Bill Keen is the Founder and CEO of Keen Wealth Advisors and the Best-Selling Author of Keen on Retirement.
I recently had the privilege of going on my local news station to teach kids about saving money. One of the first lessons I shared was about avoiding impulse purchases. If parents wanted to teach their children about not buying on impulse, they could take them to the grocery store with a list and not deviate from that list. It would be a fun, educational real-world example.
I share that because avoiding impulse purchases is important for kids — but it’s also important for adults. That’s especially because we’re not talking about candy, soda or video games being bought. We’re talking about diamond rings, houses, motorcycles, boats and cars.
One of the other big impulse purchases is a family vacation. Like the other things I’ve listed, a vacation is not a bad thing. In fact, it’s a good thing — I advocate for every family to set aside the time and money to vacation together. But therein lies the key: planning.
Especially if you have a big family or a fancy destination in mind, you must plan ahead for a family vacation. In my book, I shared about a client who pays for their entire extended family of 20 people to sail with them on a fabulous cruise line every other year. That final tab is usually north of $100,000. That might sound crazy, but for that client, facilitating time with their family is the best possible use of their money, and they plan well in advance for each trip.
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If you want to plan for an elaborate or extravagant family vacation without wrecking your retirement savings plan, here are a few tips for getting started.
Begin Planning And Saving Early
Yes, the price of everything changes over time, but if you’re planning a trip 12 to 18 months in advance (this is an average, it could be less or more time depending on the length, cost or complexity of the trip) then you should roughly know the cost of hotels and flights. Whether you work with a travel agent or book it yourself, start with the estimated cost of the trip and then add a certain percentage for cushion. Vacations typically cost more than you think they will.
The second step is to create a schedule of saving toward that cost. Maybe you pull money into that account on payday or twice a month. Note, too, that it should be a separate account. I say this for a couple reasons. First, you don’t want to commingle your vacation funds with your normal checking account. Second, having a separate account helps you easily see your progress toward that savings goal. As that balance rises, so will your motivation.
For the account, I would advise steering clear of volatility. You don’t want to put your vacation money in the market because you don’t control what happens to it. The market could take a dive right before you embark, leaving you short of what you need to pay for the trip.
Because vacation expenses are usually paid for on credit cards today, you might consider taking out a credit card with a nice cashback bonus or a 0% introductory interest rate for 12 or 15 months. When it’s time to pay that card off, you have the money sitting in savings.
That’s another reason to begin planning well in advance: Not only will you find the best vacation deals a year or more in advance, but you’ll have more time to save the money, meaning the “hit” each month to your paycheck as it gets pulled to savings will hurt less.
Finally, consider purchasing travel insurance so you’re covered in case of an emergency or an “act of God” (such as a hurricane or earthquake) that prevents you from traveling.
Set Expectations For The Vacation
The logistical side of planning a family vacation is fairly straightforward if you start early enough and are disciplined with your saving. The other part of the equation is less obvious but just as important to having a successful vacation: setting expectations with those who are going.
The first expectation ties into the logistics: Who’s paying for what? For some trips, each family pays their own way. Like the client I mentioned earlier, some trips are paid for by one person or one couple. If that’s you, figure out how you’ll handle situations like boyfriends going on the trip. Are you paying for them, too, or just legal members of the family?
I would advise getting very clear on not only who’s paying for upfront costs such as flights and hotels, but also who’s paying for “on the ground” costs like meals and excursions. That way, you avoid anyone getting “alligator arms” as they reach for the check at dinner.
Speaking of dinner, communicate in advance what “family activities” you want to have. Does everyone attend dinner each night? Is there a set number of excursions you want everyone to take together? Will there be a family photo, and if so, what should everyone wear?
These might seem like small details, but I promise you, if you’ve saved for months for a trip, you will have expectations (spoken or unspoken) about what that trip will be like. The last thing you want to happen is that you’re disappointed because those expectations weren’t met. So, sit down with everyone who’s going and figure out what this vacation will entail.
Set Yourself Up For Success
Some of my favorite memories with my family are from vacation. Yours probably are, too. Whether you’re going down the road or across the globe, it’s vital to our health and happiness to spend time with those we love making fun new memories. That’s what a vacation is all about.
But it doesn’t have to wreck your retirement plan. Get started early with your savings, set proper expectations, and your next family vacation can be both fun and financially feasible!
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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