Published February 04, 2016
(Illustration by Harry Campbell)
Psst! Saving for your next big vacation is easier than you think when you break it down into these start-today steps.
At Budget Travel, we devote a lot of time to helping travelers get the most out of their financial resources. That can mean finding bargains in notoriously expensive destinations like Paris, introducing our audience to surprisingly affordable luxury experiences such as Palm Springs, or just showing them how to wring every last second of pleasure out of their vacation without breaking the bank.
I recently spoke with Jesse Mecham, CEO and Founder of the personal finance site You Need a Budget (YNAB), who, as the name of his brand suggests, is a kindred spirit who has devoted a lot of his time to a mission similar to ours: Showing everyone how to take control of their financial resources and getting the most out of them.
When you add Budget Travel’s know-how to YNAB’s solid financial advice and online- and app-driven financial trackers, the sum is 10 start-today tips to help you save for your next big trip.
Before we get into hardcore money-saving tips and financial tracking tools, we need to start with something a little less tangible, but critical to the process: creative visualization. Really! You’re already familiar with the notion of creative visualization when it comes to travel: Many trips begin with vacation inspiration from one of Budget Travel's features or slideshows. For Mecham, visualization is more than just dreaming. “The biggest paradigm shift in saving and spending smarter is to really get into the why behind your vacation,” he says. “Think back to a vacation that you absolutely loved. What was it about that vacation that made it great? Was it the specific location, the company, the relaxed pace? Was it time spent with your family unplugged from work?” Let that visualization inspire you not only to plan your next vacation, but to devote yourself to saving for it in the most responsible manner possible.
The concept I like best about Mecham's You Need a Budget program is its no. 1 rule: Give each dollar a “job.” That is a way of focusing on what money you actually have on hand (not future paychecks, windfalls, or hoped-for raises or bonuses) and making sure you understand what each dollar (literally down to zero) is going to do for you (its “job”). That means, of course, understanding exactly what you need to spend on essentials like your home, food, utilities, and car before you can assign any dollars to travel. This may at first sound limiting, but it is actually the opposite: Giving each dollar a job frees you to start putting aside what you need for travel. Should you choose to use YNAB’s online- and app-driven financial tracking services (they offer a free trial), the notion of assigning jobs to dollars becomes very tangible and habitual, and it’s fun to see your savings go up.
“My biggest budgeting challenge before developing You Need a Budget was dealing with an irregular income,” says Mecham. “But YNAB teaches you to budget only the money you have on hand, so it becomes much more manageable. And now I prepare for large, less frequent expenses (like vacations!) by spreading them out as monthly costs, saving a lot of stress.”
Mecham actually calls this “embracing” your expenses. After you assign each dollar its job for essentials, it’s time to break down larger less frequent expenses like holidays, insurance, birthdays, and, yes, travel) so you can treat them as regular monthly expenses. Instead of “saving for a rainy day,” you are accurately predicting how much you’ll spend on your annual vacation (for many, that tends to amount to about one week’s salary, though avid travelers often budget much more). Broken down into very simple math, if your dream trip to Yellowstone is going to cost $1,200, you can easily “embrace” the notion of putting aside $100 per month for a year. It’s really an extension of “Give each dollar a job,” and allows you to pinpoint what you need for that trip you visualized and make it a regularly monthly "expense" instead of one big annual bill.
Budget Travelers already know that sometimes you’ve got to take life as it comes, right? Challenges are opportunities, sudden changes of plans can lead you to wonderful new discoveries. When budgeting for travel, “roll with the punches” is a mantra that Mecham recommends when you go over budget. The process of budgeting is focused on establishing priorities. When you need to spend more on, say, groceries, that means your priorities have changed (usually temporarily) and you need to adjust. When saving for vacation, that may mean a fluctuation in currency (which can mean more or less money to spend overseas) or a new restaurant you simply must try. Mecham emphasizes that changing priorities are nothing to feel guilty about: Go with it.
