If you are like most Americans, you may still be cutting back in other areas, but when it comes to summer travel you’re willing to start spending again. Economic uncertainty aside, 78 percent of Americans plan to take a vacation this summer, and one in four of them plan to spend more this year on summer travel, according to a recent survey released by TD Ameritrade Holding Corporation.
More than half (55 percent) of Americans will spend the same on summer vacation this year as last year, and 26 percent say they will spend more, according to the survey. Just 16 percent intend to spend less on travel in 2013.
Summer vacation is an important American tradition. Traveling together gives families, couples and friends the opportunity to relax, bond and experience new places.
“As valuable as summer vacation can be to our emotional well-being, it’s important to ensure that the costs of traveling don’t adversely affect our overall financial health,” says Carrie Braxdale, managing director of investor services, TD Ameritrade, Inc. (“TD Ameritrade”). “Like managing any large expense, paying for vacation comes down to planning and saving.”
Consider these four important points when you’re thinking about how you will fund this year’s summer vacation:
1. Plan Early
While occasionally you may be able to score a great travel deal at the last minute, it’s more likely you’ll find the best hotel, airfare and rental car rates by planning and booking in advance. Decisions such as your destination, lodging arrangements and transportation plans will all affect the ultimate cost of your vacation. By planning ahead and tallying costs before you incur them, you will be able to save toward your travel goals and reduce the chance of overspending, running up credit card debt or – even worse – diverting funds from long-term savings goals like retirement.
2. Start a Vacation Budget
Just as budgeting helps you stay on track with day-to-day and month-to-month spending, establishing a vacation budget can help you keep control of travel costs. Decide in advance how much you will spend on transportation, lodging, food and attractions before you make a single reservation. Once your vacation is under way, track expenses every day and stay on budget. This will help ensure you don’t overspend on food, activities or souvenirs you didn’t plan for.
3. Keep a level head
Even if it’s the trip of a lifetime, try not to allow your vacation to carry you away. Don’t get caught up in the moment and overspend by putting all your travel costs on a credit card. Going into debt to fund a vacation ensures you’ll be paying for it – at a high rate of interest – long after you’ve returned home.
4. Cut back wisely
Cutting back on other expenses in order to save toward a vacation fund is a great idea. Just cut back carefully. Never reduce savings, especially retirement savings, just to pay for a vacation. In fact, consider doing the opposite, and cut back on vacation expenses in favor of putting a little bit more into your IRA or 401(k). For example, if you start at age 30 and contribute just $500 additional a year toward your IRA, by age 55 you could have an additional $39,000 for your retirement. That’s assuming an 8 percent rate of return over 25 years. If you’re unsure how your current retirement savings will affect your financial life once you retire, visit TD Ameritrade’s Retirement Center, where you can learn about different types of IRAs and find tools like a Retirement Planner and WealthRuler.
Summer vacation can be great fun, but be sure to save toward it and spend it wisely while travelling. Keeping control of your travel costs now can help ensure you’ll have plenty of funds later in life when it’s time to take the ultimate vacation … retirement.