Tips for Creating a Vacation Fund

Summer is almost here and everyone seems to have vacation on their minds. We often get questions about paying for travel; a typical one is: “How much can I afford to spend?” So today we’ll provide you with some helpful tips on how to create a vacation fund that fits easily into your budget. That way you can enjoy vacation without feeling guilty about the expense.

A good first step for creating a vacation fund is to determine how much you feel comfortable spending. Start by recording all of your monthly income sources; some examples are salaries, child support, pensions, investment income, and annual gifts. Be sure to add everything up so that you know how much money is coming in every month.

After you know how much is coming in, you should review and record all of your household expenses. The goal is to gain a firm understanding of where your money is spent. Start by tracking your expenses for at least one full month. It is usually easiest to start by recording your fixed expenses such as mortgage, car, and retirement savings. After you have recorded these fixed costs–for your needs–then identify the costs for things you want, your discretionary items such as clothing, walking around money (WAM), and travel. Write down all of your discretionary expenses. Now you are ready to give careful thought to how much money you are comfortable allocating toward vacation.

Recording your income and spending is a key to success because simply assuming you know the financial details leaves a lot of room for miscalculation. And miscalculation leads to budgets that do not work. Another benefit of tracking your income and expenses is the sense of control you feel when you know where your money is going.

We encourage you give it a try for a month or two. Here is a great spreadsheet  to use or you may prefer an online budget system like www.mint.com.

Now you are ready for the second step: Set money aside and earmark it for your vacation. This step is important because it provides you with peace of mind, knowing that your money is there and available before you head out of town.

Everyone has a slightly different approach to this. Here are four examples:

  1. Inheritors often set aside a portion of the income produced by their investment portfolio as their vacation fund.
  2. Business owners tend to earmark a portion of their business profit or bonus to fund their vacation plans.
  3. Executives may decide to set aside a portion of their annual bonus or utilize a portion of their exercisable stock options to create a fund for travel.
  4. Retirees commonly establish a separate account for their social security income and earmark a portion or 100% toward travel.

To recap, start by recording the details of your income and expenses. Then select the way you prefer to earmark money for travel. The sooner you begin the sooner you may feel peace of mind, knowing the money you need is already saved.

To start a conversation- contact us today.  We look forward to helping you.

Inheriting Money is Complicated

When we realize that we have inherited money, most of us have the thought, “Wow, I want to make sure that I am responsible with this money but I have no idea what to do!”

A good first step is to determine the answer to the following question: “What do I want this money to do for me?” There is no right or wrong answer to this question and the answer will be slightly different for everyone.  For example, our client Mary contacted us upon inheriting money from her father.  She wanted to be sure that she was being responsible with this money and for the first time in her life to feel financially literate.

After some careful thought and discussion, it was clear that Mary wanted her inheritance to help her accomplish 3 primary goals:

  1. Provide her family with some income now. Mary wanted to take a step back from her current career and pursue her dream of entering a different field.
  2. Grow her money for retirement. It was very important to Mary that she and her husband would have financial security throughout their lifetimes.
  3. Pass money along to her daughter. Ideally Mary wanted to be able to keep the principal intact so that she could leave a legacy.

As you can see, Mary had important goals that she wanted to address with her inheritance. She was not sure how or if she could obtain these goals, which leads us to the next important point.

After you have determined your priorities, the second step is to decide how your money should be invested. Keep in mind that investments are really just tools to help you accomplish everything that is important to you; this is why you need to start by determining your goals.

Many times people who inherit from a family member (especially a parent) think their money should be invested the same way that their parent chose to invest. This may not be a good idea primarily because your investment portfolio should be designed to fit you.  Your financial picture is likely different from the person from whom you inherited the money.

For instance, when Mary first walked into our office she thought that all of her money should be invested in municipal bonds and Exxon stock because that was how her father had invested his money. After some education, Mary came to the realization that because her financial life and priorities were different from her father’s, her investment portfolio should also be different.

As you can see, inheriting money is complicated. If you find yourself having a difficult time making decisions you may be inadvertently trying to please or adhere to the philosophy of someone else.  My suggestion is to give yourself permission to let go of the past and confidently seek the advice you need.  If you are ready to seek the advice you need, contact us today.