Whether you’re watching the sunrise from the top of a mountain, or enjoying your third gelato of the day on a beach in Italy, I think we can all agree that an amazing vacation can be one of the most fulfilling ways to spend your money. But those vacation memories can quickly be soured if you spend more on trips than you can afford. So how much money should you spend on vacations each year?
The benefits of taking vacations
While some personal finance gurus might encourage you to forgo vacation spending if you aren’t yet fully financially independent, we recognize the value that vacations bring to our lives. They can help you create beautiful memories with loved ones, make you more open-minded, and help avoid burnout. Studies have shown that vacations are good for your mental and physical health!
“But I’m on my third gelato. There’s no way this can possibly be good for my health.”
Think again. Prolonged stress can take a serious toll on your body. So stepping away from work every now and then has a positive impact! It improves your heart health, mindfulness, and even your sleep.
Sadly, many Americans are not taking their allotted vacation time. In fact, only 48% of workers say they use all of their vacation days. It might seem counterintuitive, but taking regular vacations will help you become more well-rounded and will even buoy your job performance. You’re entitled to them as part of your compensation package, so use them up!
How much money should you spend on vacations?
Okay, now that we are all in agreement that vacations can improve almost all aspects of your life, and that you shouldn’t just forego vacations altogether, it’s time to figure out how much money you should spend on these all-important trips and vacations.
How much money you should spend on vacations will vary based on a few factors. Like what you can truly afford and your personal tastes. More importantly, the value you place on vacationing will all impact your magical vacation budget number. However, here are a few ways to budget for annual vacations.
The 5-10% Rule
Many financial experts suggest spending between 5-10% of your annual income on vacations each year. If you’re striving to meet any important financial goals, like paying off debt or saving for a home down payment, keeping this closer to 5% can help you reach those goals more quickly.
For example, if your annual post-tax salary is $50,000, you could aim to spend around $2,500-5,000 on trips this year. This is one of the quickest and easiest ways to evaluate your ability to pay for upcoming travel plans.
Budgeting Using the 50/30/20 method
If vacations are really important to you, you might want to spend more on them by spending less in other budget areas. Here’s a responsible way to make that happen.
One of our favorite budgeting methods is the 50/30/20 budget. Under this method, you’ll allocate 50% of your income to needs (like housing and food), 30% to wants (including travel), and 20% to savings.
Using this budgeting method, you could theoretically spend 30% of your income on vacations. Of course, that means, forgoing all other discretionary spending. Obviously, we don’t recommend this because that would mean missing out on things like entertainment, dining out, and new clothes for an entire year.
While having super awesome vacations to look forward to is great, you need to make sure you’re still enjoying your everyday life too. However, as long as you keep your discretionary spending below 30%, you’ll be able to allocate as much of that as you want to your vacation fund. There’s a lot of room for individual flexibility.
Here’s an example: Let’s say travel is your top priority. If you have a post-tax income of $80,000, you may choose to spend 20% of your income, or $16,000, on travel each year. The remaining 10%, or $8,000, can be reserved for other wants.
The Side Hustler
What if you don’t have enough money in your budget to cover that trip you’ve been dreaming of? Don’t worry, it doesn’t have to be out of reach.
If you want more money to spend on vacations, consider starting a side hustle. You can turn your talents into extra cash that you’ll be able to use to pad your vacation fund.
A side hustle can be a great way to bring in extra money to accelerate your progress towards your biggest financial goals. Whether you opt to get a part-time job or start your own business, you can pursue something enjoyable, all while allocating more money to the things that get you pumped.
For example, let’s say you got invited to five weddings this Summer and don’t want to miss any of them. To afford the additional travel, you could plan ahead by picking up some extra work as a local tour guide, or by walking dogs in your neighborhood. Better yet, if you have a significant other, you can start one of these side hustles for couples to earn extra money together!
By earning more to cover the cost of extra travel you want to pursue, you can comfortably spend a lot more on vacations in a given year than the classic rule of thumb allows. And you won’t have to take on any debt or deal with regrets of missing out!
