We’re trying to plan for our next big vacation and I started to wonder how much should we spend on a vacation. For various reasons we haven’t been on a vacation in four years and we came back from that one pregnant. We missed vacations over the past few years due to being pregnant, having a newborn, starting a new job for my wife, saving for a house and feared unemployment for me. We’re getting past all of that and now have to decide how much we should spend on our next trip
For those who have followed my financial thinking you know that using debt to fund a vacation is the last thing I’d do just as I wouldn’t consider taking money from our savings account or investment account. That means we have to budget for vacations from our disposable money. How much disposable income should we spend on vacations? 5% sounds like a nice round starting point if for no other reason than it’s small enough to stomach not investing this money and big enough to add up over time. As much as I love to save money, vacations are one of the most important ways to spend money and enjoy life.
To me, we need to consider these following factors and how much they add to or take away from my starting point. My calculations start getting easier when I factor all of this together.
1. Will this be a get-away from work type vacation or a memory creator? The former has a lower multiple, so to speak. This vacation needs to be a memory creator and therefore gets a multiplier of 1.6
2. How often do we take vacations? More often means less extravagant. Since we’ve been homebodies for four years I’m adding extra to this one and giving it a 1.5
3. Do we want to go alone? Going with others means we can stay somewhere nicer, but also need to consider their budgets too. We want to go with our siblings and a couple of cousins. We all have various incomes and expenses so we might end up paying more than our fair share of the total cost just to bring everyone together. That gives this a multiplier of 1.8.
Adding these three points together I come up with 1.6+1.5+1.8 = 4.9. I multiply that 4.9 multiplier times 5% of our monthly discretionary/investment money and that’s our plan for how much we should start saving for our vacation.
This is my first time using this type of factoring scale and expect that it will change over time. I’m interested in hearing thoughts from others on how you decide how much to allocate to vacations.