Imagine standing atop the Inca citadel of Machu Picchu, exploring ancient ruins of Greece, or gazing on the northern lights from a cozy Icelandic cabin. No matter the destination, nearly everyone has a once-in-a-lifetime dream vacation close in their imagination. With the right strategies, and mindset, it doesn't have to be just a dream. And you may be closer to achieving it than you think.
How much should I budget for a vacation?
Everyone's financial situation is unique. Before planning a big trip, it's a good idea to make sure you've got other financial basics buttoned up so your vacation won't get in the way of other plans. That includes, in no particular order:
- Spending less than you bring home
- Saving for medical expenses in a health savings account or flexible spending account
- Saving adequately for emergencies
- Contributing at least 15% to retirement accounts annually (including any match from your employer)
- Working to pay down high-interest credit card debt
Don't worry—you can take a vacation even if you have credit card debt and your emergency fund is smaller than you'd like. The trade-off to understand is that it may take longer to achieve your other goals so it may make sense to scale back vacation plans until you get back on firm financial footing.
Read Viewpoints: 5 small steps that can make a big impact
When it comes to budgeting, Fidelity has a simple guideline, 50/15/5, that suggests divvying money into broad buckets, rather than assigning each dollar a job.
- Spending 50% of take-home pay on essential expenses like housing, food, health care, child care, transportation, and debt payments and other bills.
- Saving 15% of your pre-tax income for retirement, including any match or profit sharing from your employer.
- Saving 5% of take-home pay for unexpected expenses.
Everything that is left over can be saved or spent. Many people may find that their essential expenses may be closer to 60% as housing prices and other essentials have increased in cost—so just use this as a rough guideline. If your spending and saving approximately lines up, you're already doing great and may be able to find some extra cash to save.
Read Viewpoints: 50/15/5: An easy trick for saving and spending
Estimating and budgeting for vacation expenses
To get started, estimate your vacation costs and determine how much money you'd be able to save toward that goal on a regular basis. Consider using Fidelity's planning tools to set up a goal to track your progress.
Here are some important considerations to keep in mind as you begin planning.
Time of year: Traveling in the off-season can help you save money or you could consider aiming to go in the shoulder season, right before or right after the major tourist season.
Accommodations: The time of year you're visiting can have a major impact on expected costs; being flexible with your travel dates can help you take advantage of travel discounts.
Travel arrangements: You may want to start watching airfares as much as 11 months in advance of your departure—but it depends where you're going. Read Smart MoneySM: When is the best time to buy plane tickets? and How to save money on travel
Rental car or other mode of transport: Like booking a flight, it can make sense to keep an eye on car rental aggregator sites to compare rates. Booking in advance may help you get a good rate but be sure to read the cancellation policy in case you find a better deal. If you're planning to use public transportation, find out all the details before you arrive. For instance, some trains in Europe require making reservations in advance so it can be a good idea to plan before you go.
Experiences: What do you want to do when you get there? Your priorities will strongly influence the price of your trip.
Food and drinks: If saving money is on your itinerary, consider booking accommodations with a microwave or kitchen available for cooking or pack some shelf-stable snacks to stash in your luggage.
Clothes: Determine ahead of time what kind of extra clothing may be needed so you have time to shop for and test any new purchases.
The home front: Depending on your length of travel, you may need someone to keep an eye on your home, for tasks like collecting mail, checking on pets, and watering plants.
Fees: If you're traveling to a foreign country, make sure you have a plan for spending money. There may be a currency conversion fee and foreign transaction fees levied on debit or credit card spending. (Just so you know, the Fidelity® Rewards Visa Signature® Credit Card has no foreign transaction fee.) And there may be fees to take money out of ATMs. Shopping around for a debit or credit card with no or low fees when traveling could help minimize these types of expenses. Read Viewpoints: Credit and debit card tips for international travel
Vacation budget examples
Let's walk through a hypothetical example of a vacation budget for a family saving 5% of their monthly take-home pay for travel.
In this example a family of 4 (2 adults and 2 children) are saving for a week-long dream vacation at a luxury resort. Their total budget is $6,000 for flights, ground transportation, and 6 nights at an all-inclusive resort.
- Analyze monthly income. The household income in this example is $120,000 annually after taxes, and take-home pay each month is about $10,000.
- Saving 2.5% of this income is $250 a month, or $3,000 a year.
- At this rate, it would take 2 full years to save up the $6,000 required for that anticipated dream vacation.
If these savings are taking advantage of extra yield compared to sitting in a traditional bank's checking or savings account, however, then this goal may be reached at a faster pace. For instance, the Fidelity® Government Money Market Fund (
- With a return of roughly 5%, a $250 deposit at the beginning of each month will turn into about $3,080 after the first year.
- With continued compounding in effect, the family will have exceeded their goal with around $6,320.
- The extra padding could be a welcome buffer for any extra expenses that might be accumulated or could act as a head-start for a future vacation goal.1
Taking a Full View of your finances
Budgeting isn't always easy but it can be easier using digital tools that help you track spending and saving. Fidelity's spending and budgeting experience consolidates online financial accounts (including investment, bank, credit card, loan, mortgage, and insurance accounts) into one dashboard for a single, fully customizable view. All you need to do is link online accounts to Fidelity Full View®.
You can also use our Planning Summary page to create a new goal to track your progress. You can get suggestions for an investment strategy based on your timeframe and, if you're interested, can set up recurring investments so that your transfers into the account and investments happen automatically. Once you've set everything up, you can watch your progress and adjust your savings as necessary.
With planning and saving, a once in a lifetime dream vacation may not just be once in a lifetime.