How to Budget for a Vacation

By Grant A. Webster on June 2, 2021
Categories: TIPS & TRICKS

Whether you’re looking for experiential travel, a fun-filled family vacation, or a relaxing seaside getaway, there’s one aspect of planning a trip that isn’t so much fun: how to pay for it. For many individuals and families, there are a lot of questions that arise from the topic of going on vacation: where to go, how much to spend, if you should pull the vacation money from the savings account, and what family members to invite (and potentially pay for). All of these conversations impact your bottom line.

Luckily, the budgeting process becomes a lot easier when you plan ahead. Here are five steps to create a smart vacation budget strategy so you can embark on your journey without any financial baggage weighing you down.

Determine an annual travel budget

Vacation planning should be part of your annual financial planning process. It’s best to look at your broader year to identify other potential major expenses, as well as events you may need to travel for, like a family graduation, a milestone birthday, or anniversary. Then you can plan additional trips around those events to create a manageable travel budget and timeline for the year.

When planning for how to save for a vacation, thinking about these things early on  helps you identify who should attend and the additional travelers you might pay for. For instance, a family reunion at a beach house sounds like fun, but you need to determine what you’re willing to pay for early on in the planning process — and communicate that to anyone you invite.

Even if the beginning of the year has passed, you should still look at the remaining months to figure out how to budget for travel. Setting a monthly budget for your travel fund is the first step to your dream vacation. To help guide you for the bigger picture, consider choosing a percentage of your income to devote to vacation. That helps you start with the “how much” question and then you can then fill in the details with who, what, where, and when. These are all aspects of holistic financial planning.

When you’re thinking about how to save money for travel, it is always best to overestimate your savings goal when it comes to your maximum budget. The average vacation cost might surprise you. The average person spends $1,979 on a summer vacation per traveler. That makes sense when you take in account: a plane ticket or other airfare fees, parking fees, additional modes of transportation like a rental car, lodging like a hotel room or vacation rental, travel insurance, and any other daily expenses on food, souvenirs, or excursions. Vacation expenses add up fairly quickly.

Your financial advisor can also help you run the numbers on how much to spend on travel now, without negatively impacting your retirement savings. Planning now may actually allow you to travel more later. After all, chances are that if you enjoy taking trips during your working years, you’ll likely have the travel bug when you have more time on your hands.

Check your travel rewards credit card

No matter how you decide to pay for your vacation, taking advantage of a travel rewards credit card could lower your budget and upgrade your overall experience. Start by assessing any existing credit cards you have. Find out if you have any travel points or credits you can use for your trip, as well as benefits when you travel.

If you don’t have an existing travel rewards card, you may consider one. There are several things to evaluate, starting with the potential for a sign-up bonus. Also, be on the lookout to see if you’ll be charged an annual fee. If there is one, the benefits should outweigh the cost. For instance, look for cashback rewards, airport lounge access, free checked bags, and more. And if you use your rewards card to cover expenses while travelling, you may also be able to earn multiplied points that you can redeem on your next trip. Opening a new credit card account could impact your credit score temporarily, so be sure to be mindful of this if making other large purchases simultaneously (like a home mortgage or auto loan).

Be realistic about costs

Another important aspect of budgeting for vacation is to be realistic about costs. It’s easy to broadly estimate how much your trip may cost once you’re there, only to end up grossly over-spending. Here are some costs that are often forgotten on vacation budgets.


Flight tickets aren’t the only transportation costs you’ll have to pay when on vacation. Remember to factor in your arrival and departure transportation, as well as long-term airport parking if needed. Also, think about on-the-ground transportation once you arrive at your destination, whether you opt for local taxis or a private service.

Hidden lodging fees

Make sure you’re aware of all lodging costs when booking your hotel, resort, or Airbnb. Otherwise, you may be surprised by unexpected expenses on your final bill, like a hidden sales tax, resort fee, WiFi fee, or parking fee. Find out what services involve an extra cost and plan your budget accordingly.

Foreign transaction fees

When traveling abroad, you may be charged a foreign transaction fee every time you use your debit or credit cards. This cost can be as much as 3% for each purchase you make. Avoid this budget-buster by using a credit card that offers no foreign transaction fee as a cardholder perk.

International smartphone charges

Smartphone data charges can also skyrocket while traveling outside of the U.S. If you’re not careful, you could be charged hundreds of dollars (and potentially more) in roaming fees — especially if you have a media-loving teenager. Turn off your mobile data and use secured WiFi instead.

Weigh the benefits of a travel agency

Using a travel agency to help book your vacation could end up saving you both time and money. A travel agent will typically have established relationships with reputable vendors to choose from. In many cases, a package deal could potentially save you money.

Additionally, travel agents keep up with destination trends to make sure you’re getting the best experience once you arrive. They will curate your trip to fit your individual preferences, whether it’s private historical tours or access to the best outdoor adventure spots.

If you prefer experiencing your vacation rather than planning one, you may be better off getting a customized itinerary through a travel agency.

Travel insurance

With ever-changing travel restrictions, purchasing an appropriate level of travel insurance is more important than ever. If you don’t include this must-have in your vacation budget, you risk losing everything you’ve paid in advance if something prevents you from actually taking the trip. It can also ensure you get quality, affordable care in case of a medical emergency.

Here’s what you should look for in a comprehensive travel insurance policy:

  • Unexpected cancellation coverage: Reimburses you for expenses in case you have to suddenly cancel your trip, whether from a health issue, surprise work obligation, or anything else that qualifies.
  • Travel delays: A policy should cover you in case a late flight makes you miss your connecting flights or any other type of event that forces your plans to change.
  • Luggage coverage: Insures your belongings so you can purchase replacements on your trip in case your bags are lost or stolen.
  • Medical emergencies: Have any healthcare costs covered when you’re traveling out-of-network.

Search for travel insurance policies that are designed to meet your needs for each trip you plan. The small price of peace of mind may end up saving you a lot of money in the long run, especially for things that actually occur quite frequently — like delayed flights or lost baggage.

The Bottom Line

Planning and saving for a vacation does not need to be difficult. Budget as accurately as possible to avoid regretting the final price tag of your trip. It’s the best way to maximize your trip while also allowing yourself to truly relax and enjoy yourself every moment you’re there. Taking a vacation is a wonderful experience that can lead to lifelong memories. See how the financial experts at Dowling and Yahnke Wealth Advisors can help you strategize your vacation budget.


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