When I had a full-time job, I often talked about my travel plans with co-workers who also loved to travel. I had a reputation for travelling to more exotic places such as Egypt, Japan, Brazil, and Instanbul. I wouldn’t go as far as calling these destinations exotic, my wife and I just weren’t interested in going to the Caribbean every which was the main interest for many people I knew.

During one of my conversations with my co-worker, I was telling him how we went to Istanbul, Budapest, Amsterdam, and Belgium one trip and his instant reaction was, wow, you travel so much, you must have spent 10 thousand dollars on the trip. I instantly laughed out loud and replied, my trip likely cost about the same as your all-inclusive trip to St. Maarten. He seemed a bit shocked but I explained to him that smart planning and a vacation fund and it allows me to travel anywhere.

What’s a vacation fund?

My wife and I love to travel so as soon as we combined our finances, we decided that we would set aside $325 each month that would be used strictly for vacations. That’s $325 per person, per month which adds up to $7,800 a year. That’s no small amount and that money could have been used for something else such as a down payment for a home. But again, travel was important to us and it was something we loved doing so we didn’t want to cheap out on it. I should note that we never changed this amount regardless of how much money we made, but now that we have a daughter, we may need to increase our monthly contributions. We kept this money in a high interest savings account with EQ Bank since it paid better rates than our traditional bank.

How having a budget allows us to travel anywhere

The idea behind a vacation fund is simple, by constantly contributing money every month, we’ll always have the funds available to take trips. We could take one giant trip that eats up the entire $7,800 or we can take a few small trips. As long as we don’t exceed what’s in the account, we’re good since we’d never go into debt for our trips. This strategy can be tricky as trip expenses tend to come in waves. E.g. one time our flights cost us $2,800 but then we didn’t have any additional expenses for months. Once, we had saved for about six months straight (where we had $3,900 in our accounts) things became pretty manageable as there was always cash in our vacation fund. 

Being smart with our travel dollars

Just because we have a budget of $7,800 a year for travel, that doesn’t mean we’re booking the fanciest hotels and eating at the most expensive places. We’re still smart with our travel dollars and try to make them stretch. For example, the Istanbul trip I was talking about was affordable because we quickly realized that ground costs in Istanbul weren’t that expensive. Budapest is even cheaper and we were able to fly there by taking a discount carrier from Istanbul’s smaller airport. Flying directly from Budapest to Amsterdam would have been expensive via KLM, but we saved about $900 by flying to Eindhoven and then taking the bus to get to Amsterdam. We were fortunate that we had family or friends in both Amsterdam and Belgium so our accommodations were free. That trip cost us about $4,000 so we had more than enough leftover in or budget to take another trip later that year.

Offsetting travel costs with points

Beyond having a vacation budget, using travel points is one of the best ways to reduce costs. Some people believe the best cash back credit cards in Canada offer you better rewards if you save the cash back earned, but that only applies to people who have no idea how to maximize their points. For example, many of the best travel credit cards in Canada come with a sign up bonus worth at least $250, but if you transfer your points to Aeroplan or other partners, you can get even more value. I recently claimed 45,000 Aeroplan points plus $600 in taxes for three flights to Boston. The regular cost of those flights for my dates would have been 5600 each so I saved $900. If you do the math, that works out to 2 cents per point which is worth double the accepted normal redemption rate of 1 cent per point. So how did I get 45,000 Aeroplan points? Well, there’s the American Express Platinum Card and the American Express Platinum Business card that gives you up to 60,000 or 75,000 points respectively when you meet the minimum spend so using your points for cheap travel is easier than you think.