Imagine your dream vacation. Maybe you see yourself trekking in Australia’s Outback, relaxing in a hammock on a beach in Bora Bora or taking a six-month cruise around the world.
But here’s the thing: Your dream vacation will remain a dream unless you begin saving for it. Here’s how to start.
Figure out your ‘fun’ budget
If you track where your money goes each month and have spending under control, you likely know how much you can afford to spend on fun. If not, NerdWallet recommends starting with the 50/30/20 budget. That approach allocates 50% of your after-tax income for necessities, 30% for wants and 20% for savings (for retirement and an emergency fund) and paying off debt.
Note the “wants” category — that’s where your vacation money should come from.
Estimate travel costs
Now you’re ready to start mapping out your dream trip and its likely costs.
Start with travel search engines like Expedia, Kayak and Travelocity to get ballpark estimates for transportation and accommodation costs. Next, list must-do activities and add up those prices. If, for example, you’re planning a trip to Paris and the Louvre is a priority, find out the cost of getting to and from the museum as well as the price of admission. You’ll also need to set spending limits on things like souvenirs and food (including tips, if necessary).
Once you’ve done the research and figured out when you want to take your trip, plug your estimated costs into the calculator below to determine how much money to save each month.
Later, when you’ve finalized larger expenses, like plane tickets and the hotel, redo the calculations to see if you need to adjust your savings goal.
Make the trip fit your budget
Compare your monthly savings figure from the vacation calculator to the 30% of your income that’s set aside for wants.
If the monthly savings for vacation is lower than the overall amount for wants, your dream vacation is within reach. If those two figures are about the same, then the trip is still within your means, but you won’t be able to spend money on other wants, like dining out with friends, until after the trip. That’s probably fine if your departure date is only a month or two away, but any longer than that puts you at risk of overspending. So you might want to tweak your travel plans to avoid feeling deprived as you save for the trip.
If your monthly savings amount is more than what you’ve allocated for wants, consider adjusting your vacation plans. That could mean delaying your departure, shortening the trip or looking into budget-friendly travel options, like booking a room through Airbnb instead of staying at a hotel.
Re-evaluating your monthly expenses could also free up money for your trip. For example, if you find a cheaper cable package, you could put that savings toward your trip. And if you’re up for it, getting a side job to increase your earnings can help make your trip more affordable.
Once you’ve worked out a travel budget that fits your finances, set up a separate savings account dedicated to your trip and, if possible, name it. You’ll be more motivated to save when you see the balance on your “Australian Adventure,” “Bora Bora Fund” or “Around the World in 180 Days” account increase each month.