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Setting the Stage for Vacation Planning - Personal Reflections on New York City from a Recent Trip
To me, New York City is truly a source of amazement and wonder for several reasons.
First, from an infrastructure perspective (yes - the nerdy engineer in me always appreciates the structural aspect of things), it's fascinating to see a place where SO MANY enormous buildings are built on such a small area of land, yet all of the transportation (subways, roads, and trains) and utility (water, sewer, gas, and electricity) needs of millions of people can still be served by this land at the same time. Second, New York City is fascinating from a social dynamics perspective because it is a place where millions of people from severely diverse backgrounds live and work together in a very small land mass. Yes - New York City is quite a gem and is a very cool place to visit for a vacation!
However, from a personal finance perspective, in my opinion, New York City is a financial disaster as a place to call home. Now, I'm not trying to say that the city or companies located in New York City run their finances poorly. Far from it actually, as I commend the companies that operate there because it is a good, accessible location in which to do business. What I mean is that for the average middle-class American Joe/Jill, because of how expensive it is to live there, New York City just might be the worst thing ever for a person's personal finance, retirement, debt-payoff, and savings goals.
In fact, in doing a brief investigation on Google, I found a Forbes study reporting that the savings' rate of not only New York City, but of all 10 of the highest populated metro areas in the US, did not rank in the top 50 highest-saving cities in the country. Clearly, there seems to be a trend that if you want to save money, these big cities might not be the best place to reach your goal (unless of course, you have a high paying job in one of these cities that cannot be located elsewhere).
Budgeting for a Vacation
So, needless to say, in July of this year, when I began planning an early-November trip to New York City to watch my girlfriend compete in the New York City marathon, I knew it would be quite essential to budget for the trip conservatively, save accordingly, and then stick to executing the plan once we were on the trip in order to prevent the scenario of having to pay for things on my credit card that I don't actually have the money for.
Now, if you've read my blog before, you probably know that I am not the biggest fan of budgets in the traditional sense of planning your monthly spending and then saving whatever is left over at the end of the month. What I've found is that if people do this, they tend to not have any money left over at all. Instead, I endorse the strategy of saving pre-determined amounts at the beginning of each month.
However, since in the case of vacations, you are only planning your SPENDING needs, budgeting is an appropriate and intelligent exercise.
Listed below are the various categories I like to budget/plan for when preparing for a vacation. It's worthwhile to note, that for the most part, these are the same general categories that one considers in planning his or her regular monthly expenditures as well (with the exception of Investing and Charitable donations savings). To get you started, I've also listed some of the specific cost items that normally fall in to these categories.
Vacation Spending Categories to Consider in Putting Together a Vacation Budget
- Entertainment (shows, museums, games, club entry fees, tours, activities/excursions)
- Lodging (hotels, motels, B&B's, resorts, or anywhere where you spend the night)
- Transportation (gas, plane ticket, car rental, tolls, parking fees)
- Food (breakfast, lunch, and dinner). I like to use $10, $15, and $20 per person for each of these meals, respectively, to plan conservatively and then multiply by the number of days of the trip (see note below for expensive destinations).
- Miscellaneous (a "cushion" amount to allow for random spending)
Once you've written these categories down on a spreadsheet or piece of paper, you can begin adding in the various cost items that you think you will incur during your trip. To do this, simply think through what you have planned each day and list out what monetary requirements you will encounter.
If you're traveling in a group, be sure to put down only the costs for which you will be responsible for paying (if splitting expenses multiple ways). If you list out your planned expenses and find that the amount is beyond what you'll realistically be able to pay, you may need to scale back your trip plans accordingly (see "Saving for a Vacation" section below).
As a general rule of thumb, I like to be pretty conservative in my estimates of how much things will cost. What this means is that I like to overestimate the price of things so that I make sure to have saved enough. However, there is a limit to how conservative you should be. Otherwise, you will NEVER go on the trip, which is not a good thing because you want to reach your goal! It is also important to note that putting together a plan/budget for a trip should begin as soon as possible - maybe even as soon as you get the idea in your mind that you want to go somewhere.
