Mapping out a trip to Seychelles or the Costa Rican coast? We asked financial planners and travelers for inside tips on how to realistically cover costs without packing on credit card debt.
Forget saving for a rainy day. Instead, stash cash you can’t touch, so that you can savor a string of sunny days you pay for
in advance. All you take home is a golden tan and souvenirs, not a fat Visa bill.
Money pros advocate vacation buckets—special accounts where you sock away savings monthly. Take off your rose-colored shades and realistically project costs. If the daily rate for a Maui resort and spa is $349, that’s $2,443 for seven nights. Add airfare, meals, car rental, spa treatments, entry fees, and shopping money, and even taxes, tips, and frozen cocktails—everything you can think of. Then divide the amount by 12 and commit to putting that figure away religiously on payday.
“There are certain things you go into debt for, like your home or a student loan, because the value of a house or an education far outlasts the life of the loan,” says Dave Dowd, a certified financial planner in Montclair, New Jersey. “But a vacation is fleeting. It’s here and it’s gone, so it’s something you should save for. You don’t want to go into debt to take a trip.”
It’s easy to set up automatic transfers from a checking to savings account. But if you’re not highly motivated and disciplined,
it’s just as easy to drain the savings and funnel the funds back into checking when you trip over a great designer shoe sale
or see an antique dresser you have to have. It takes about 10 seconds to log in and click transfer—and there goes your trip
The trick is to put the vacation money in an account—like a savings account through your credit union or a bank account not linked to your checking account—that you can’t access.
“You should have to take a lot of extra steps to get the vacation money out,” says Dave. “It takes effort to save it, and it should take some effort for you to withdraw it, too."
Impulse travel is a luxury unless you’re financially independent.
“This is the point where you have accumulated enough wealth that you no longer have to work. Or if you’re ahead of your savings goals because of a good market, a work bonus, or some other windfall, then you can use the excess capital to splurge,” says Rick Rodgers, a financial planner in Lancaster, Pennsylvania.
If Aunt Dorothy left you $3,000, you can put that to good use, too. An inheritance is tax-free for the person receiving it—what better gift from the travel gods?
One comfortable NYC-area couple—he’s a CFO in the banking industry; she’s a psychologist—uses his annual bonus to pay for
three vacations a year with their two young children.
But even though a bonus is what a financial planner might consider a windfall, the couple carefully shops around for the best deals. It’s a mindset they embraced when they married 17 years ago and started putting $20 a week in a glass jar for vacations.
“You can make any trip fit your budget,” says the CFO. “You can stay at the Days Inn or the Four Seasons.” Some of their tips for stretching a dollar include eating where the locals do—by asking taxi drivers for suggestions. That’s how they found a place with the best daily catch on the coast.
Don’t forget to budget your time, too. “There have been many Sundays when I’m at the computer all day, searching for deals,” he says. “The resources available online now are incredible.” His recommendation: Book hotels and flights separately, not bundled in a package, to save even more.
What if you need a new roof sooner than expected and absolutely have to dip into your vacation fund? Then what?
“You may have to modify your vacation goals,” Dave says. “My view on debt is that you should not go into it for something that is not a long-term asset.”
Consider switching gears to go somewhere off-season, when rates are significantly lower than you originally planned. Other strategies from Rick:
• Forfeit fancy lobster dinners. (Remember, it’s just for this year.) Book a place with a kitchen to trim costs. “Dining out can be one of the most costly parts of a vacation.”
• Score a last-minute deal. Call or e-mail a homeowner on Vacation Rentals by Owner (vrbo.com) right before a holiday weekend if a property isn’t booked. The owner might bite for a lower offer if Labor Day is looming and the rental remains vacant.
• Consider planning way ahead of time. “Booking in advance can also save a lot of money.” If you book this year for next, you can outsmart puffed-up rates.