The Working Backwards Series: How Much Vacation Can I Afford?

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The Working Backwards Series?

The Working Backwards Series takes a look at budgeting in each spending category from the standpoint of “how much can I afford given our income, lifestyle and choices?” In this case,  we are talking about a family of four living in Austin, Texas and making $74,000 a year (the average household income in Austin).

What are we trying to accomplish? We want to show what a balanced, sustainable budget looks like, and one way to do that is to “back into” the dollar amount for each budget category given life choices: Raising two children in a two income home. While we understand we can spend more in categories that mean a lot to us, and each family is different, we want to set expectations that the discipline of a balanced budget, (spending and saving less than we make), requires conscious decisions, sacrifices and tradeoffs to meet our long term goals and desires that include financial freedom.

To see more from the Working Backwards Series, read this previous Working Backward Series post:  Working Backwards Series: How Much Auto Can I Afford? 

Topic For This Post: VACATION EXPENSES

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Vacation spending, especially around the Christmas/New Year’s timeframe is normally one of the larger expenses in our budget at the start of the year, so “right sizing” our vacation costs is essential to living in financial freedom with a balanced budget.  How much vacation can we afford in our balanced budget? It is a tricky and emotional question. Americans are passionate about their vacations. The question has many variables too, including how many vacations in the year? And, do we vacation with or without the children or extended family? But, vacation spending is one of the biggest budget busters, mainly because we tend not to budget for them in the first place. The result: credit card debt. So we have to take a shot at properly budgeting our vacations to ensure there are no costly surprises, namely, debt! For the purposes of this exercise, we will look at a vacation budget for one large family vacation and one small couple-only budget in a given year

What percentage of our budget is allocated to vacations? In our balanced budget, the total vacation budget varies from home to home, depending upon how important vacations and vacation travel is to the family. For today’s budget exercise, we will start at 8% of our take home total income, or net spendable budget (NSB), after taxes and charitable donations).

What Does That Look Like – The Math

A $74,000/year household income equates to roughly $54,750/year after taxes and charitable donations, or $4,563/month. At 8% of our budget going to vacations, that’s roughly $365/month for vacation costs, or, $4,380/year. Total. I know, that is not very much when you figure the costs of travel alone eat up a large part of that budget. Let’s take a look at our budget by “backing into” the vacation budget to see if we can meet our balanced budget objective:

Let’s take a look at a balanced budget to see if 8% is reasonable: (% of NSB by category)

Housing (All Expenses)           30%

Autos                                       14%

Food                                        12%

Insurance                                  4%

Medical                                     2%

Debt Service                             5%

Savings/Investments           15%

Misc.                                          5%

Entertainment/Clothing      5%

Vacation                                     8%

Total:                                           100% of NSB

So from a budgeting standpoint, we can make a balanced budget where we have allocated all of the NSB, including savings at 15%, which is healthy.

But the real question is: Can we have two travel vacations a year on the amount set aside for vacations? In this case, that is $4,380 for two vacations.

The short answer is it is going to be really hard. We probably can’t have two fabulous travel vacations a year including one with the entire family because air travel alone will eat up a vast amount of that budget. Not to mention hotel, food, transportation and the ever important entertainment costs. But we could vacation very well if we can reduce our travel costs, i.e., no air travel. Maybe the family vacation is a trip to the coast or mountains, by car, staying in a modest hotel or with friends or family and enjoying what that areas has to offer. Maybe the couples vacation is a little more romantic or exotic: A short trip to a city, beach or ski resort with great food and fun.

So What Is All The Fuss?

The point is that a balanced budget for an Austin, Texas family of four on an average household income and with many essential budget categories like housing, auto, food, children’s needs, etc, does not have much room for vacation expenses. Plain and simple. While most vacations do not include exotic travel, it would be nice to have at least one of those trips every now and then. But the fact is, a family of four typically requires between $3,500-$8,000 for a moderate but nice vacation with air travel, accommodations and entertainment. We certainly can’t afford “cost is no object” travel vacations. Yet most of us are trying to do just that in the name of “we deserve it”. And I believe that is one of the major reasons we have more than 75% of households in America living paycheck to paycheck with no savings for emergencies, retirement, college (for the kids) or any money for dreams like new homes or cars or special events (think weddings or cars).

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What’s The Solution

There are really three or four viable options to keep within our budget for vacations: 1) Vacation locally or for shorter periods of time to reduce travel costs or housing costs.   2) We could vacation with friends or family to reduce the costs. 3) We could stay with friends or family who have accommodations at desirable locations.  4) We could use some variation of a “stay”-cation where we drastically limit travel and housing costs to allow for more money for entertainment and activities.

The reality here is that vacationing is expensive.  Let’s face it, borrowing money to vacation is even more expensive. What is the best plan if you want to have two nice vacations a year is really up to you and your family? But do everything possible to save your money in your budget so you can vacation without incurring debt.

Final Word

Vacation spending, and over spending,  is a huge component in family credit card debt because it is one of the biggest budget busters (with autos and entertainment, too) and can force us into an un-sustainable budget.  And that’s even before we get into vacation entertainment expenses. The best way to control your vacation expenses is to budget for those vacations and find vacations that are fun and rewarding without breaking the bank. Or get real creative in how we vacation, like stay with family, share costs with friends or make great “stay”-cations which drastically reduce travel and housing costs. If you must vacation bigger than 8% of your budget, and many of us want to, carefully consider where you can cut other expenses in your budget so you can do so without incurring debt.

Vacations are necessary for us and our families and therefore need to be budgeted for. A family of four must correctly size their vacations in order not to incur debt that can become a burden on the family and the family budget. Smart planning and setting proper expectations can prevent you from overextending and allow you to maintain a balanced budget that keeps you living in financial freedom!

 

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The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

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