To enjoy the best, most relaxing vacation possible, you should be financially prepared for it. But many people find it difficult to financially plan for a vacation. What could make your efforts the most successful they can be? Here are five things you can do.
1. Create a Separate Fund
Don't keep your vacation savings or investments in the same place as any of your general funds. Doing so can result in raiding that money for other things and may not keep you as motivated as a dedicated fund. If using investments, you may also need to alter your risk tolerance levels for this short-term goal in ways that aren't conducive to other savings goals.
2. Budget Realistically
Think about how you actually want to travel. Budgeting for a month-long camping trip is very different from budgeting for a month at swanky resorts. But crafting a financial plan that doesn't fit what you want to realistically spend means you'll end up with an unsatisfying vacation or a new credit card debt. So fight the urge to overspend on a vacation when crunching the numbers.
3. Don't Steal from Goals
Add vacation savings into your financial plan in ways that won't take money from other important goals. Keep making your regular retirement contributions, investing for the long-term, and adding to your kids' college savings. Reducing these just creates more trouble down the line, making up the difference. Instead, find ways to reduce nonessential expenses or temporarily boost income.
4. Consider a Sinking Fund
Sinking funds are money put aside on a regular basis for a category of spending rather than a single goal. They benefit from regularly setting aside a certain amount each month, usually automatically. When enough accumulates, you can use some of it for your vacation. The sinking fund will then build up again and you can use it for the next one. Sinking funds are ideal for those who find it hard to budget for individual vacations.
5. Talk to Your Financial Planner
Financial planners aren't just there to help you reach big goals like retirement or paying for tuition. They also help with smaller, targeted goals. Discuss your vacation plans and wants and ask for help making them happen. The planner may be able to help you design a budget, adjust investments, and create dedicated accounts.
Want more ideas for ensuring that your next big vacation is a refreshing one that doesn't result in unexpected bills? Meet with a financial planning advisor today and get started on the path to success.