Dreaming of taking your next vacation but don’t know how to budget for your trip?
Most people are discouraged from traveling by the associated costs, from flights, accommodations, excursions, dining to everything else in their itinerary. But this should not deter you from visiting your dream destination. Here’s the thing: it is possible to go on your dream trip and not worry about your finances.
You just have to intentionally budget your trip in advance. So, how do you save for travel in advance? Well, by creating a vacation savings plan aka a “Travel Sinking Fund.”
Let’s get started.
What is a Travel Sinking Fund?
For starters, a sinking fund is a savings account that helps you save money over a specific period for a big-ticket purchase, expense, or event in the future. So, a travel sinking fund is a savings account for your upcoming trip. It allows you to save enough money to cover your future travel expenses.
Why do you need a Travel Sinking Fund?
Stressing over money is the last thing you need during your vacation. To enjoy a stress-free trip, create a travel sinking fund.
A travel sinking fund ensures your trip is paid off before you travel. So, you won’t have to worry about incurring debt or running out of money while in paradise. Travel sinking funds also lighten the financial burden of traveling. Instead of paying one lump sum, you set aside money each month. Basically, you save for your travel in small installments, making it more feasible. On the travel date, your entire trip is financially covered!
How to calculate how much money to put aside monthly to budget for your trip?
You can calculate how much money to save for your travel each month in three steps:
Step 1: Estimate your timeframe by counting how many months you have left until your vacation.
Step 2: Estimate your TOTAL trip expenses. You may have to do some research to determine the average cost of flights to the destination, accommodation, food, transportation, excursions, tours, and other experiences in your itinerary.
Step 3: Divide your total trip expense by the number of months you have until your travel date. In short, your answer for Step 2 is divided by Step 1. The answer for Step 3 is how much money you have to save monthly for your upcoming trip.
Every month, you’ll send this amount to your travel sinking fund. So, all expenses in your travel budget will be covered when your vacation approaches.
Where should you house your travel sinking fund?
It’s best to house your ‘travel fund’ in a high yield savings account (HYSA). HYSAs are savings accounts that offer more interest than traditional savings accounts. Why not earn a few extra dollars on your savings?
Additional Tips on Budgeting for travel
- Strike a balance: Set a realistic amount to transfer to your travel fund monthly or bi-weekly. It should cover all the expenses in your budget for travel without undermining your other financial obligations and priorities. For example, you cannot save all your income for your trip. Create your travel fund with your monthly income expenses in mind.
- Set and forget: Automate your monthly transactions. Set the monthly amount to transfer into your travel fund automatically. So, you won’t forget or skip your monthly payments. It also eliminates the temptation to divert the money to other activities.
- Travel hacking: Combine different strategies to reduce your travel cost. Use credit card points and miles to save on flights and hotel stays! You’ll need healthy credit card habits to leverage this travel hacking technique. Head over to the beginner’s guide to travel hacking to learn how to book your next low cost or potentially free flight.
Ultimately, the opportunities to travel are limitless – and that is incredibly exciting! By implementing these tips, instead of thinking if only I could afford this dream vacation, you will be saying, in a few months I will be going on my next dream vacation -worry free.