The cost of travel: Budgeting for a trip

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I’m a bit of a late bloomer. I didn’t catch the travel bug until I was in my mid 20’s. I’m not sure why it took so long since my parents took me on trips when I was young, but at the time I was more interested in playing Tetris on my Nintendo Game Boy. Oddly enough, some of my best memories as a child was from trips so I’m glad I’ve now made travel a huge part of my life.

What’s interesting about travel is that many people think it’s expensive. A former co-worker assumed I was spending tens of thousands of dollars a year on travel but in reality, my trips cost about the same as his all-inclusive vacations. When it comes to travel, it really comes down to budgeting. Not everyone will have the same budget, but if you budget for your trips, it’s not that hard to see the world.

The most important thing to know is that budget travel doesn’t mean travelling for as cheap as possible. This “The cost of travel” series is more about being smart about your travel dollars. What I want you to realize is that you can travel on any budget. It doesn’t matter if you have $2,000 or $12,000 to spend, it’s really not that hard to stretch your budget.

Budgeting for a trip

Can you afford to travel?

This is the first question you should ask when budgeting for a trip. Vacations are a luxury and by no means a necessity. If you have any outstanding consumer debt, then you should probably rethink your travel plans. It makes no sense to take a trip if you’re currently carrying a balance on your credit card and paying 19.99%+ in interest. Even if you don’t have any debt, you should ask yourself if this money can be put towards something else more important such as your emergency fund or retirement savings. You might “need” a vacation, but it shouldn’t be your #1 priority.

Another trap people fall into is convincing themselves to travel because they found a really cheap airline ticket. Sure, you may have saved a few hundred dollars on that flight, but do you have the money to pay for all the other expenses related to your trip such as hotels, attraction tickets and meals?

Even though travel is part of my job, I often turn down opportunities because it doesn’t make financial sense.

How much to budget

Many guides will tell you to figure out how much you need for your trip so you can start saving, but I like to take a different approach. I personally recommend setting aside a fixed amount every month. By doing this, your vacation budget is built right into your monthly budget. 

For example, my family budgets $650 a month for vacations which works out to $7,800 annually. This allows us to visit almost anywhere we want as long as we’re willing to have some flexibility. Now, if you only have $2,000 – $3,000 to spend, your choices may be more limited. If you’re estimating that trip to Italy will cost you $5,000 but you have only $3,000, then obviously, you need to save more or consider a different destination. Keep in mind that this is a total budget for the year, so you can take one big trip or multiple shorter ones.

Creating a budget

It doesn’t matter where you’re travelling to these days it’s really not that hard to accurately estimate how much you’re going to spend as long as you’re realistic about it. The main things you need to budget for are as follows:

  • Transportation
  • Accommodation
  • Meals
  • Local transportation
  • Attractions
  • Shopping
  • Upfront costs (vaccinations, visas, luggage)

The general idea when budgeting for a trip is to consider all your costs. If you’ve never travelled before, it’s probably a good idea to budget extra since there will always be unexpected expenses that come up. The last thing you want is to miss out on an experience because you don’t have the money for it. Keep in mind that for every category you need to budget for, there are usually ways to save money. 

During your research, you may find out that a destination may be more expensive than you anticipated or more affordable than you had thought. This shouldn’t matter too much, but since you’ll have a better idea of how much things will cost you, you can plan accordingly.

It’s always a good idea to research a few different destinations at the same time just to see how much things will cost you. For example, a few years back, my wife and I were planning to go to Budapest, Vienna and Prague. During my research, I realized for the same cost of that trip to Europe, we could go to Jordan and Egypt instead. Seeing the Pyramids was always a bucket list thing to do for the both of us so we went there.

Starting to save

Once you have all your costs down you can start saving towards that goal based on your timeline. For example, if you’re estimating that a trip to Thailand will cost you $6,300 and you want to depart in 9 months, then you need to save $700 a month ($700 X 9 months = $6,300). If you’ve determined that this savings goal is a bit too hard, you need to adjust your travel plans or timeline accordingly.

With that savings goal in mind, you can now start saving. How you come up with that money is entirely up to you. Personally, I cut out excessive spending a long time ago so I would have more money to travel. I’ve also heard of people who will work more hours or pick up another job just to save more money for travel. This might sound a bit extreme, but it’s a lot better than putting your travel expenses on your credit card and paying interest later.

In my opinion, you should separate your vacation budget into an individual savings account so that money is always set aside. With a separate account, you can set up automatic transfers so your vacation budget is always growing. Psychologically, you’ll also be less tempted to spend your vacation fund on other things since you’ll be taking money away from your travel dreams.

The best place to put your vacation savings is in a high-interest savings account (HISA) with a digital bank. This benefits you because digital banks don’t charge monthly fees and have no minimum balance requirements like traditional banks do. They also pay you a decent amount of interest hence the name high-interest savings accounts. If you’re Canadian, the two following banks are who I recommend.

EQ Bank

  • 2.00%* everyday interest rate
  • No monthly fees
  • Unlimited day-to-day transactions
  • No minimum balance required
  • Unlimited free Interac e-transfers®

EQ Bank is the digital bank I use for all my savings goals because they consistently have a high-interest rate. They allow you to create multiple accounts within your main account so you can use them for other goals that you may have too. Opening an account only takes a few minutes so do it now and start saving.

Check out other parts of the series below

Part 1: Budgeting for a trip
Part 2How to pick a vacation destination
Part 3How to find cheap flights
Part 4: How to save money on hotels
Part 5: How to eat cheap when travelling
Part 6The best way to exchange money
Part 7: The basics of travel insurance
Part 8: Sticking to your travel budget

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

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  1. […] out other parts of the series belowPart 1: Budgeting for a tripPart 2: How to pick a vacation destinationPart 3: How to find cheap […]

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