While vacations conjure images of fun, frolic, adventure and a carefree spirit, a down-to-earth plan for these interludes – particularly how to pay for them – is an important part of your financial plan. Nothing says “bummer” like returning home from that wonderful trip and not being able to pay for it right away. The prospect of credit card debt, or pulling money from a boring – but necessary – savings fund, can dim the glow of an otherwise glorious outing.
There are ways to avoid the angst, and the process has some parallels to a solid financial plan. It starts with setting goals, gathering and analyzing data, making a plan and then being willing to alter a plan as necessary to adapt to changing situations. In the same way that life can throw change at us at home, it is reasonable to anticipate the unexpected on the road.
At our firm, the financial plan starts with dividing your life expenses into the categories we use for our Lifestyle Driven Investing™ philosophy – Needs, Wants, Likes and Wishes (for more on this, go here.)
Vacations fit under “Wants.” I’m going to assume you have “Needs” taken care of, as these are the essentials such as food, shelter, clothing, insurance and – if not retired – savings for retirement. There could be other funds that you have set as a critical priority, such as college funds for children or grandchildren.
A little planning and some discipline can help you avoid returning home to a debt. These suggestions can work for the inexpensive vacation as well as the extravagant. Spending more than you should relative to your means, whether it is a large amount or relatively small, still yields a deficit.
I believe saving is most successful when it comes off the top. Then figure out how to live on the balance. A parallel approach works for trip planning. If you don’t have a vacation fund already, then I recommend you start one far enough in advance to accumulate the funds for your desired trip.
Again, a plan helps. Figure out where you want to go, estimate your cost, build in a contingency for unexpected costs (some of the travel planning websites recommend as much as 25 percent) and back up from there with your savings plan.
If you are retired, you can figure out an annual average budget. Then you can estimate the cost of those bucket list trips – especially the most expensive ones — in advance, and pick the years you will take them. Alternate some less expensive ones. If you know what you can spend on vacations and balance the more expensive trips with the less-expensive, you should be able to balance the budget long term and avoid the anxiety for those years when a big trip blew the average annual budget.
The website budgettravel.com has some good suggestions in an article on some right and wrong ways to pay for travel.
When you have your destination picked, there is no substitute for research to get the best pricing and determine what sights are best for you. Starting early is important as a good lead time often provides options that tend to disappear, or cost more, at the last minute.
There are several pitfalls to avoid in your planning. First, many travel experts suggest that you avoid overscheduling. Find a balance and schedule major attractions (pay in advance if there are clear benefits or the prospect of losing the spot if you wait). Remember to leave time for unexpected things you might run into on the road and would love to sample. A second frequent pitfall is snapping up “bargains” in advance, only to learn that they aren’t really of interest when you arrive. This is where research kicks in. For example, it is common for tourist destinations to bundle several attractions into one discount ticket. The problem occurs when you figure out (after buying the package) that you were really only interested in one or two of the four attractions, or you ran out of time to take advantage of all four.
For more on the major travel mistakes, go to this article at independenttraveler.com.
Once you start your trip, remember the key ingredient of adaptability in terms of both cost and schedule. If you are prepared for unexpected costs (a lost or forgotten item, illness, a must-do tour), then you can handle it without much stress. The same applies to the schedule. If you leave yourself some room to adapt to situations you didn’t or couldn’t know about when you left, you should handle the change in stride.
Securities offered through LPL Financial, Member FINRA/SIPC. Financial Planning offered through Lifestyle Planning Solutions, a registered investment advisor. Investment advice offered through Stratos Wealth Partners, a registered investment advisor. Botsford Financial Group, Lifestyle Planning Solutions and Stratos Wealth Partners are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
For a list of states in which I am registered to do business, please visit www.botsfordfinancial.com.