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My family and I recently booked our very first international vacation to Korea and Japan, and even with careful planning and budgeting, the overall costs came as a shock. However, it’s one of those things that we have always talked about doing, but because of the expenses, we would always put it off. Now that our daughter will be headed to college in less than 3 years, we decided we really needed to take advantage of these last few summers we have to travel as a family.
The average family of 4 spends roughly $4,800 on a vacation every year, which comes out to around 10% of their annual income. That’s quite a bit, but the difference between it being financially irresponsible or completely okay depends on your individual circumstance. One study found that 74% of people admitted that they went into debt to fund their vacation. Although we should all find time to unwind and relax, it should never take priority over our finances.
Our Guidelines for Vacations
If you are paying off debt, that should be your priority. Using 10% of your income to fund a vacation would set you back, and when you are in debt, you can’t afford setbacks. This doesn’t mean that you shouldn’t find time to unwind or relax, but it means that you need to be a little creative with your vacation planning until you can get your debt paid off. This may mean taking a weekend camping trip instead of a cruise, or staying with family or friends instead of renting a fancy hotel. Once you get your debt paid off, you can start saving up for that cruise.
Met Our Financial Goals
Whether your financial goals for the year was to pay off debt, remain debt free, build your emergency fund, or max out your retirement account, you should meet those goals before funding your vacation. After you meet your goals, work with whatever is leftover to fund your vacation. Again, this could mean a camping trip instead of a cruise, but that’s okay. You can still unwind, enjoy your family, and make memories.
We have always made it a priority to pay cash for everything. If we have to charge it, we can’t afford it. Live within your means, and you’ll be at financial peace. If you have an international trip you want to take, save up over a few years. We have usually budgeted between 3%-5% of our annual budget for vacations in the past. When we have money leftover (like we did this year), we roll it into our vacation budget for next year. We also save up our credit card reward points for cash back on travel, gift cards, airline miles, or free stays at hotels. Take advantage of cash back apps like Ebates or Dosh.
Only when we have met all of these guidelines do we take the trip. For the longest time, I got caught up on what percentage of our budget we had to allocate to vacation spending, and the answer is that it doesn’t really matter. Whether it’s 3% or 20% of your annual budget, as long as you are debt free, met your financial goals, and aren’t going into debt to fund it, go ahead and take the trip!