How to save for a vacation in 5 steps

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Everyone needs a vacation now and then. Whether you're exploring another country, going on a road trip, or relaxing on a cruise, it's fun to get away and see somewhere new. 

But between flights, hotels, food, and excursions, going on vacation can be quite pricey. For example, a one-week vacation for a single person costs an average of $1,578.

So, what is the best way to save for a vacation? By setting a clear savings goal, creating a budget, choosing the right savings account, automating your savings, and shopping around for the best deals. 

We'll walk you through a five-step plan to make your dream vacation a reality without breaking the bank.

1. Set a realistic savings goal

The first step in saving for a vacation is to set a realistic savings goal. This involves researching the estimated costs of your trip and determining how much you'll need to save based on your timeline.

“The best way to estimate the cost of a trip is to do your research far in advance,” says Jackie Koski, certified financial planner. “Based on that research, your plans could change. For instance, if you are planning a trip to Asia, you may want to avoid the monsoon season or decide to go somewhere else if your dates aren’t flexible.”

Start by making a list of all the potential expenses for your vacation, including:

• Transportation (flights, rental car, gas, parking)
• Accommodations (hotel, vacation rental, campground)
• Food and drinks (restaurants, groceries, snacks)
• Activities and entertainment (tours, tickets, equipment rentals)
• Shopping and souvenirs
• Travel insurance 

Check the average prices of flights, hotel stays, and activities for the location and time of year you plan to go.

Use a budgeting tool to get a rough estimate of how much you can expect to spend based on your destination, travel style, and length of stay. Don't forget to factor in often-overlooked costs like visa fees, pet sitting, or house sitting while you're away.

“Once you think you have a fair amount for your costs, add another 20-30% because it’s easy to go over budget when you’re traveling,” says Koski. “Also, you deserve to splurge a little if you’re taking the time to plan this out.”

Once you have a total estimated cost for your vacation, divide that amount by the number of months you have until your trip to determine your monthly savings goal. 

For example, if you estimate your vacation will cost $3,000 and you have 12 months to save, you'll need to set aside $250 per month.

It's important to be realistic when setting your savings goal. While it would be great to take a luxurious, two-week European vacation next month, that may not be feasible based on your current financial situation. 

Be willing to adjust your timeline or destination to make your savings goal more attainable.

2. Create a budget and cut expenses 

Now that you have a savings goal in mind, it's time to create a budget to help you reach it. 

Start by tracking your income and expenses for a month to get a clear picture of where your money is going. Then, identify areas where you can cut back or eliminate spending to free up more money for your vacation fund.

Here are some tips for cutting expenses and finding extra money in your budget:

• Cook meals at home instead of eating out or ordering takeout
• Cancel unused subscriptions or memberships
• Negotiate better rates on bills like cable, internet, or insurance
• Shop secondhand for clothes, furniture, or electronics
• Sell unwanted items online or at a garage sale
• Reduce energy costs by adjusting your thermostat or using energy-efficient appliances
• Use public transportation, carpool, or bike instead of driving everywhere
• Take advantage of free entertainment options like parks, museums, or community events
• Pick up a side hustle or part-time job to earn extra income

Remember, even small changes can add up over time. If you can find an extra $50 per month to put towards your vacation savings, that's $600 over the course of a year.

3. Pick the right account to store your vacation savings

Where you save your money can be just as important as how much you save. When choosing a savings account for your vacation fund, look for one that offers a competitive interest rate, low fees, and easy access to your money when you need it.

One of the best options for short-term savings goals like a vacation is a high-yield savings account. These accounts typically offer much higher interest rates than traditional savings accounts, helping your money grow faster. 

Some of the top high-yield savings accounts offer rates as high as 5%. 

Another option to consider is a travel savings account, like the Capital One 360 Vacation Saver account. These accounts allow you to set specific savings goals and track your progress, and some even offer rewards or bonuses for reaching your goals.

If you’re planning your trip far in advance, you could open a certificate of deposit with a maturity date near when you want to start booking. Just keep in mind that you typically add or remove money during the CD’s term without incurring a penalty.

4. Automate your savings

One of the easiest ways to stay on track with your vacation savings is to automate the process. 

By setting up automatic transfers from your checking account to your savings account each month, you can ensure that you're consistently setting money aside without having to think about it.

Most banks and credit unions offer the ability to set up recurring transfers between accounts. You can choose the amount and frequency of the transfers based on your savings goal and budget. For example, if your goal is to save $250 per month, you could set up a weekly transfer of $62.50 from your checking account to your vacation savings account.

Another option is to use a savings app like Digit, Qapital, or Acorns to automate your savings. These apps connect to your bank account and use algorithms to analyze your spending habits and income. They then automatically transfer small amounts of money into a separate savings account based on what you can afford.

Some employers also offer the ability to split your direct deposit between multiple accounts. If this is an option for you, consider setting up a portion of your paycheck to go directly into your vacation savings account each month.

By automating your savings, you can make steady progress toward your goal without having to constantly remind yourself to transfer money or cut expenses. Plus, seeing your vacation fund grow each month can be a great motivator to stay on track.

5. Shop around for a good deal

Setting money aside for a trip is important, but it’s also a good idea to make sure you get a good deal on your trip. You don’t want to overpay for a hotel or flights if cheaper options are available.

Here are some tips for finding the best deals on vacation expenses:

• Be flexible with your travel dates and times to take advantage of lower prices
• Use flight comparison websites like Skyscanner, Kayak, or Google Flights to find the cheapest fares
  Consider alternative accommodations like vacation rentals, hostels, or camping instead of hotels
• Look for package deals that include flights, accommodations, and activities at a discounted rate
• Sign up for email alerts from airlines, hotels, and travel websites to be notified of sales and special offers

If you’re a member of a hotel or airline loyalty program, see if you can use your points or miles for free or discounted stays or flights.

If you have a travel credit card, use your rewards to boost your vacation savings. In the months before your vacation, pay for your everyday expenses using your card. This way, you'll earn rewards that can offset the cost of flights, accommodations, or other vacation expenses.

If you don’t have a travel credit card yet and have some time before your trip, consider signing up for one. Some travel cards offer huge welcome bonuses if you spend a certain amount in the first few months of opening the card, says Koski.

The bottom line

Taking a vacation can be expensive, so it’s important to start planning early. Estimate the cost of your trip, create a savings goal, and follow your plan closely. If you prepare, you can focus on enjoying your trip rather than worrying about how you’ll afford it.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.