If you’re planning a vacation, it’s important to have a travel budget to go along with it. The task to create a travel budget can be daunting, especially if you don’t have one for your everyday life.
But let’s face it, it’s normal for your spending inhibitions to decrease a little while you’re on vacation. The circumstances are special, and it’s easy to justify splurging a little with the hotel room, upgrading your flight, or spending more money eating out than you normally would.
The thing is, there’s nothing inherently wrong with any of those things. I love splurging when I’m on vacation because I don’t do it very often when I’m home. But the key is that the splurges are somewhat planned so you don’t end up in debt.
How to create a travel budget in 5 steps
When you create a travel budget, you’ll have more control over how much you can spend in each area of your vacation. Here’s how to do it.
1. Determine your total budget
Before you start planning how much you can spend on the flight, the hotel, the cruise, or whatever else you have planned, you need to know how much you can afford for the entire trip. It’s never a good idea to go into debt for a vacation, so take a look at what you have saved, as well as what you can save between now and when you have to start booking.
Then come up with a number that you can reasonably afford without neglecting other important financial goals like saving for emergencies or retirement.
Because every situation is different, this process is very subjective. Only you know how much is reasonable and it’s important to be honest with yourself. A luxurious trip can be incredible, but not when it’s at the expense of your financial security.
2. Do your research
In my mind, the ultimate goal of creating a travel budget is to get as much value out of the experience as you can for as little money as possible. That doesn’t mean sticking with motels or hostels — the value of staying in a nice hotel can be worth the extra money for some people (i.e., me).
It does, however, mean that you should do your due diligence to get the same (or a better) experience for less.
For example, I once booked a rental car for a four-day trip to Winter Park, Colorado. I used Expedia and found one for $113, which is more than reasonable. Because of that fact, I didn’t do any more research and went ahead and booked it.
A couple of days later, though, I remembered that Costco Travel often has good discounts. So I went to the website and checked the same dates and car type — and what do you know? It was $40 cheaper, and it was from a more reputable car-rental company.
What I’m trying to say is that whether it’s a flight, a hotel, a rental car, or whatever else, don’t take the first good offer you see unless you know without a doubt that it’s the best offer you’ll get. I’m talking $300 flights from New York to Berlin.
Do your research. Figure out if you can save by visiting a similar destination or by flying into a nearby city. Find out if you can book a flight or hotel for free using credit card rewards instead of paying out of pocket. This step can take a long time, but it’s worth it.
3. Price out every facet of your trip
On the surface, this step may sound easy. But things can get complicated really quickly if you’re not careful. Here are the main factors I recommend budgeting for:
- Main transportation: Flight tickets, train tickets, or gas in your car for a road trip.
- Other transportation: Rental car, public transportation, ridesharing, ferries, or taxis.
- Accommodations: Hotel, Airbnb, hostel, motel, or Couchsurfing (which is free!).
- Food: Groceries, eating out, snacks (don’t forget alcohol with this one).
- Activities: Anything you plan to do while you’re at your destination that isn’t free.
- Odds and ends: International phone charges, ATM fees, travel insurance, internet charges, tips, airport parking, checked bag fees, souvenirs, etc.
- Buffer: Unplanned activities, and the potential of going over budget in some other area.
The more detailed you can get with your budget, the better. But don’t be so rigid that you limit yourself unnecessarily. Also, keep a few hundred dollars buffer just in case things don’t go as planned or you want a little more flexibility.
4. Make trade-offs
Because you have a total budget amount, it’s possible that you’ll need to cut certain things to make sure you don’t exceed it. In this step, you’ll take a look at your detailed budget and determine where you can cut back or make some trade-offs.
For example, maybe you’d be willing to stay in a three-star hotel instead of a four-star property so you can fly first class. Or perhaps you’ll choose to drive instead of fly, so you can spend more on activities while you’re there.
Having to give up one thing in favor of another isn’t ideal. But unless you’re independently wealthy and you don’t have a spending limit, this way will give you a much better overall experience.
5. Keep track of your spending
Creating a travel budget is really only half the battle. As you starting booking for your trip and actually leave, it’s essential that you keep track of your spending to make sure it matches your budget.
I doubt it’s anyone’s idea of fun to budget on vacation. But if you just create a budget and leave it at home, you’ll be more at risk of overspending. This step is all about accountability, so make sure you’re accountable to yourself and your budget.
And hey, if you manage to stay under budget, you can put the remainder toward your next trip.
The bottom line
Doing the math to create a travel budget may be a new experience for some, and it may be agonizing to others. But it’s an essential habit to develop if you want to make regular travel a part of your life.
The important things are that you be thorough with your research and planning, and to stick to what you decide. In my experience, doing these things always makes for a better overall experience.