SUMMARY: Although vacations can offer wonderful experiences and memories, they shouldn’t get in the way of retirement savings. Here’s how to find the balance and work both into your life.
Most Americans are behind on their retirement savings (or have none at all). As such, you’d think this would be a top priority for if and when their finances allow for them to put some cash away. But as it turns out, vacation ranks higher than retirement when it comes time for them to save.
Needless to say, this is a troubling trend. But does it need to be one or the other? Can you not save diligently for retirement and also plan a relaxing getaway?
You may actually have the money
A major reason people don’t save for retirement is that they think they can’t afford it. If your paycheck only covers the essentials—food, utilities, rent/mortgage, health—then you may be right. If, in fact, you have some money set aside for a vacation, then it’s time to reevaluate your saving and spending.
If a portion of your salary automatically flows into your 401(k), 403(b) or IRA, and you feel you deserve a break, then give yourself one. But if it always comes down to a hard choice between the two, retirement should win every time. Even if that’s the case, never fear. There are many ways to carve out resources for a vacation.
Keep them in separate buckets
Take the money that comes in every month and siphon it into buckets. A popular system is the 50/30/20 budget—50 percent of after-tax income is for things you need (the essentials mentioned above), 30 percent of it is for things you want, and 20 percent of it is for the future (an emergency fund, debt repayment, retirement).
That second category—things you want—is key. Use this bucket (and only this bucket) for your vacation. There are a few ways to give it a boost. Cut down your cable package to the bare minimum (or cut the cord completely). If you can squeeze out the time, earn extra cash in the gig economy.
Lower your vacation costs
Although many vacationers have the best of intentions to set and stick to a budget, a good percentage end up spending far more. How do things get so out of hand?
- Unexpected expenses. Every time you hail an Uber instead of waiting for the subway, grab a snack at the airport or forget that you’re supposed to tip the hotel staff, that adds unanticipated costs to your trip.
- Reliance on credit cards. More than 70 percent of parents expect to slap more than $1,000 in vacation costs on their cards this year. This puts more pressure on the 20 percent bucket to keep up with increased debt while also saving for retirement.
So what can you do to cut back? Quite a lot, actually.
- Walk through every detail of your trip, from leaving the house to arriving back home, and assign it a cost. Then see what you can live without.
- Travel at off-peak times, like Disney World in the fall or Aspen in the spring.
- Figure out what’s must-see and what’s nice-to-see. Make sure you can afford the must-sees and then fit in whatever nice-to-sees you can.
- Forgo the hotel and car rental in favor of Airbnb and rideshares.
Try a staycation
Not only is travel expensive, but it can also be stressful and exhausting. One way to remedy all three issues is a staycation, which gets you all the relaxation of a traditional vacation, but with fewer downsides and more upsides, including:
- Less money spent. No plane fare, car rentals or pricey hotels. And no sticker shock on your next credit card bill. Any money you do spend goes right into the local economy.
- No stressful departures. After a long workweek, the last thing you want to do is rush around trying to pack bags, corral the kids, and feed the cat in time to catch a flight. Instead, your vacation starts whenever you like.
- More time. No standing in line to check bags or waiting for that airport shuttle that never comes. Best of all? No jet lag.
- Simpler planning. Sure, you’ll want to look into what’s happening in your backyard, but no scrambling to book unknown attractions in far-off locations, no complicated itineraries to coordinate, and no laundry to schlep here and there.
- Predictable weather. It’s your town, so you know where to go when it’s gorgeous or when it rains. You can change plans at a moment’s notice should the weather decide not to cooperate.
Sure, you won’t have Instagram-worthy pictures from Hawaii or Bali to share, but you’ll likely be far better rested, and that much further ahead on your retirement savings.
Plan for both
Although vacations can offer wonderful experiences and memories, they shouldn’t get in the way of retirement savings. The good news is that, with some crafty financial planning, you should be able to work both into your life. If you need a little assistance finding that balance, consider our e-book, Your Guide to Popular Retirement Plans.