Should you be funding a vacation right now? Good question.
We say yes. We say yes, specifically, because we know you work hard. In fact, a vacation is one of our favorite ways to spend our hard earned money intentionally. This is of course with the disclaimer that you can fund it out of your monthly budget! With that in mind, let’s dive into the how.
One of the best pieces of financial advice we give is to:
Fund your future instead of paying for your past.
This is an important concept that applies to every job your money does, but especially to your vacations!
Sometimes folks go on vacations and they are stressed about each purchase, each meal, each bill. In their mind, the dollars are ringing up and they don’t really know how they are going to afford it when they get home. This person isn’t much fun during the vacation because they’re stressed. The family with this vacationer may not have as much fun either as they’re worried about whether the super-sized meal they order will set our money-stressed person off. The family then returns home with a bill racked up that they’ll be paying off for another year.
Contrast that with the family that goes on a vacation knowing that all they have to do is enjoy themselves. They’ve made a plan, they’ve funded the plan and all they’ve got to do is show up and enjoy the vacation they’ve worked so hard for. When they get back from vacation, they start dreaming about and setting aside money for the next one!
In this way, we can see how it’s possible to fund the future or pay for the past.
When advising clients on funding a vacation, we tell them to create a plan for the cost and then set up a sinking fund. A sinking fund is kind of like a savings account, but with a specific purchase. A sinking fund pays for the big expenses in life we know are coming but we don’t want to go into debt to afford such as vacations, Christmas, new HVAC systems or even a new car. The way that sinking fund works is you take your expense and divide it by 12, the number of months in the year, and then you set exactly that amount aside in a special savings account.
We also sometimes advise clients to “cash-flow” a vacation. For example, you might set aside enough money in your budget in one month to pay for airfare. The next month you might cash flow lodging. Next up you might purchase your venue/entertainment reservations. The month after that, you might purchase your food package. Finally, you’ll set aside how much cash you imagine you’ll need to comfortably get through the vacation.
With either method, you’ll be able to go and enjoy your vacation and bring back only memories rather than debt and stress.
This is a little preview of what we do. We help clients create a budget & payoff debt. Want to set up a free, no-obligation 15 minute consultation?