Updated: Nov 15, 2019
By Daniel Goodwin
A client retired a few years ago and is in the midst of publishing his own travel book; an individual with a true knack of knowing how to budget out a vacation. One of the principles he’s stuck to over a lifetime while becoming wealthy is no not take a vacation that he did not already pay in advance of the trip (including spending money). He may book a vacation to go to Italy one year from now, and if the trip will cost $4,000 he will actually make payments of $333 a month over the next 12 months. By the time the vacation is upon him, he can really enjoy the excursion to a far away destination because he won’t have the debt lingering over his head when he comes back to the United States. While we all may not be able to take this exact methodology, discussing some of the key points on how to budget your vacations into your overall household income might get us a few steps closer.
1. Vacations should be a 2% to 3% line item within a normal household budget.
One of the very challenging issues to tackle as the CEO of your family finances is how much of a percentage should vacation and travel constitute of your overall expense load as a family. If you make $200,000 per calendar year, your overall yearly vacation spend shouldn't be more than $4,000 to $6,000 overall. Part of the issue why many households fall behind each year is due to the overspending on categories like meals/entertainment and travel/vacations. The first key is to set the actual budget within this expense category, which allows you to work backwards on how many trips you can afford and where you will take them. Anything above a 5% spend in this one category is extremely dangerous.
2. Decide what you want to get out of the vacation
This statement is all about setting expectations. We get to see the lifestyles of the rich and famous on regular and reality TV shows alike today all the time. Start considering the following: what is the purpose of my vacation? Am I making memories for me as a parent as I spend time with my kids? What kinds of activities am I interested in doing on the vacation? Is there a part of the United States or the rest
of the world that I always wanted to see? Is this about getting family together overall? What exactly is your raison d'etre for making this spend? Otherwise, if you are a people pleaser you might pick the fanciest hotel in the nicest of destinations only to see you and your kids having the most miserable time. I want to underscore that if you are taking little kids away, they aren't likely to remember many of your trips years down the road, so don't fall for the trap that a Magic Kingdom memory is going to be something your kids cherish for the rest of their lives. The part they remember the most is the pool at the hotel and the grilled cheese at the local restaurant.
3. What kind of points do you have available?
Destination getaways are well aware of the prime seasons to hike prices such as summer, Christmas, spring break, etc. Check into the blackout periods for your airline and hotel point programs to make sure you can actually use them for your trip. In addition, at certain junctures in the calendar year you can stretch out your points or get a round trip ticket for a lower number of points. It's important to maximize these point programs because it may leave you with only paying some basic taxes or ticketing fees.
4. Plan your spending money
It's vacation, so as you begin to unwind and relax so will your wallet. What the heck honey, we’re on vacation!!! The moral of the story is to not let the plastic run the financial limits it can carry. Plan in advance how much spending cash you will bring for extracurricular activities, tourist attractions, meals, and souvenirs. Otherwise, what do you think you'll be inclined to do once you get there to get the kids to stop screaming for just five minutes? You will end up opening up your wallet and turning yourself upside down.
Having planned out thousands of family finances over the past two decades, vacation spending is a constant black hole you will have to deal with every year.
Since it is early spring of 2016, take a step back now to plan Spring Break, the summer, and holiday season to determine just what spending limit to set for family vacations. Otherwise, what you will end up with a handful of photos, a few vacation trinkets, and a nasty credit card hangover.