By Jimmy Miller
I love to travel. If you don’t believe me, check my passport. I’ve been to 8 different countries in the past 90 days. So, I get it. I understand the need to just pack your bag and fly away.
But I also understand finances. I understand debt. And I understand the trade-offs between current desires and long-term needs. Unfortunately, it seems like not a lot of Americans do.
What Americans Spend On Travel
The average American spends about 10% of their income on travel, according to the 2017 LearnVest Money Habits and Confessions Survey. In fact, a quarter of people spend 15% or more of their income on travel. AARP Research found that last year, Baby Boomers were planning on taking a total of four to five trips for a total cost of about $6,400. (1) It isn’t any wonder since the Consumer Expenditure Survey found that those nearing retirement spent four times as much on travel as young people under 25. (2)
The average domestic trip costs about $144 per day while international trips come to about $271 per day. The major expense associated with travel and vacations is transportation. About 44% of travel funds are spent on getting to, from, and around your vacation destination. (3) Travel definitely isn’t cheap, but that doesn’t seem to be stopping many people from doing it.
What Travel Is Really Costing Us
The cost of travel probably should stop some of us, though. The LearnVest survey found that 74% of Americans have gone into debt to pay for a vacation, with the debt averaging $1,108. (4) Whether you think that sounds like a little or a lot, that vacation is actually costing them much more than it appears.
That’s because there is an opportunity cost involved. Let’s say a 30-year-old goes on the average 12-night international trip that costs $3,250. They put $1,100 on a credit card at 16% interest and pay the minimum $25 monthly payment. In the end, the trip costs $2,150 in cash and $1,675 in credit card payments ($575 in interest) for a grand total of $3,825. But that’s just the cost.
What if that money had been invested for retirement? If invested in the stock market earning 8% interest, that one vacation would be worth $56,553 at age 65. How many international trips would they be able to take with that money then?
You see, travel is expensive. Not planning ahead and paying for travel with debt is even more expensive. And spending all your money on travel instead of planning for the future costs a whole lot more down the road.
How To Budget For Travel
You can be financially responsible and still travel. You just have to plan for it. First, you need to make sure that your current wanderlust isn’t bankrupting your future. Make sure you’re setting enough aside for retirement and other big goals, like purchasing a house or funding a college education. As we saw above, a two-week vacation at age 30 could be worth over $50,000 at age 65. I usually recommend that my clients save at least 15% of their income toward retirement in order to provide for a secure future.
Once you’re funding your long-term goals, you can start planning your vacations. The key, though, is to plan. Over half of Americans (55%) fail to include travel in their annual budget even though they do it regularly. (5) If you eagerly pull out your credit card every time there is a fare sale, you will end up in debt and with regrets. Once you pay the interest on your purchase, the fare isn’t such a good deal after all.
When you plan ahead, you can save toward your vacation and pay cash. How much do you want to spend on travel in a year? If it’s $4,200, divide that by 12 to get $350 a month. Set up an automatic transfer from your checking account to a unique savings account just for travel. After a year, you will have $4,200 set aside for whatever trip you have your heart set on. If you have a separate account just for travel, then you always know how much you can afford to spend— whatever is in the account.
Tips For Affordable Travel
I don’t want you to stop traveling. I just want you to be wise about it. Here are some more tips for making your money go further while you travel:
- Shop budget airlines through websites like Kiwi.com and be flexible with your dates for the best deals.
- If you weren’t already planning on going somewhere, don’t buy a ticket or vacation package just because it’s a great deal. It may be half price, but it’s still more than you would spend if you never went in the first place.
- Look for parts of your budget that you value less than travel (like cable TV or lunch out) and divert those funds into your vacation savings account.
- Rent out your own place on Airbnb or VRBO while you’re gone for some extra money.
- Pick up a side gig, like driving for Uber, to help fund your travel habit.
- Ask your friends for recommendations where you’re going so you don’t waste money on things you won’t enjoy.
- Take advantage of credit card points and miles, but only if you pay it off every month. If you’re paying interest, you’re not actually saving any money.
- Pack your own food for the airplane. Paying $8 for cheese and crackers adds up quickly.
How I Can Help
Have I got you wondering how your travel habits are affecting your future? I’d be happy to sit down with you to look at it. Call me at 907-317-8454 or email j.miller@baobabwealth.com to schedule a free introductory meeting. Together we can develop a plan that builds your future without taking away all of your fun today.
About Jimmy
James Miller is the founder of Baobab Wealth Management, and offers advisory services through Intervest International Inc., an SEC registered investment advisor. With 20 years of experience, Jimmy works with individuals and families to create financial plans that address their individual situations. He has a bachelor’s degree in business administration and holds the CRPC (Chartered Retirement Planning Counselor) and the CMFC (Chartered Mutual Fund Counselor) designations from the College for Financial Planning. When not working on a financial plan, you will usually find Jimmy with his wife, Sonja, and his son, Hendrik, or his clients enjoying the great outdoors! Jimmy is an avid fisherman, hunter, scuba diver, mountain climber, sailor, and world traveler! He also enjoys volunteering his time with the Boy Scouts of America as a troop leader. Learn more about Jimmy by connecting with him on LinkedIn.
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(1) https://www.fool.com/slideshow/heres-what-average-american-spends-these-25-essentials/?slide=20
(2) https://www.valuepenguin.com/average-cost-vacation
(3) https://www.valuepenguin.com/average-cost-vacation
(4) https://www.fool.com/slideshow/heres-what-average-american-spends-these-25-essentials/?slide=20
