Vacation Budget Planner
Vacation Budget Planner
An excerpt from Money Milestones: A Twelve Month Personal Finance Journey.
I spend a lot of time discussing my financial planning client’s long-term goals, dreams, and wishes for the future. As part of the planning process, it is important to “dig deep” and think critically about what you want out of life, and the path to achieve it. I have spoken with thousands of people about their personal finances, and I can state pretty confidently that most people are pretty similar. They want enough money to retire relatively young, become financially independent, have a nice house, and travel. Vacation is perhaps the second most requested goal (besides retirement) for most Americans. The freedom to travel is something most people associate with happiness, security, and the type of adventurous lifestyle they aspire to have. According to Gallup polls, over half of Americans vacation each summer, usually for a week or less, though upwards of 15% will take more than two weeks.(18) July is the most popular month for both vacations and travel, likely because many families are beholden to the nine-month school schedule.
When I first began outlining my thoughts for July, my mind quickly defaulted to an elaborate mishmash of tips and advice on how to save money when you travel. But the more I thought about the role that travel takes in our lives, the more I began to realize there is something deeper, more intrinsic to our psyche about the need to travel. How much time do you spend each week daydreaming about being somewhere else? Hiking in the mountains? Lying on a beach, sipping a fancy cocktail? Camping with friends? Exploring the culture of a new city? Do you ever have the overwhelming desire to hop in a van, point it in any direction, and leave all your worldly possessions behind? Just drive off into the sunset and never worry again about endless e-mails or going to business meetings? I do. I think it is healthy to fantasize about escaping regular life. When people are on vacation, they can temporarily escape the pressures of their work life and focus on “living in the moment.” When you can live in the moment, the creeping dread of “What am I forgetting?” or “How am I going to pay this bill next month?” is gone. You just exist. You can enjoy the people and places around you, without worrying about the next project or problem in your life. I think this is central to what people desire when they declare “financial independence and travel” as a major life goal.
The benefits of vacation can be astounding. Many studies have shown that taking time away from the job can have physical and psychological health benefits. People who take vacations have less stress, lower risk of heart disease, a better sense of well-being, and more motivation to achieve goals. According to the Gallup “well-being index,” frequent travelers have much higher scores than those that travel less often.(19) Unfortunately, there is an epidemic of vacation deprivation in the United States. The deprivation is primarily for two reasons: lack of vacation time and not using vacation time that was already earned. A recent vacation usage study conducted for Expedia questioned 11,144 employed adults from 19 countries about work-life balance. Respondents from the United States, Japan, and Thailand reported the lowest vacation usage, with only ten days being used in 2018. Countries where citizens reported taking the highest average number of vacation days were Brazil, France, Germany, and Spain, with an average of about 30 vacation days used.(20) In comparison to other countries, Americans received less vacation time than many others in the survey. However, that is not the complete story because Americans received 14 days on average but only took 10. The U.S. does not have mandated paid leave by the government like many other countries, so usage tends to be filtered through your employer. While cost was considered the largest barrier to taking a vacation, 23% of U.S. workers said they were not taking a vacation because they wanted to bank vacation days, 17% said it was because they could not get time off work, and 13% reported feeling guilty when they took time off. In other words, 30% of Americans are either kept from using their vacation time or feel shame for doing so. Consequently, Americans view travel and vacation as something they do after their work life is over (i.e., in retirement). But given the health and psychological benefits, Americans should be going on vacation more often. A study released last year by the American Psychological Association concluded that vacations reduce stress by removing people from the activities and environments they associate with anxiety. The positive effects were usually short lived but sometimes lasted well after the vacation was over.(21) Restlessness and disrupted sleep are often associated with stress, so the psychological benefits of vacation are linked to better sleep patterns, lower depression, and overall higher quality of life. But the effects are not just psychological. A host of studies have highlighted the cardiovascular benefits of taking a vacation.(22) A National Institute of Health trial followed 12,000 men with high risks for coronary heart disease over nine years and found that men who take frequent annual vacations were 21% less likely to die for any reason and 32% less likely to die from heart disease. The largest and longest running study of cardiovascular disease (Framingham Heart Study) found that women who vacation rarely (once every six years or less) were almost eight times more likely to develop coronary heart disease compared to women who vacationed at least twice a year.
I hope you have noticed the clear point I am not so subtly trying to communicate. Vacations are good. They help limit stress and keep you healthy. Americans are bad at taking vacations and often feel pressure to ignore their hard-earned vacation time. Sadly, people view vacation and travel as a post-retirement goal when it is something that should be common during their prime working years. If vacationing is going to be part of your regular financial life, it becomes a major expense that needs to be planned for. There are three keys to a financially successful vacation: flexibility, budgeting, and advanced planning.
Most of us have a vision in our head of what our ideal vacation looks like. We know what hotel or resort we are staying at, what restaurants we want to try, and what our daily adventures look like. But that same vision that makes our trip exciting can strain our budget. It is quite easy to become stuck on an agenda and miss out on opportunities to remain flexible and save money. For example, flights during the off-season or on a weekday are often cheaper. Flexibility with your travel dates and arrival times can go a long way towards keeping travel expenses low. Similarly, flexibility in your accommodations can keep costs down. If you insist on staying at only one hotel or resort during peak travel times, you are going to pay much more. The good news is that you can plan your flexibility ahead of time. If you remain opportunistic as you develop your plan, you will have more time to research cheaper options and book cheaper flights. If your trip is only three weeks away, it is not possible to be opportunistic about booking. You can only take what you get. So, flexibility is important prior to the trip but also important during the tip. For example, imagine you booked a winery tour in advance from a local travel company. But when you arrived, you saw other vendors offering the same tour for half the price on a different evening. If your agenda has some flexibility, you can go for the cheaper option and adjust on the fly. Another good piece of advice is to travel and eat like the locals do. If you only talk to people within the tourism “bubble” like hotel and restaurant employees, they are likely to direct you to the more expensive places designed for tourists. In contrast, if you chat with the locals about where they prefer to eat, you are likely to find good food at a better price.
