Make the Most of Your Vacations: Save for Travel, Not a Vacation Home

 

A vacation home works for some people and can provide a lot of benefits. It’s wonderful to have your own place to escape to when you’re ready to relax and unwind. And if you make good decisions about where and what you buy — and get a little lucky in the process — a second home can be an asset.

 

But the key point? It works for some people and certainly not all. In fact, for most people saving for travel instead of a vacation home makes much more financial sense. It also ends up better for you in the long run regarding happiness and enjoyment.

 

That being said, it’s well worth understanding how to make the most of your vacations, you’re better off saving your money for trips, experiences, and various destinations — not a second home.

 

Vacations Are Fun and Games — Vacation Homes? Not So Much

 

Buying a vacation home often makes you a second-home owner. With homeownership usually comes with a second mortgage, property taxes, insurance, the responsibility for repairs, managing a property that may be far away, potentially managing renters (or paying someone to manage that process for you), and so on.

 

In other words, it may sound fun and exciting. But don’t get swept away thinking about all the benefits. Vacation homes come with all the downsides — and potentially even more — of any property you own, pay for, and are responsible for taking care of throughout the year.

 

Add in handling those responsibilities over distances, and a vacation home is often a fast-track to frustration (and a lot of work, to boot!).

 

Make the Most of Your Vacations by Maintaining Your Freedom to Choose

 

Those downsides don’t even account for the fact that owning a vacation home tends to mean you’re locked into the same vacation year after year. Again, that might be fine for some folks — but for most people, the freedom and flexibility to vacation in various places and explore new things is worth a lot.

 

You may remain stuck with one type of vacation for as long as you own your home. And even if you’re not, that begs the question: why bother with the vacation home in the first place? Keep the freedom and spend that money on taking dream vacations wherever you choose to go.

 

The Benefits of Saving for Travel

 

Still not convinced? Consider these reasons you should save for travel instead of plunking your money down in another property that you’ll only use a few weeks (at most!) out of the year. You’ll get:

 

  1. The opportunity to explore and visit more places.
  2. The option to take different kinds of vacations (cruise, beach house, camping, etc.).
  3. Increased flexibility (where you go, when you go, how long you go, how many people go, etc.).
  4. The ability to budget for “that one big trip” you’ve always dreamed of (maybe three weeks in Southeast Asia, or a month in Europe) by spending less on travel in the year or two leading up to the trip (such as a camping and hiking trip at a national park).
  5. Fewer unexpected expenses, since you don’t have to worry about vacation home repairs, furniture, the air conditioning going out…
  6. The freedom to follow the deals and to pick vacations based on deals you find online, without being locked into any one place.
  7. Simplify your life with greater peace of mind.

 

Travel Can Keep Your Other Wealth-Building Goals on Track, Too

 

Traveling, as opposed to a vacation home, can keep your other financial goals on track because you can spend significantly less on travel (even luxury travel) than you would buying and maintaining a property. Travel gives you more flexibility in how you use your money, even to the point of choosing not to travel.

 

As your life circumstances change — you suffer an injury or illness, get married, have kids, take care of an elderly parent — travel may not be the right fit for a few years. And that’s okay. You can save your money and explore places closer to home while you need to prioritize other things in life.

 

While you can choose how and when you travel, you can’t choose to not pay your mortgage on your vacation home if another savings goal or family need becomes a priority that year. When purchasing a vacation home, you lock yourself into those expenses year after year — even when your goals, financial situation, and interests change.

 

What to Think About If You’re Set on a Vacation Property

 

If you do choose to forge ahead with a vacation home, here are just a few points you’ll want to keep in mind:

 

  1. Make sure you know the neighborhood and surrounding area. Is it a place you are going to want to visit for the next 30 years or more (assuming a 30-year mortgage)?
  2. Are you going to have renters? Keep in mind that you have to a rent a vacation property for large chunks of the time if you want to receive the tax benefits. This usually means making the most popular weeks available to renters — not your family.
  3. Renting a vacation home often requires hiring a management company, or managing it yourself. It also means more wear and tear on the furniture and property. Account for this when you look to see if your budget can handle a second home.
  4. A vacation home is more than the price of the home. It needs to be furnished, maintained, repaired, and insured (and often vacation homes are in costly areas, such as a beach house on the water). Again, account for these expenses when you consider the financial aspects.

 

There are so many benefits to saving for travel rather than tying money up in another property. Remember, you can’t buy your freedom – and a vacation home certainly takes some of that away.

 

At the very least, if your heart is set on a vacation home, do a lot of research, planning, and consideration before jumping in feet first. Understand all the pros, and more importantly, all the cons before committing. A vacation home may make sense if you fully understand the consequences and downsides and feel those sacrifices are worthwhile.