The Staycationer
If you don’t have a lot of money to spend on vacations, that’s OK! In fact, traveling locally and exploring your own backyard can be just as fun as galavanting around the world. It’s cheaper, too!
We all have important financial goals we need to make sacrifices for. In this case, it’s okay to skip out on a vacation and prioritize paying off that debt, or fully funding that emergency fund. However, it’s still crucial to take time away from work, and find ways to decompress and enjoy a special experience on the cheap.
Take a few days off from work and plan something out of the ordinary. Get together with some friends and “travel around the world” by attempting to cook cultural dishes from all over the globe. Or, grab your partner and take a few day trips, exploring cities you haven’t been to within a 2-hour drive. Check the AllTrails app for nearby hikes you’ve never done. Whatever you do, shake up your everyday routine. Remember, many folks say that the secret to slowing down our perception of time is creating new and novel experiences.
How much do vacations actually cost?
Now that you have an idea of what you can spend on vacations each year, you might be wondering how far that money can take you.
According to Forbes, the average cost of a domestic flight is around $427. And each night in a mid-range hotel will set you back around $167 per night. If you need to rent a car, it’ll cost you about $49 per day, and you can expect to spend about $104 on restaurant meals per day.
This means that a one-week vacation could end up costing you as much as $2,667 for a single person, or ~$6,132 for a family of 4. That ain’t cheap.
But before you panic, let me be the one to tell you that you do NOT need to spend this much money to have an incredible vacation. There are many ways to reduce the cost of traveling to your favorite destinations.
Tips for Stretching Your Vacation Budget
You don’t need to spend through the nose to enjoy multiple fabulous vacations throughout the year. Here are 10 tips for getting the most out of your vacation budget.
1. Get into travel rewards
Traveling using credit card rewards is a strategy that allows you to travel for cheap, or even free!
Most of the top travel credit cards will offer you meaningful signup bonuses for opening their cards and meeting a minimum spend within the first few months of owning that card. Then, whenever you make purchases, you’ll earn additional points and miles for your everyday spending. The beautiful thing is that you can redeem those points or miles for things like flights, hotel stays, and even rental cars!
Utilizing this strategy can seriously cut down the cost of your trip. You can even save up multiple signup offers for different cards.
Just remember that you should only attempt traveling via reward points if you’re able to use credit cards responsibly. That means paying your accounts off in full and on time every single month.
Here are some of the top cards travelers should start with:
- Best Travel Credit Card Offers
- Top Airline Credit Cards
- Best Hotel Credit Cards
- Top Cards With No Foreign Transaction Fees
2. Work while traveling
There are tons of cool ways to travel for less by working while you’re away. The most obvious way is to just work remotely during the day, and then explore your new location after you shut the laptop. However, this isn’t the only way!
If you’re looking to see more of the world, you could always consider volunteering abroad to travel for cheap, or even free in some cases. This gives you the opportunity to live like a local, and truly experience a different way of life.
You can also look into working for your host while traveling. You can find opportunities to work at hostels, farms, and more on websites like Workaway or HelpStay. Many opportunities don’t require you to stay for months at a time either, making it a great option for those looking to get away for a few weeks.
3. Travel during shoulder season
We don’t always have complete control over when we can travel. However, taking your vacations during certain times of the year can leave more room for savings.
Traveling during school breaks, like Summer vacation and Spring break, can leave you stuck paying some of the highest flight and hotel prices imaginable. However, if you can travel during adjacent months, often referred to as “shoulder season,” you can save quite a bit.
Planning a trip during the Spring or Fall can give you the best of both worlds because you’ll enjoy relatively nice weather if you’re traveling in the US or Europe, experience fewer crowds, and pay less overall for your accommodations.
However, if you’re only able to travel during peak travel weeks, there are still other ways to save on travel!
4. Rent out your home
When you travel, oftentimes your home sits empty. What if you could turn that empty home into extra cash that you can use for your vacations?
If you live in an area where people come to travel, consider listing your home on websites like Airbnb or Vrbo. By doing this, you could help negate the costs of your own vacation accommodations. While you’re away, another family can take advantage of the beautiful home you’ve created, and you’ll get to funnel that extra cash towards an epic vacation.
