Friday, July 31, 2015

Can you save for a vacation without blowing your budget?

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Dear Carrie, 

I’m a single mom in my late thirties. I traveled with my family when I was younger and want to provide the same opportunity for my 10-year-old daughter. On my salary, people tell me I’m dreaming, but I think travel is important. Any tips on how I can incorporate this into my budget? 

— A Reader

Dear Reader, 

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  • First, congratulations on having a budget. That’s the first step. If you have a budget—and stick to it—there’s no reason why you can’t save for whatever goals are important to you. It’s all about prioritizing your spending. You may have to make trade-offs along the way, but that will help you focus on what you really want.

    And don’t let others discourage you. Even if money is tight, you can realize your travel dreams—with systematic savings and a little creativity.

    1.  Cover the basics. Before you spend money on extras, make sure you can cover all your essential expenses—housing, food, transportation and insurance, as well as any debts you need to pay down. I also advise having an emergency fund and making regular contributions to a retirement account. And don’t forget about your daughter’s education. 
    2. Make travel a line item on your budget. With these bases covered, look at your discretionary income and expenses. What do you spend each month on going out to eat, entertainment, or gym fees? Can you earmark a portion of that money for travel?
    3. Decide on a destination and dollar amount. It will be easier to save if you make your travel goal concrete. Choose a destination, do some basic research, and come up with a specific dollar amount. Compare travel targets. For instance, would a weekend trip to Washington, D.C., be easier to swing than two weeks in Europe?
    4. Set up a dedicated account with automatic deposit. With your destination and basic costs in mind, open a travel savings account. Have money automatically transferred from your checking to your travel account. If you keep this money separate, you won’t be tempted to spend it on something else—and you’ll have the pleasure of watching your travel balance grow.
    5. Put gifts and windfalls toward your goal. Boost your travel savings by putting gifts, tax refunds or other unexpected money in your dedicated account. You might suggest that family members contribute to your travel fund instead of buying gifts for birthdays or other special occasions.
    6. Be creative about ways to travel. Get a credit card that offers travel points toward flights, cars, and hotels (but pay the balance off each month!). Sign up for online travel sites that alert you to deals and let you compare prices. Consider renting an apartment rather than staying in a hotel. It’s usually cheaper per night—and you’ll save on eating out. Try websites like www.airbnb.com or www.vrbo.com. If you prefer a hotel, avoid big names and seek out small B & Bs. They’re generally run by locals who can make your trip even more interesting. Also check out local transportation at your destination. Research bus and train passes. It’s potentially less expensive—and a great way to meet people and get to know a place.
    7. Get your daughter involved. Your daughter’s old enough to share the excitement of planning a trip—and help save for it. Have her put a portion of her allowance in her own travel account. Are there chores and odd jobs she could do to earn extra money? Tell her what she’ll be responsible for, such as buying her own souvenirs. This can be a good lesson in saving and prioritizing spending.

    The bottom line? Yes, you can definitely make travel a part of your life—just don’t get into debt for it. If you plan and save in advance, you’ll enjoy the trip more. And when you get home, rather than struggling to pay off credit cards bills, you and your daughter can savor the memories while saving for your next adventure.

    This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. COPYRIGHT 2014 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (0114-0439)

    Carrie Schwab-Pomerantz
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