The second key is advance planning. This might seem to contradict my previous advice to stay flexible. How can you plan everything in advance while also staying flexible? Advanced planning in this context really means “don’t wait till the last minute.” My wife and I usually spend our vacations hiking the national parks across the U.S. and Canada. My wife is our designated vacation planner, and she tends to book a lot of our arrangements almost a full year ahead. Why do this? It really comes down to cost. If you travel during peak times, accommodations tend to run limited in supply, which drives the prices up. Alternatively, booking a full year in advance when the supply is higher will tend to lead to substantial savings, as much as 40% on lodging costs. I understand this is not feasible for everybody, but there is a significant financial benefit to booking in advance and prepaying. The same logic applies to any other service or event that becomes limited in supply. Plan your travel and vacation when the supply is high, and the demand is low. There can be impending disasters if you do not plan properly, so keep detailed records of all your travel correspondence. In 2017, blogger Deborah Rogers from The Gifted Rat was looking forward to a family Royal Caribbean Cruise to Cuba.(23) She thought she had meticulously planned for the trip and had all the documents her family needed. Rogers flew to Miami with her family and showed up at the port, ready to relax poolside with cocktails. To her horror, she discovered she did not receive an important notice from Royal Caribbean, stating that her children also needed passports for the cruise. She did not have those passports, and this meant her family not only missed the cruise but lost $2,152 in nonrefundable tickets.
There are some other financial perks of really doing your due diligence and researching your trip in advance. Currency exchange rates and geography are often ignored when considering a location. But if you take your vacation in a country with a favorable exchange rate compared to the American dollar, you can likely do more for less. For example, destinations like Guatemala, Nicaragua, and Mexico often have low overall costs and favorable exchange rates compared to the dollar. This bonus might mean better accommodations, eating out more frequently, and faster and more convenient travel. Hiring a private driver in Mexico is cheaper than renting in more expensive countries. So, you really need to think hard about geography. Do you want to experience the culture of Southeast Asia? Consider that most of the other countries in that region are about one-third of the cost of visiting Japan. Planning a trip to Norway or Switzerland? If you choose the Balkans or eastern Europe instead, your overall travel costs might be one-quarter the overall cost. For many trips, the destination might be nonnegotiable, and I understand that. But if it isn’t, choosing the right destination and paying attention to currency exchange rates can save you some serious cash and just might lead to a better experience.
The final piece of our travel plan is to keep and maintain a budget. This is particularly true when traveling in an area where it is obvious that you are a tourist. You might not be able to tell, but in many areas, there might as well be a glowing red “sucker” sign above your head when it comes to the local tourism industry. They know you are on vacation and have your financial guard down, and they want to exploit it. Even though many of these tourist traps are obvious, many travelers end up overpaying, because “we are on vacation” or “you only live once” and that is justification for incurring expenses they might ordinarily scoff at. The tourism industry really is built around creating a false sense of urgency. Many people think they are not going to make it back to a destination for a long time, so they feel pressured to spend on items they can’t get anywhere else. The reality is that in the internet age, you can pretty much get anything online, and most of the items that people purchase to commemorate their trip are cheap and mass-produced anyway.
Now that you know not to fall into the tourist traps, how do you stick to a budget? This part is trickier, because for many people, spending more = more vacation fun. I do not want to be the one to suggest limiting fun on vacation, but I do think you should have a specified daily goal in mind. Then you get to choose your battles each day and really optimize your spending. If you do not have a daily budget in mind, costs are going to quickly escalate because there is no “anchor” to keep you grounded. Many people get into trouble because they do a lot of “special occasion” spending they might ordinarily not. For example, perhaps you reserve cocktails and dessert to special occasion dinners like anniversaries, birthdays, or other celebrations. On vacation, many people might make cocktails and dessert the default. Those costs will add up quickly and destroy your budget. Also, consider how you spend at airports. On a business trip or during routine travel, you might bring a few snacks for the plane ride. But on vacation, anticipation is running high and you might go to some of the (ridiculously overpriced) airport restaurants and bars. Everyone knows they have massively inflated prices, but do not let the context of your travel (leisure vs work) determine whether you fall into these traps.
Hopefully if you plan on a vacation this July, these tips can help keep you from financial regret after the vacation is over. But if we have established anything this chapter, I hope it is the realization that vacations and travel are extremely beneficial and deserve to be a part of your financial plan as early as possible. Do not make the mistake of keeping travel as a retirement-only goal. With some planning and frugality, you can make going on adventures a regular part of your life.
[18] https://news.gallup.com/poll/6112/majority-americans-plan-vacation-summer.aspx
[19] https://news.gallup.com/poll/128186/gallup-healthways-index-work.aspx
[20] https://viewfinder.expedia.com/how-to-use-your-vacation-time/
[21] https://www.apa.org/news/press/releases/2018/06/vacation-recharges-workers
[22] https://www.healthnet.com/portal/home/content/iwc/home/articles/health_benefits_of_vacations.action
[23] https://www.chime.com/blog/5-real-life-money-horror-stories/