How to Plan for Your Annual Vacation Goal?

Do you enjoy short trips on long weekends during the year? Whatever your vacation choice, a family vacation to an exotic location can drag down your finances if you don't plan for it well in advance. In this article, we will discuss how to plan for an annual vacation as a short-term financial goal.

Goal Planning: Annual Family Vacation

Vacations can be an excellent time for all family members to relax, rejuvenate, and return refreshed to daily routine activities. You and your spouse can get a break from official work and house routine activities, and children can get a break from their studies. Let's see how you plan an annual family vacation without breaking the bank.

While discussing your financial planning with your investment advisor, add the annual family vacation as one of your financial goals. As the domestic vacation has to be enjoyed every year, it will be included as a short-term financial goal. If you have to do an international vacation at an exotic location, say, once in five years, you may include it as a medium-term financial goal. An SIP or a Systematic Investment Plan in a hybrid fund would be an ideal investment for achieving your vacation goal falling within 3 to 5 years. If you start saving today, your next international vacation would become a breeze.

Budgeting for the Vacation

Once you have included the vacation as a financial goal, let us see how you should plan it. The first step is to prepare a budget for the vacation. The various expenses that you will need to consider include:

1) Travel

It includes travel tickets like flight tickets, train tickets, bus tickets, etc. If you plan to drive down, it will include the fuel expenses. Once you have finalised the vacation destination, check the mode of transport that you would like to take and accordingly find out the travel cost to include it in your vacation budget.

If you are plan to take a flight, it will make sense to book well in advance when the tickets are cheaper. Airlines or Online Travel Aggregators (OTAs) run sale offers from time to time. You can book during a sale to avail tickets at lower prices. You can also apply credit card discounts to lower your costs further.

If you plan to travel by train, you must book a few months in advance as ticket availability may be a challenge later.

2) Hotel Accommodation

Like travel tickets, you may book the hotel accommodation in advance to take benefit of the low prices. Most hotels follow a dynamic pricing model wherein as the overall hotel occupancy goes higher, the prices increase. Finalise the hotel where you would prefer to stay, check the cost, and include it in your vacation budget.

If you prefer a specific hotel chain, consider joining their loyalty programs to get member benefits. In India, hotel chains like Marriott, Accor, ITC, IHCL, etc., offer loyalty programs. The member benefits usually depend on your membership tier like base, silver, gold, etc. Some of the member benefits include discounts on room rates, early check-in, late check-out, complimentary breakfast, complimentary lounge access, room upgrades, reward points, etc. The higher the membership tier, the higher the member benefits.

3) Food

After travel tickets and hotel accommodation, food is usually the next big expense item. Some hotel loyalty programs provide discounts to members on food. You can include meals while booking your hotel accommodation. If you include meals as part of your package, you will have an idea about the cost and can include it in your vacation budget. Consider dining discount programs like EazyDiner, Dine Out, etc. to avail discounts on meals.

4) Sightseeing 

Based on your itinerary, if you plan to visit any museum, amusement park, water park, safari, monument, palace, adventure sports, etc., consider the entry fee/cost of these activities and include it in your vacation budget. Also include the intra-city and inter-city travel costs if you plan to travel to multiple cities.

5) Shopping

If you have a shopping list, make a provision for it in your budget. If you plan to get gifts/mementos for family, friends, etc., make a provision.

6) Miscellaneous Expenses

If you have any other expenses, add them to the budget. It is always better to keep a 10-20% buffer for any other unplanned expenses that may crop up.

7) International Vacation

If you are planning an international vacation, you will need to factor in the Visa costs. You will also need to arrange for a forex card from a bank.

Building the Vacation Fund

Now that you have made the vacation budget, you must sit with your financial advisor to make a financial plan for building the vacation fund. If you are planning for domestic annual vacations, it will be a short-term goal. The investment options can include debt mutual funds, bank recurring deposits, etc. If you are planning for an international vacation in the next 3-5 years, it will be a medium-term goal. The investment options can include debt funds, hybrid funds, etc.

The financial advisor will recommend the appropriate financial products depending on the investment time horizon. You can start investing in them every month. For short term annual goals, you can review them once every six months with the financial advisor.

Once the vacation fund is ready, you can use it to enjoy your family vacation. For making advance bookings like tickets, hotel accommodation, etc., you may use the money from the fund while you are building it. If the money is not sufficient, you may use money from your regular expenses. However, make it a point to transfer money for these expenses from your vacation fund when it has the required amount.

Comparing Actuals With Budget

Once you return from your vacation with lifelong memories, you should do a short exercise to improvise your planning for future vacations. You should compare the trip’s actual expenses with what you had budgeted for.

If your actual expenses were less than budgeted, it is good that you saved some money. But, if the actual expenses were more than budgeted, you need to analyse whether you underestimated certain expenses or you actually overspent. The analysis will help you plan your future trips better with a fair degree of financial accuracy. Better budgeting will help you enjoy guilt-free vacations.

Why Should You Have a Vacation Fund?

If you prefer to take vacations every year rather than once every few years, having an annual vacation fund makes sense. It helps you to enjoy your planned vacations every year. It helps you avoid funding your vacation from your emergency fund, diverting money meant for other financial goals, or taking a loan.

Make Vacation Fund a Part of Financial Planning and Enjoy Annual Vacations

While you may aspire to enjoy a family vacation yearly, you should refrain from funding it from your regular income. It may lead to diverting funds meant for your other priority goals. Also, if sufficient funds are not available, you may have to compromise by planning a shorter vacation or a cheaper destination.

However, when you make the vacation fund a part of your financial planning, you will always have the required funds specifically for enjoying the annual vacation without making any compromises. So, plan your yearly family vacation fund and enjoy that much-needed annual break. Relax, rejuvenate, and come back refreshed to your routine life.