This may sound obvious. After all, who spends money they haven’t earned yet? Actually, we all do sometimes, and it’s a problem. It can mean allocating expenses to a paycheck that’s two weeks or even a month away. At worst, it can mean borrowing money at interest. Mecham advises that by giving every dollar a job, you will work toward spending only money that you earned at least 30 days ago. It’s easy to understand, and it’s attainable. And the best part is that it breaks the paycheck-to-paycheck cycle that so many people fall into. Translation? More dollars to allocate to your priorities, including that trip you visualized in step 1.
Now, about that trip you visualized? After adopting the habits recommended above, go back to your visualization and focus on some of the specifics: If you’re picturing Paris, are you a museum lover? A foodie? Is there a dream scenario (champagne at the Eiffel Tower?) that is a priority for you? We’ve found that it’s easier to save and to identify and eliminate money-wasting habits when you identify what you’d rather spend that money on. “If you can zero in on what exactly it is that makes a vacation great for you,” says Mecham, “you'll naturally spend money on things that maximize those attributes. This drives up the value where you do choose to spend money, and it obviously lowers the cost of things you decide aren't really that important to you.”
Broadly speaking, most of us set three kinds of financial goals: Time-bound savings (like for that dream trip next summer), general savings without a time frame (such as an emergency fund you just want to grow over time), and allocating a specific amount to a specific purpose on a regular basis (such as monthly groceries). Identifying which of your goals fall into which of these categories helps make your priorities clear and your progress satisfyingly real. For travelers, of course, the time-bound goal is often the most relevant and the most effective way to save: “I want to spend $5,000 on vacation in Morocco in 10 months” is specific and ambitious, and that deadline means it’s a priority for you. If one month you’re able to put aside, say, $1,000, that takes the pressure off other months a little. If one month you fall behind, an online- or app-driven tool such as You Need a Budget can alert you so you’re encouraged to get back on track.
I had to ask Mecham what his favorite travel experience was (I ask everybody!), and his answer illuminates a great principle of money-saving travel techniques: “My favorite travel experience was when I took my wife and kids to Germany for an entire month. The best part of the vacation was when we stayed in this tiny little town at the foot of the Swiss Alps and just relaxed. I was able to focus entirely on the family, we cooked great German food right there in the home we were renting and, believe it or not, we even spent a good portion of the day working on a puzzle of Neuschwanstein (the "Cinderella Castle"). It was just such a change of scenery and pace, that it sticks out to our family as one of our favorite travel experiences.” Notice what Mecham didn’t do: There’s no mention of a pricey hotel or fancy restaurants. For him and his family, spending time together in a rented home and cooking for themselves was a priority. (If that priority doesn’t float your boat, no worries. The important thing is that you identify what you really want to spend your money on and make that your focus.)
Budget Travel is a like a broken record on this point, but it always bears repeating: If you wouldn’t ask a friend or family member to lend you $5,000 for a dream trip, don’t borrow it from a stranger at interest! While we’re all for the judicious use of credit cards for travel (racking up rewards points, getting great currency exchange rates, free checked bags, etc.), we must caution every traveler against charging a trip you can’t afford and then paying way more for it over time. In fact, that’s basically the polar opposite of giving each dollar a job.
When I got my first full-time job out of college and started managing my meager income, I must admit I did it mostly in my head. I knew what my priorities were (food, travel) and my expenses were shockingly low (rent). But grownups shouldn’t carry imaginary spreadsheets in their heads. Just about every financial advisor I’ve spoken with recommends a personal finance tool . These days, that often takes the form of an app that allows you to carry real-time spreadsheets in your pocket. If you’re keen on adopting You Need a Budget’s money-saving principles, a free trial of their app is a risk-free way to start. You can track your spending, analyze it, hook it up to your bank account if you like, and see how it helps you prioritize your travel habit.And be sure to let us know how your new money-saving travel plan works.