I am ready for a vacation. Perhaps you sensed that in my post about How to Survive the Rest of COVID Winter with Kids.
Most Americans don’t take enough vacation time, and we certainly didn’t take enough vacation during COVID-19. So, while we await the vaccine, travel restrictions lifting, and herd immunity, the wanderlust is real.
But what’s going to happen when we are all able to take a vacation again? How are we going to finance it?
Will you be putting it on a credit card and planning to pay it off later? Perhaps you are counting on another stimulus check or a tax refund to pay for your time away? Or have you set aside money now?
According to a 2019 Forbes article, most Americans spend an average of 10% of their annual income on vacations.
If you are wondering how much you should spend on travel, check out this great post from the Three Year Experiment.
But what if you didn’t ask yourself what you should spend?
Instead, what if you figured out what your ideal trip would cost you? And then you planned for it? This way, you can take a vacation without any guilt or worry about the cost.
How to Save for a Vacation
If you aren’t sure how to save for your next vacation, look no further. Here is the best way to save for a vacation in five easy steps:
1. Determine the Cost of Your Ideal Vacation
In order to save for your trip, you need to know what it will cost. There are a few different ways to figure out the cost of your ideal vacation.
One way is to look back at the cost of your past three vacations and find the average of how much the average trip cost you. Assuming you enjoyed these vacations, this is a pretty good estimate of how much a trip you can and need to afford.
A second method is to use a quick vacation budget estimate along with a calculator. Here are the main costs of a vacation:
- Transportation to get there: Cost of plane tickets, train tickets, gas, or bus fares.
- Lodging: How much does a hotel, Airbnb, or hostel cost you?
- Food & Drink: Estimating food and drink costs are a little more difficult. Consider where you are staying. For example, if you stay at an Airbnb or hostel, you will presumably cook at least breakfast and maybe one more meal a day. Some hotels have free breakfast buffets. Also, consider the average cost of food at your destination. To do this, do a Google search for your location and costs of food while traveling. Many guidebooks also will help you plan for costs.
- Transportation at Destination: Once you arrive at your destination, how will you get around? Will you rent a car? Take the train? Uber? Walk?
- Other: Consider the costs of souvenirs, museums, tips, tours, and more. Again, your costs will vary depending on your destination and what type of trip you are taking. For example, will you be spending the day reading a book for free at the beach? Or at Disney World spending hundreds of dollars a day on tickets?
Now add all of these costs together. You will get the cost for your ideal vacation.
2. Calculate the Average Cost Per Paycheck of Your Trip
How often do you get paid? Every other week (for 26 pay periods per year), twice a month (24 pay periods), once a month (12), or once a week (52)? Divide the cost of your vacation by the number of times you get a paid a year. (This assumes you want to take your vacation one time each year).
For example, if your vacation costs $2,500 and you get paid every other week, then the average cost of your vacation per paycheck is just under $100. Depending on your salary, this may seem like a lot or not very much. Regardless of your feelings toward the number, the reality is that this is what your ideal vacation will cost you per paycheck.
3. Set up a Special Savings Account
The key to ensuring you save for a vacation in the best way is to have a separate savings account just for your vacation savings. Having a separate account is both empowering and liberating.
It’s empowering because you can watch it grow. It’s also liberating because you don’t have to worry about accidentally spending it because it is already set aside.
You can set up an account with your regular bank, or you can set up a high-interest savings account with Capital One, Ally Bank, or any other financial institution offering a zero fee, high-interest savings account.
If your bank allows you to (most online banks do), then name your account. You can call it vacation, dream vacation, Carribbean Cruise, Italy Eating Tour, or whatever is most inspiring to you.
The reason to name it is psychological. When the account has a name and not just a number, you will value it more and want to grow.
4. Contact Your Payroll Department and Direct the Money To Your New Account
Here is where the rubber meets the road. You actually need to set aside the money each month. It’s ideal to do this automatically.
Your payroll department can help you set up multiple accounts where your paycheck can be deposited. Direct the amount you calculated in step two above into your new savings account. Before you know it, you will have saved enough for your vacation.
If you are really committed to your trip, you can start putting additional savings in this account each time you have money left over from your monthly spending. You can also do this when you get gifts, bonuses, or any surprise money.
5. Find a Deal When It’s Time to Book the Vacation
Once you’ve saved enough to book a vacation, make sure you start shopping for a deal. In short, start shopping early for great airfare and a good hotel at a great price-point.
Better yet, use points for your airfare if you can. This will ensure that you can splurge on an even nicer restaurant or more luxurious souvenirs once you’re on your trip.
The Bottom Line
As travel becomes more realistic, make sure to take the time to add a trip to your calendar. It’s easier than you’d think to afford, especially if you follow these easy steps to save for a vacation.
How do you pay for your vacations? Do you save ahead of time? Use “found money” like bonuses or tax refunds?