This is a guest post from my friend Eric Rosenberg, a personal finance blogger and podcaster at Personal Profitability in partnership with Mason Finance. He writes about personal finance, credit cards, entrepreneurship, and technology. Today, Eric is writing about the struggle we all face trying to balance fun today and immediate gratification today vs. saving for our future to build a secure retirement and achieve long-term goals.
When I was a kid, I once asked my mom if I could take all of my money from my savings account to buy Power Rangers toys. I’m glad she said no. Today, I feel that same familiar pull to spend my money, but this time on travel.
But unlike when I was eight years old, these days I know better than to spend all of my money in one place for a short-term goal. If you want to learn more about balancing the financial costs of travel with your long-term savings, continue on as we examine best practices to budget for travel and balance it with saving the future.
Budgeting for travel
Outside of awesome deals we can land with credit cards and other travel hacking, most of us generally have to pay to travel. The cost of plane tickets, hotel rooms, rental cars, restaurants, activities, trains, parking, and everything else that goes along with a trip adds up fast.
According to CreditDonkey, the average vacation costs $1,145 per person. That equates to $4,580 for a family of four. That’s huge!
To pay for a $4,580 trip once per year, you have to put away $382 per month. If you are paid biweekly and want to automate the savings, that is $177 per paycheck to hit the mark.
Remember that a budget isn’t designed to constrain your spending. A budget is a tool to help you make smart money choices and stay in control of your money. You should budget for both savings and living expenses, including fun spending like vacations and other travel.
Reduce travel costs with smart travel hacking techniques
As any long-time reader of this blog knows, you don’t have to pay full price for travel. Your average trip can cost much less than the average for everyone else if you plan well, use the best credit card mile and point offers, and get the best value for each mile and point you use.
If you are confident managing your finances, there is little better than earning credit card miles and points toward free and discounted travel. Between big signup bonuses and regular earning from spending, those miles and points add up fast.
I have taken free and discounted trips all over the United States and to faraway destinations like London, Paris, Amsterdam, Lisbon, and Tel Aviv. Never pay thousands when you can pay hundreds, or nothing!
Don’t rob your retirement to pay for travel
Because you are here reading this, you probably love to travel and have some willingness to spend on it. Just make sure that while you are busy vacationing and planning your next trip that you don’t take from your future to pay for a trip today.
The average person needs to save at least 10% to 15% of their gross income at a minimum to ensure a comfortable retirement at the same standard of living they enjoy today. If you are saving any less than this level, it’s time to crank it up. If that means spending less on travel, so be it.
When building your budget, remember the personal finance mantra to “pay yourself first.” That means putting money into savings, retirement, and other long-term goals before using money to pay for short-term purchases, like travel and treating yourself to something nice at your favorite store.
Finding the right balance between spending and saving
Life insurance and tax-advantaged retirement accounts like a 401(k) and IRA are important parts of your retirement budget. If you work somewhere with employer matching on your retirement savings, make sure to take 100% advantage of any matching. That is like free money on top of your salary for your retirement!
Check out the RetireScore tool to learn more about how your retirement savings compare to your retirement needs. It would be a shame to miss out on your dream retirement because you didn’t plan far enough ahead, or because you spent too much on plane tickets.
Your priorities for budgeting should roughly follow this order:
- Current living expenses – Food, rent/mortgage, clothing
- Bills and expenses – Utilities, student loans, credit card payoff
- Long-term savings – Retirement, emergency fund
- Fun savings – Travel, fun savings goals
- Frivolous spending – Entertainment, bars, impulse shopping
Keep a long-term focus on savings goals
Your retirement is too important to ignore, even for valuable experiences like travel. Budget for savings to ensure it fits in well with your financial plan, and keep a focus on long-term goals like your retirement at the same time.
If you can budget for both retirement and travel, you’ve hit the sweet spot! And you know you can spend on travel guilt-free when all of your other obligations are covered. That’s why budgets are so great. They let you pay for the things you want to do without worrying you are putting your future in jeopardy.
Now that you’ve checked your budget and everything lines up, where do you want to go next?
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