If you are like me, you probably have a list of 10+ places to travel to. You’ve seen these places on Instagram, you’ve heard stories from your friends, or you’ve read about them on a blog. More and more, people value using their money on experiences, as opposed to material goods. This is a big reason why renting is so popular now. Who cares about what car you drive… let’s talk about where you’ve traveled!
I believe most people are starting to really prioritize travel as a part of their everyday financial life. Traveling is an adventure – exploring new places, learning new cultures, trying new food, etc. Each trip forces you to step outside of your comfort zone and begin to understand the world better. It’s awesome to read about the Great Pyramids, but to actually see them and talk to the locals about them – it’s an entirely different experience.
So how do you prioritize travel, but in a way that won’t compromise your financial life? Here are some tips to help.
1) Set an annual travel budget
We are about to head into 2020 which is a perfect time to start thinking about expenses for the upcoming year. I highly recommend that you take one hour to do a rough projection of your income and non-discretionary expenses (rent, food, insurance, etc.) for 2020. Hopefully you have been staying on top of your spending, so you know roughly what a typical month’s worth of expenses will be.
After going through this (likely painful, I know) exercise, you should have an estimated amount of money left over. So, what are your options? Spend it, invest it, or pay down debt (more than is required). Every situation is different, but it’s important to find a balance with these three options – you shouldn’t allocate all of your money towards one of these.
Once you know what you can responsibly afford for travel, you can start researching which of your bucket list trips are possible. Be sure to talk with friends or family about how much certain countries cost when you travel there (beware – Iceland is expensive!). Be detailed in your travel budget – include costs such as airplane tickets, lodging, transportation, food, drinks, excursions, etc. I recommend that you overestimate how much the trip will cost, so you provide yourself with the flexibility to spend money on the exciting, spontaneous adventures that come your way!
2) Open a separate bank account earmarked for travel and automate your savings into that account
I highly recommend establishing multiple bank accounts (at one bank) that are earmarked for certain goals. Banks likely won’t charge you any extra and you can usually customize the names of the accounts. When everything just sits in your checking account, it’s difficult to mentally separate what is for saving vs. what is for spending.
For someone who values travel, a common bank account structure would look like:
- Checking account = 1 – 2 months’ worth of living expenses
- High yield savings account (hopefully paying you at least 1.5%) = bigger, expected expenses in the next 2 – 3 years
- High yield savings travel account = funds for your 2020 travel budget
When you allocate bank accounts for certain goals, it dramatically helps your behavior around money. Most people live to their checking account, so if your checking account balance is pretty low, you are more likely to say no to expenses that may jeopardize some of your other goals.
The simple act of having to transfer money from one of your goal-marked savings accounts (like travel) to your checking account forces you to ask yourself an important question – am I willing to jeopardize one of my well-thought out goals in order to support my current expenses?
Once you open the separate travel savings account, establish an automatic transfer into the travel account from your checking account. I recommend a frequency that matches your pay frequency. If you get paid bi-weekly, set up a reoccurring bi-weekly transfer from your checking account into your travel savings account.
3) Earn some side income if you are falling short of your travel goal
You may find yourself draining down your checking account after setting up various automatic transfers (for travel, investing and paying down debt). These automatic transfers were strategic decisions – if possible, you don’t want to jeopardize any of those decisions.
Instead, you can either a) further reduce your expenses or b) earn some side income. Most people focus on reducing expenses, but I think it is easier to earn some side income, especially if there is a specific goal for that side income.
Most people balk at this idea because there often isn’t a purpose for earning extra income. You need to assign a specific goal as to why you are doing this. Think about the difference in motivation of driving Uber for 8 hours a week to just earn extra cash vs. driving Uber for 8 hours a week so you can afford that dream trip to Greece!
4) Learn travel hacking tips to reduce costs
There are so many ways that you can reduce the cost of travel. For one, Scott’s Cheap Flights is a god send. This website sends you extremely discounted flight deals that are available for certain time periods. If you have a few locations in mind, be patient and wait for the right flight to come your way. For example, I was notified of flights from Boston to Paris for $284 round trip on Friday!
Google Flights allows you to research the cheapest days to travel throughout the year. They also have a feature where you can select where you are departing from, but not input where you are going, and it shows you a map of the cheapest flights around the world. This is an amazing tool for people that want to travel, but are flexible with where they want to go.
In addition, credit cards offer incredible travel points. Personally, I use the Chase Sapphire Reserve which has very generous reward points for travel with an added feature of unlimited airport lounge access when you are traveling. These reward points are flexible – you can even convert points directly to airline miles which dramatically increase the monetary value of the credit card points.
- Make it a priority with your money to travel. I’ve seen too many people put off travel for “retirement” – you don’t know what the future will hold. Travel while you can!
- Be financially responsible about it. Start with what you can afford and then plan your trip within those guardrails.
- Separate funds for your trip from funds for your day to day expenses. The simple act of separating bank accounts can dramatically help your behavior around money.
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