My November 2011 New York City Budget
Shown below is the budget I came up with for my recent trip to New York City - $954 all together that I need to pull out of a magic hat somewhere.
Below are just a few quick notes about what went through my mind in putting this budget together:
- "Wow! Parking costs $45 per night and the hotel is $350 per night in Manhattan! Geez! Better make sure to put this in the plan."
- When calculating the semi-unknown entertainment and food expense items, be sure to factor in any significant increases or decreases in price based on where you're traveling. For example, I added in the safety factor of 5 days of meals vs. the actual 4 days of the trip to account for New York City prices.
Saving for a Vacation
So far, we've gone through how to calculate your planned/budgeted amount for your upcoming trip. While this is a good milestone and accomplishment, it really is only the beginning step of planning and executing for your upcoming vacation.
After figuring out your budgeted amount, I can imagine that people would have one of three possible reactions/scenarios:
- Reaction #1 - "No problem. I've got that amount in my savings account already, or someone I know can give me the money."
- If you are someone who falls in to this boat, congrats! You are lucky! Enjoy your trip and have a beer for me!
- Reaction # 2 - "That's a lot of money! However, I might be able to save up that much if I plan ahead sufficiently."
- Reaction # 3 - "That's too much money! I'll never be able to save that or go on this trip without putting it on the credit card and making my debt balance increase."
As I mentioned above, if you fall in to the Reaction # 1 category, you are good to go for your vacation. However, if you fall in to the more common scenarios (Reaction # 2 and # 3), you've got a bit more work to do.
If you fall in to the Reaction # 3 category, you have a tough decision to make. On one hand, you technically can go on this trip, provided that you put all charges on your credit card using money that you don't have yet. However, this will increase your debt load and worsen your situation.
Personally, I would first recommend examining the cost of the trip and seeing if you can decrease the amount you're spending to a level that you're comfortable with. If however, the trip is still too expensive, as tough as it is to say this, I would recommend taking the vacation someplace either 1) closer or 2) cheaper.
If you fall in to the Reaction # 2 category, congrats and pat yourself on the back because you get to participate in the financial planning process in all of it's fun glory. Since the total cost of the trip is fairly large for average people like you and I, it will be highly unlikely that we can save for the trip using money from only one pay period. As such, we will have to save a portion of the amount needed every month/pay period to plan ahead for the trip.
Listed below are three simple strategies I came up with which can be used to save for a vacation. Which one you decide to use really depends on the time horizon of the expected vacation (see below).
- For a vacation that is coming up soon (less than 6 months) -
- Subtract your current liquid savings that can be used for a vacation from the budgeted amount you calculated in the previous section to obtain your vacation savings gap.
- Divide this savings gap by the number of pay periods you have until your vacation.
- Then, set up an automatic transfer from your checking to high-yield savings account each pay period for the required amount.
- If you are a chronic vacation lover (someone who likes/plans to take good vacations regularly - 6 months to 1 year away) -
- You will want to place saving for vacations as a regular item in your monthly planning. This would be similar to planned, recurring donations to charities that a lot of people do.
- If you fall in to this category, the best way to proceed is to decide on a portion of your pay that you are comfortable contributing to this savings goal (10% of each paycheck maximum, I would think), and then set up an automatic transfer for that amount each pay period to a high yield checking account.
- For a vacation that is a long time away (more than a year) -
- You can afford to save a lesser amount each pay period.
- This is the case for a trip to the Grand Canyon that I'm wanting to take sometime in the next 2 years or so as part of my life dreams and Purpose Focused Financial Plan.
- For this, saving (with the automatic transfer mentioned previously) approximately 3% of your after-tax, take-home pay should be sufficient.