Whichever way you choose to enjoy the money you use for vacations and other fun experiences, make sure it aligns with what’s important to you and your values.

Budgeting for Coffee Sucks, Try This Instead

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Trying to cut back on your spending gets tedious when you focus on minute details. Yes, it’s important to track every dollar — but to feel anxious about spending on small purchases that you value because you’re trying to save more and spend less? That can quickly lead to budget burnout.

 

Preparing for and responsibly purchasing big-ticket items (from a laptop to a car to a house) is much more important than counting every last penny. Think about it. Does it make sense to stress over buying a coffee or spending an extra $1.99 to add guacamole but to have zero plan when it comes to major purchases?

 

Quite frankly, budgeting for coffee sucks — and it’s not worth your time or effort to pour your energy into everyday items instead of looking at the big picture and failing to prepare for big expenses.

 

You want to make responsible decisions on the big stuff. A few coffees won’t break the bank and deserve a place in your budget if your daily latte is truly important to you.

 

But buying “too much car” or “too much house”? That’s where you can run into major financial trouble.

Cutting Out Lattes Just Doesn’t Cut It

Focusing on small expenses, like your coffee fix doesn’t do much to impact your budget, cash flow, and ability to save and invest if you fail to examine your larger purchases.

 

If you spend $5 every single day of the year on coffee, you will spend $1,825 throughout the year. Now, that’s no small number. But perhaps all you need to do is cut your coffee consumption by half. You still get to enjoy your latte multiple times per week while also saving $912.50 per year.

 

Compare that to obsessing over the tiny costs and nickel and diming yourself. You’d save some more. But you’d also likely be stressed out and less happy. And the bigger issue? You might exhaust your decision-making power by constantly denying yourself a small pleasure.

 

You need that financial willpower more when it comes to big depreciating things, like cars and boats, etc. Let’s image you purchase a car today and lock into monthly payments of $250 for five years. That means you give up more control in the future on what you can afford to buy(and how much you can save and invest) because the $250 is already accounted for, every month, for five years. All in, that’s $3,000 a year and $15,000 over five years!

 

It’s a much more dramatic impact than budgeting for coffee.

 

The Impact of Big Expenses on Your Budget Over Time

 

Take this one step further. Say you spring for the extra fancy model of the car. If your monthly payments were $500 for five years because you financed a more expensive car, that’s $30,000 worth of cash that you devote to this one expense.

 

That’s the other thing about budgeting for coffee: you can change your mind anytime about how much you’re comfortable spending on those little things. Big purchases that you pay for over time? Not so much. You commit your future budget to being limited for years.

 

If you took that same (lower) car payment of $250 and invested it instead every month over five years, you would have about $17,000 assuming a 5% rate of return. Leave that money alone for 30 more years until retirement, and at 5%, you’ll have $73,500.

 

It’s important to think bigger and look at big-ticket items that can drain your cash flow for years to come. While cutting things like a daily latte can help you reduce costs, prioritize preparing for bigger purchases first and don’t set yourself up for failure by depriving yourself small pleasures like coffee from your favorite cafe a few times a week.

 

Instead of Budgeting for Coffee, Create a Big-Picture Plan

 

Try this relatively simple process to review your big-picture budget without getting into all the details of every single purchase:

 

Take your last pay stub and find the net amount (after taxes and deductions for your retirement account, health insurance, life insurance, etc.).

If you’re paid once a month, the net amount on your last pay stub is what you want. If you’re paid twice a month, multiply the number by two. This is your net monthly income.

List every single fixed expense you have and how much each one costs you, on a monthly basis. These expenses may include your mortgage, utilities, insurance, other debts to repay, taxes, etc.

Add up the monthly cost of each fixed expense.

Subtract the total amount you spend on fixed expenses in #4 from the net amount you earn each month from #2.

The difference is the amount you have to spend each month on everything else, including savings.

 

The best way to increase your discretionary spending (and more importantly, your ability to save), is to knock off or reduce some of the fixed expenses.

 

This may mean spending a couple of hours shopping for cheaper car insurance. Or, if you’re spending more than you earn each month, it may mean a change as drastic as moving to a less expensive place to live.

 

Here’s an example:

 

Net monthly income = $6,000

Fixed expenses = $4,000

Difference = $2,000

 

That $2,000 has to cover all your food, gas, entertainment, gifts, shopping trips, everything for the month. That includes savings and other investments outside what you automatically contribute to retirement from your paycheck.

If it’s not enough, look at your large recurring expenses and see what you can cut. You may need to sell the expensive car and get a cheaper one. You may need to reconsider major luxuries in your lifestyle that seriously drain your budget of cash to put on things that are ultimately more important to you — like being able to travel, save for a big goal, or retire sooner to spend more time with your family.