More Americans Are Planning Vacations -- but Should They?

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Vacations are a luxury many of us hope to enjoy. It's therefore encouraging to hear that more Americans are planning vacations this year than they have in the past. In a report by the Conference Board, the percentage of U.S. adults planning to take a vacation in the next half-year jumped in October to its highest level since 1978.

Why the vacation boom? Some are attributing it to increased optimism in the economy, fueled by relatively low unemployment and healthy stock market conditions. But interestingly, data tells us that despite these factors, most consumers actually remain skittish on spending with one major exception: vacations. Currently, over 63% of Americans are planning to go on vacation in the next six months. By contrast, back in April 2009, that figure peaked at 33%. Now to be fair, April 2009 was deep in the heart of the Great Recession, but it still goes to show how far we've come since that point.

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On the other hand, the news that most workers are making travel plans is concerning in some regards -- namely, because vacations tend to be pricey, and many Americans aren't in a solid enough financial position to be taking them. A good 57% of U.S. adults have less than $1,000 in the bank, and 39% have no money saved. Unless these folks are expecting a sizable bonus, there's a good chance those vacations are going to be charged on credit cards whose balances won't be paid off in time to avoid interest. Furthermore, since most workers are behind on savings, those planning vacations should strongly consider putting that money in the bank instead.

Do we have our priorities straight?

Let's be clear: There's absolutely nothing wrong with treating yourself to a vacation if you're in good financial shape and can afford to pay for one without racking up debt. But if you're behind on savings, which is the case for most people, then a vacation should be the last thing on your mind. Rather, you should be thinking of ways to improve your financial picture and put any extra cash you come across directly into the bank.

All adults, regardless of age or income level, need an emergency fund to cover the unexpected. That fund should contain enough money to pay for at least three month of living expenses, and ideally, more like six months' worth. The fact that most Americans have less than $1,000 in savings means that they're clearly nowhere close to reaching either end of that spectrum. And that's why the idea of them planning vacations is worrisome.

Furthermore, in a recent NerdWallet study in which Americans were asked to rank their upcoming financial goals, more adults said they were planning to save for vacations than for retirement. And that's equally disturbing, because those who miss out on critical savings opportunities during their working years are apt to struggle financially as seniors, when their options for generating income are far more limited.

All of this leads to the same glaring conclusion: More of us need to get our priorities straight. This means putting our emergency funds and nest eggs ahead of vacations, no matter how strongly those beach or mountain resorts beckon.

Now this isn't to say that you shouldn't take some time away from the office. But there are ways to achieve the vacation effect, so to speak, without actually leaving town. Explore new parts of your city, visit free museums, and use the time to pursue hobbies that don't come at a cost. We all need a break from the grind, but we don't necessarily need to spend money on one.

A better use for your cash

Of course, it's hard to make peace with the idea of giving up a vacation just to be able to retire 20 or 30 years down the line. But what you may not realize is that the money you spend on vacations could spell the difference between retiring comfortably or running out of income later in life.

Imagine you're planning to spend $2,000 on a vacation this year. It may not seem like much in the grand scheme of retirement, but if you were to invest that money over a 30-year period at an average annual 7% return, you'd grow it into $15,000. Furthermore, if you were to put an extra $2,000 into your retirement account every year rather than spend it on vacation, in 30 years' time, you'd have $189,000, assuming that same 7% return. And that's the sort of sum that could make or break your retirement.

Though the fact that more Americans are planning vacations is good news for the travel industry, it's troublesome in its own right. If you're going to buy yourself a getaway this year, make sure you have a fully loaded emergency fund and healthy nest egg first. Otherwise, you'll most likely come to regret that decision at some point.

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