… while being financially responsible about it.
Here at Firreo, we’re all about travel and expanding your horizons. You can’t see the whole world if you stay in one place, right? If you’re craving new culture, exploring the world’s wonders, or just needing an escape for a while, you’re not alone.
But travel can be expensive, and it’s best done when you plan it out well beforehand. Let’s focus on how to plan a fantastic vacay without blowing up your personal finances.
Step 1: Open a new, separate bank account just for your travel funds. It’s very important to maintain a separate account so you don’t intermingle your travel savings with everyday expenses. A savings account that pays interest makes sense because why not earn interest while you’re saving. Open an account at the bank you use now or a new bank, just make sure you check Bankrate for current rates to make sure you’re maximizing the interest you get.
Step 2: Make a list of possible travel destinations and pick your faves. This will give you something to dream about as you’re putting money away each month. There’s no limit here – if you’ve got five places you’re dying to visit, plan to save for them all!
Step 3: Get a rough idea of how much you’ll need to save. Do some research on your vacay spots and come up with some estimates of how much you’ll need for each. Major expenses like airfare and lodging are easy to figure out, but don’t forget the little things… meals, shopping, entertainment, side trips or excursions.
Step 4: Once you know how much you need, figure out when you need it by. Pick the place you want to go first and pencil it on the calendar, then pencil in the next one. Let’s say, for example, you want to hit LA in 6 months and then Lisbon, Portugal next year. And let’s say LA will cost $900 while Lisbon will cost $1,200 for a total of $3,600.
Step 5: Figure out how much you need to save in your travel account each month to make your trip(s) happen. If you’re going to LA in 6 months and need $900 for the trip, you’ll need to save $150 a month ($900 divided by 6 = $150). And if you need $1,200 for the Lisbon trip in 12 months, that’s $100 a month ($1,200 divided by 12). So you’ll need to save $250 a month ($150 + $100) for the next 6 months and then drop it down to $100 a month for the 6 months after you take your LA trip.
We recommend adding a 10% buffer to account for extra costs while traveling. Worst-case, you’ll end up with a little extra in your travel account after the trip. In the example above, you’d save $990 for LA and $1,320 for Lisbon.
Step 6: Start saving! Now that you’ve got all the pieces figured out and have a snazzy new travel funds bank account, it’s time to start saving. You’ll likely want to book things in advance, like airfare and lodging, so once you’ve got some travel funds cookin’ in your travel account go ahead and use them.
You can always change your plans as you’re saving. Just refer back to step 5 to recalculate the savings amount you need if your travel plans change.
Be SURE that saving for travel doesn’t affect your other financial goals. Take care of those goals first and then save for travel. You don’t want to set yourself back by traveling.
Step 7: Take your trip and enjoy it! After you return home, use your travel funds to pay any remaining expenses from the trip by transferring the money you need out of your travel account and into your regular bank account. Or if you’re like us and like to maximize credit card points, use a credit card while traveling and then pay it off with your travel funds when you get back.
Now start planning your trip and get those bags packed!
For lots more on how to crush the personal finance game and find early retirement, make Firreo your financial advisor. We’ll help you out of your job and on your way to financial freedom!