Important Account Hierarchy Note: Saving for a vacation should only take place AFTER you are able to fulfill the high-priority requirements listed on the Account Hierarchy along with your basic monthly needs. In other words, you must first make sure you have health insurance and are making sufficient progress saving for an emergency fund and retirement before committing money to vacation savings. Personally, I feel that life should be enjoyed, and vacation is a way to do this. As such, I don't think you necessarily need to have 100% of your emergency fund intact or have maxed out your IRA and 401k BEFORE starting to save for a vacation. I think that as long as you are able to keep on track towards your emergency fund and retirement goals while saving for a vacation, that is fine.
My Experience Saving for the New York City Trip
In planning for my trip to New York City, I fell in to the Reaction # 2 category above. Since I only had about 4 months to save for the trip, I set up a transfer of $954 / 4 = $238 per month from my checking to savings account for the vacation. And, come November, I was ready to go on the trip!
Executing and Sticking to Your Budget During the Trip
By now, you've budgeted for your trip, saved a satisfactory amount, and are ready to venture off in to the great unknown! It's quite the fun time indeed! However, as much fun as a vacation is, it can be easy to get caught up in the adventure and forget the budget that you are/are wanting to hold yourself accountable to.
The good news though is that by following a few simple guidelines, you can increase the likelihood of staying within your budget. Listed below are several techniques that helped me during my recent trip to NYC and hopefully, will serve you well also!
Techniques to Help You Stick to a Budget During a Trip
- Keep the receipts from all of your purchases -
- Since you're out of your daily routine and may not have access to your online bank/credit card statements, keeping a hard-copy of the receipt from all of your purchases helps you to track your spending better while on vacation.
- Before heading out each day, have a "Reality Check & Budgeting Moment" -
- Each day, prior to venturing out on your vacationing activities, 1) add up the totals on all of your receipts from the prior days' spending using your cell phone's calculator, 2) record that sum somewhere readily accessible, and 3) archive the receipts you just tallied somewhere in your wallet or purse.
- The next day, you will repeat this process and add the new receipt amounts to the previous day's total.
- In my experience, by keeping track of the total you've spent each day, it will serve as strong mental reminder of how cheap or lavish you can be in your spending on the remaining days.
- Keep your budgeted meal costs in mind when approaching a potential restaurant -
- This is a simple technique, but also is very powerful and easy to forget if you are with a group of people representing a diverse range of budgeting levels.
- However, it's important to keep in mind the cost per meal for lunch, dinner, and breakfast that you budgeted for when planning for your trip and to avoid restaurants that force you to go above these allotted amounts.
- For example, I budgeted $20 per dinner per person for my NYC trip. If a restaurant was proposed for dinner that only had entrees for $30 or more on the menu, this would have thrown up a red flag for me to politely request to avoid.
My Budgeting Execution Performance from My Recent New York City Trip
Shown below is a compilation of all of my expenses from my recent trip to New York City, broken out in to the various budgeting categories mentioned previously. As you can see, I did pretty well about staying under my budget by only spending $754.
Let's take a quick look at how the actual expenses from the various categories compare to what I was planning for in my budget (shown previously). I've bolded the larger amount of each planned/actual pair.
- Lodging/Parking - Planned for $210, spent $248.
- Gas/Transportation - Planned for $100, spent $134.
- Food - Planned for $444, spent $328.
- Entertainment/Miscellaneous - Planned for $200, spent $44.
As you can clearly see by my execution above, I could hardly be called "perfect" or clairvoyant for my predictions in each of these spending categories. However, a vacation budget is not meant to be perfect - only directionally correct. It's important to note that since vacation budgets are obviously never going to be perfect, it's important to build in appropriate safety factors to make sure you have a sufficient amount of money for unexpected vacation expenses.
Concluding Remarks
Well, I hope this post has given you all some actionable steps to take in preparing for and executing your next vacation. In addition, I hope I was able to deliver the information to you in an accessible manner, and that the subject was "livened up" a bit by giving examples from my personal experience. Please let me know if you have any questions!
How about you all? What favorite techniques do you use to either budget, save, or make sure you stick to your planned spending during a vacation?
What are the biggest hurdles you encounter during a vacation that cause you to go outside your budget (the people you go with, finding out about new activities, etc?)?
Share your experiences by commenting below!
