How to Budget for Your Dream Vacation

Time To Read 3 MIN READ

Three simple steps go into building a budget. First, figure out how much money you have coming in. Second, figure out how you're spending it. Once you know this, you can do the third step – adjusting what you're spending to free up money for other goals.

For instance, if you have $3,500 coming in every month, and you pay a $900 mortgage payment, $300 in utilities and $500 for insurance and car payments, you have $1,800 left over. You can drill down from the $1,800 and figure out where it goes, too. Eventually, you'll have a detailed list of everywhere your money goes.

Finding the Money: Spending

There are two ways to find money to budget for a dream vacation. The first is to spend the money that you have coming in differently. For example, if your monthly budget shows that you're spending $250 a month on coffee and lunches at work, grab a cup of coffee at home on your way out and pack a lunch. That'll easily free up $150, even after the cost of making your own lunch. If you spend $100 a month for every movie channel and DVR service, drop your cable back to local TV-only service or buy an antenna, and get a Netflix or Hulu Plus subscription for additional content – the combination could save you $60 to $80 per month.

Finding the Money: Income

The other way to boost your vacation budget is to find money without cutting your actual spending. One way to do this is to boost the size of your paycheck. “If you get a big tax refund, it means you're letting the government take too much tax from you every two weeks. Have your employer fix your withholding to reduce your refund,” suggests Janiga. Look around your house, as well. If you have belongings that you no longer use, sell them through a consignment store, yard sale or online to turn them into vacation money. You'll get a less cluttered house as a part of the bargain, too.

Setting Money Aside

As you build up money, there are two way to set it aside for your vacation. One option is to use it to make payments on a future vacation through a prepayment or layaway plan. This has the benefit of locking in the price and destination. However, you're also locking in a company, an amount that you have to spend and a place you'll have to go. If things change, or the company goes bankrupt, you could end up either stuck going on a trip you don't want to take or losing your money.

Stretching Vacation Dollars

If you can make your vacation more affordable, it becomes easier to build a budget for it. Making your vacation less expensive doesn't have to mean going somewhere different or trading a luxury resort for a motel by the airport. You could move your travel dates to go during a less expensive time of the year that still offers good weather, reducing your airfare and your hotel rates. Consider eating breakfast in your room or making less-expensive lunch your big meal of the day instead of dinner. Take the community's public transit instead of renting a car and paying for hotel parking – you'll get to see more of where you're traveling and save money. After all, what's a trip to New York or London without a ride on the subway? Look for hotels that are locally owned rather than affiliated with international chains – frequently, the locals offer similar quality and more local flavor but are less expensive since they don't have to pay the overhead of maintaining a brand affiliation.