5. Be Flexible
The more flexible you can be with your dates and location, the more money you can save on your vacation! If you’re not terribly picky about where you want to go this year, why not let the prices help guide your decision!?
Most airlines and hotels will send email blasts with their current promotions and discounted getaways. Keep an eye out for these emails, and pick one of those places to travel to. For example, if Delta is running a promotion for $300 round-trip flights to Dublin, why not plan a vacation there?
If you’re the kind of person who wants to save money and be flexible, but still has a list of specific places you want to visit, make a list of all your must-visit bucket list cities and vacation destinations. Then, when one of those destinations is on sale, book it! Letting the deal drive your destination will save you a bundle.
6. Travel for Longer
The costliest part of your vacation most of the time is just getting there!
For example, if you’re hoping to visit Athens from New York, a nonstop flight could cost you over $1,000 during peak travel times! However, staying within the city of Athens can be quite affordable, and there are plenty of Airbnbs that can sleep a family of 4 for under $250 per night.
Here’s an example: If you book a flight for $1,100 to Athens, for a family of 4, and stay for a week in an Airbnb that costs you $250 per night, the average cost of your vacation per day will be about $878 per day. However, if you take a longer vacation, instead of two shorter vacations, you can get more value out of those costly flights. Staying an extra week drops your cost per day to around $564.
So, if you’re looking to travel to a place where flights are your biggest expense, consider taking a longer vacation and spending more time there to increase the value of those flights!
7. Travel Domestically
You don’t need to leave your home country to experience complete and total culture shock. Chances are, many places within your country are just waiting for you to explore them, and they can often be a much cheaper alternative to international travel.
This isn’t a hard and fast rule and depends on the destination. But on average, domestic flights are significantly cheaper, and in many cases, you might even have the option to drive, which can be a real money saver (Plus, if you drive you won’t have to have your perfectly packed suitcase ravaged at TSA).
Domestic travel comes with unique perks as well. Shorter flights or travel times can mean more time spent actually enjoying your vacation. No language barriers can make it easier to plan. And you’ll experience less stress getting through airports.
8. Shop for groceries
The last thing you want to be thinking about on vacation is your weekly Aldi trip. However, the cost of eating out can quickly sink your vacation budget if you aren’t careful! And, depending on what you’re ordering, eating out every meal of the day can leave you sluggish with less energy to take on all your vacation plans.
We’re not going to tell you that you need to cook every meal on vacation. That would be mean! We recommend trying out the most popular dishes in your destination because local cuisine is often part of the attraction. But, it can be helpful to stock up on a few grab-and-go snacks and meals for quick breakfasts and lunches. Having a handful of yogurt cups and protein bars can save you $5-15 dollars on breakfast per person every morning. This leaves you with a nice appetite to try something new for dinner.
9. Don’t take on debt to travel
Okay, so this tip might not reduce the cost of your trip, but it will save you money. Even if there’s a big sale, it’s important to never take on debt to cover travel costs. We can’t stress this enough. A new Bankrate survey found that a decent chunk of Americans are willing to take on debt for fun experiences. Don’t be one of those folks!
Using your credit card to book a trip you can’t afford comes with hefty interest that could negate the perks of discounted airfare. And, if you can’t pay that money back, your debt can spiral out of control. This leads to a lingering debt problem. Trust me, it’s not worth it!
Instead, create a vacation sinking fund. Only book that trip when you have the savings in your bank account (or the miles/points accrued) to make it happen.
Looking for more budget travel tips? Be sure to check out our post, “How to Save Money on Travel: A HUGE List of Tips and Tricks.”
The Bottom Line:
How much money you should spend on vacations and travel is largely up to you. As long as you remember to take regular breaks from work, and you are saving/investing at least 20% of your income, you can spend as much or as little on vacation as you like. It’s all about finding the balance that works for you and your family.
Related Posts:
- The Ultimate Guide to Travel Credit Cards
- Treating Yourself, Without Breaking the Bank
- How to Retire Early in Life
