Summer is the perfect time to take a vacation. Not only is it warm out, but children are home for break and most of the time not busy with school or extracurricular activities.
Vacation is a great time to forget about the real world and enjoy a few days doing whatever you want. Unfortunately, you may suffer after the days you get to relax on the beach if you haven’t saved any money prior to the getaway. Even if you are able to set money aside before, it’s very easy to overspend on vacation if you don’t do the proper things to prevent it.
“Take your time and really give thought to what you can afford,” said Alexander Joyce, president and CEO of ReJoyce Financial. “If you look at it emotionally, it will become a need instead of a want.”
It’s very crucial to book your trip at an early time instead of closer to the time you are planning to travel to avoid higher prices for flights and hotels. Also when you have a vacation on the calendar, it gives you something to look forward to and be excited about. Check out these 3 helpful tips to be financially smart when planning to pay for your vacations!!
Leave retirement savings alone
Some people who are in their 30s or 40s withdraw money from their 401(k) account or IRA to pay for a vacation. People who do this often don’t realize that not only do they pay taxes on that withdrawal; they also are subject to a 10% early withdrawal penalty.
For example, if you withdraw $5,000, and the money was invested in stocks and growing at 8 percent annually, that $5,000 would become more than $50,000 in 30 years. Therefore, you actually robbed from your retirement that larger number. I don’t know about you, but I could use an extra $50,000 when I retire!
Average credit card rates today are around 17 percent. For example, if the vacation is costing $5,000, and you can find $150 a month to pay toward that balance, it would take more than 15 years to pay off, and you’d end up paying more than $4,200 in interest. This would mean that your vacation is costing $9,200 instead of the $5,000 initially charged on your credit card.
If you honestly can’t afford a vacation at the time that you are wanting to, it’s okay and realistic to save “your paradise” for another time.
It’s encouraged to set aside money each month for vacation, so that you know how much you have to work with, and then planning will become so much easier.
A good idea to do while planning a vacation as well is to look at the real costs of some of the things you might want to do. Examples of these things would be scuba diving lessons, bike tours, and going out to eat. Most restaurants have menus online so you can get an idea of how much meals will cost at the restaurants you are wanting to eat at. Often times you can also find package deals that end up being much cheaper to buy for more excursions. By doing this you could get an even better idea of what you’ll actually be spending money on.
Leave credit cards behind
Vacation sometimes causes people to escape from real life. If their mind does go into fantasy mode, they might abandon all financial sense.
This thought process might show up on your credit card. If you stick to your vacation budget and plan to leave your card at home, you might save money instead of spending $3,000 on a trip that you budgeted $1,200 for.
Be smart and take a vacation for one that matches your budget. You’ll be happy you did so after it’s all over.
Happy budgeting. 🙂