By : Rubina Ahmed-Haq
Summer is only a few months away and many of you might be planning on taking a holiday to get some much needed R & R. But before you press “buy” on that expensive European holiday you have to decide if you can afford it. Here are some simple ways to figure out how much you spend this year.
The 4% rule
If you’re carrying a mortgage, line of credit or any other low interest loan I recommend spending 4% of your after tax income on vacations. Why? Unless you have no debt anymore, than any more spent on vacations will be eroding into your long-term savings. If you’re carrying ANY high interest debt like a credit card or store card loans, you must pay this off before you hit the road (or the beach) on a holiday.
Cash in the bank
Always pay cash for your holiday. NEVER charge your holiday on credit unless you have the money already in the bank. Remember following the 4% rule, if your household income is $50,000 your holiday budget is $2,000 annually. Want to spend more? Save longer. Make one year a staycation to afford a luxury holiday the following year.
Taking a break doesn’t need to cost you a fortune
It’s important to take a break and have some time to recharge. But if your bills are piling up, this is the year to use some of your vacation money to get out of debt. You can take a break without spending to much money. Road trip, previously mentioned staycation, visiting family and friends.
Stretch your holiday dollars
Booking a holiday out of country the prices are usually best around six weeks in advance. Check rates on line and call competing agents to see if they can beat it. Traveling midweek is cheaper for flights. Look for all-inclusive roulette holidays; these are ten preselected hotels at a certain star rating offered at a discounted price. Recently I stayed at a 4 star plus for $1054 taxes in. I would have paid twice that if I booked individually. The catch is you find out your hotel name 3 days prior. You pick the general area, i.e. Mayan, Cancun or Punta Cana.
Look at costs from all angles
It’s always wise to do through research before you go. Online review sites like tripadvisor.ca have made it easier to plan and prepare. Pay attention to details like, is the airport transfer included? Is there departure tax? What’s the average cost of eating out? For example I priced out a villa in St. Barts once at a reasonable rate, but later learned, through research, that the cost of groceries, transport to the island, restaurants was much higher than anywhere else in the Caribbean. Staying there was reasonable but everything else was too expensive.
When can you not afford to take a vacation?
By taking a close look at your finances you can decide if you can afford to get away this year. Generally your after tax income should be divided as follows.
- Housing 30%
- Savings 15% (10% pay yourself- 5% short term)
- Other Living Expenses 30%
- Debt servicing 10%
- Transportation 15%
Break this down and your mortgage and taxes should not cost more than 30% of your after tax income, transportation shouldn’t exceed 15% If you’re spending more than this amount, you might want to look at tackling your household debt before you spend money on getting away. That said you should still look at ways of taking a break from work, staying at home, visiting family or a short weekend away, all of this will make you feel good and not drain your finances.
Cheap Vacations Ideas
1. Book a night or weekend at a nearby hotel.
2. Check out local festivals.
3. Hit up the museums for a dose of culture.
4. Spend some time with the great outdoors.
5. Hit the beach with a pile of books to read.
6. Have a proper Girls or Boys night out on the town.
7. Live in the city? Get out of town to a local trail for an all day hike.
8. Visit social coupon sites to stack up on great deals to use during your staycation.
9. Take dance lessons.
10. Get a one-week pass at an ultra high-end gym.