Take a Great Vacation! – Here is what you can afford, and how to do it.

Posted on Jan 30, 2017

It seems safe to say, that most everyone loves a good vacation from time to time. It takes us away from our every-day routine, and places us somewhere else where we can ‘disconnect’ and explore another geography or lifestyle.  Then we return home, and reality hits us hard. Not only are we back to work and our daily routine, but we also are faced with paying the expense of these recent travels. We’ve all been told that experiences last longer than material items, and consequently this article is about how to make these dream vacations come true.

First, let’s talk about what you can afford. Everyone’s expenses are different, which makes it tough to just throw out a dollar amount, yet here is how we think about it. There are several other big budget areas that take up our annual income.  Housing costs, auto expenses, insurance, health care, and food/dining out. Unfortunately, this leaves vacations as a lower financial priority, even though in our own minds they are critical! After narrowing all these expenses down, a reasonable vacation budget may be somewhere in the 3-5% of your gross annual income. If your family has $200,000 of income per year, for example, that would equate to a vacation budget of $6,000 - $10,000 per year. The caveat here is that we still recommend you save at least 5% of your annual income, which doesn’t include your retirement contributions.  Okay, now that we have an annual budget, the next step is how to plan for it.  

We recommend you have a two-year outlook from a budgeting and planning perspective. Cost estimation is an imperfect science, so you should leave room for over and under budget travel. Here is a good calculator we found to help you estimate the cost of a trip:  


It also makes sense that some years you may wish to plan a big trip, and others you may wish to stay closer to home. Having this insight will allow you to begin the savings process immediately, and ideally you will have already paid for your vacation before you even leave.  

Set-up a new account to transfer vacation funds into every month. If you decided $6,000 was a good number for you, then open-up either a savings account or brokerage account specifically for this goal. Then enable an automatic transfer each month of $500 out of your checking into this account. This is no different than how you contribute to your 401(k), in that once the auto-transfer begins, you’ll adjust your spending and never need to worry about funding your next adventure.

What if your vacation budget ends up too high?  There are two ways to help the cause here.  First, cut down on your restaurant spending a couple times per month. If you resist going out to eat and instead cook at home, go ahead and credit your vacation account for those savings.  Another avenue may be to rid yourself of some unused or unnecessary items you have at home like that camping back-pack (mea culpa from the author), and sell them online. This may not raise quite as much money as needed, but it’s a sure-fire way to earn a little cash and free yourself from the clutter around the house.  

In summary, don’t feel like you can’t take that dream vacation.  All it takes is some planning and a process. If you need any help, please don’t hesitate to ask, all we ask for in return is for a postcard. :)   

Posted by on 01/30/2017

Bob Gillooly, CFA is a portfolio manager and enjoys working directly with clients to help plan and implement investment strategies based on a client’s own needs. To contact Bob directly, please call 510-858-2723 or email bob@elmwoodwealth.com