings account for your vacation fund. If you set up automatic deposits into that account, you won’t be tempted to spend your savings allocation.
Once you start using a budget, you’ll have a much clearer idea of how much money you have to put toward things like a summer vacation. All of your financial decisions will be better informed, not just those for your vacation. It will dictate everything from where you go, to where you stay, and the trip’s duration; without creating extra financial stress when you return home.
Plan your trip budget and secure pricing
There are two ways to approach this. The first way is deciding where you want to go, and then planning all aspects of your trip to stay within a predefined budget. If you have your heart set on an international trip but the budget is tight, this could mean making compromises as you plan the trip to keep costs lower. The second way is to first determine a maximum budget and then look for a destination that you think will work within that budget. Either way, you will start with the maximum amount you’re willing to spend from start to finish and work backwards from there.
1. Calculate major expenses
The two biggest expenses when traveling are the means of transportation to get there and your accommodations while away. Trips to large, urban centers are usually more expensive than rural ones and it costs more to travel and stay in some countries than others. When it comes to transportation, driving isn’t always less expensive than flying. Driving means you will have to factor in gas money, additional meals, and overnight stops on the way to your destination.
2. Factor in costs that will occur while on your trip
This will include everything from dining out, to rental cars and tolls, to excursions and other entertainment expenses. There are lots of creative ways to save money on some of these costs. For example, visit a grocery store when you arrive to buy snacks and breakfast items. Just minimizing the cost of one meal each day adds up. When it comes to entertainment, you can save money by doing some research and planning before you go. Some venues may be cheaper at certain times of the year or on certain days of the week. Many museums and other historical attractions offer discounted tickets on a set weekday or they offer a monthly free entrance day. Smart planning can help you spend less without sacrificing fun.
3. Consider hidden travel expenses
Some trip expenses are less obvious when planning. Here are some examples of expenses that are often surprises:
- Airport and hotel parking fees
- Checked baggage fees
- Golf tee fees
- Tips for service
- Replacing items you forgot to pack (sunblock, toiletries, over-the-counter medications, etc.)
Factor these costs into your budget or find a way to minimize or avoid them. For instance, some airline credit cards include checked baggage fees. Use the airline credit card to book your tickets and you’ve just eliminated one of those expenses. It’s also smart to use a travel credit card to pay for other travel-related expenses. With many credit cards, you will accumulate rewards points that can be redeemed later. Some cards include other perks that could save you more or make your trip more enjoyable, such as airport lounge access.
In the meantime, whether you’re planning a trip to the other side of the world or just across state lines, Stellar Bank and the Independent Community Bankers of America® (ICBA) remind you to plan accordingly to keep your money safe, use it effectively, and keep your vacation on track. If you have an upcoming vacation planned, remember to notify your bank and/or credit card company before traveling.