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Monday, May 21, 2012

How do you save for vacations?

Many years ago, there was this account you could set up at the bank called the Christmas club account.  These accounts began shortly after the turn of the last century, but really took off in popularity during the Great Depression.  The premise was that you would open the account just after the first of the year, make weekly deposits, and then around the 1st of December, you would withdraw your accumulated savings for gifts and celebration.

Christmas club accounts had some drawbacks, such as low interest rates, early withdrawal penalties, and fees, fees, fees (you think the bank is nickel and diming you today? it was bad then too). But overall, this was a very good idea. Save throughout the year, so that you will have the cash upfront for your expenditures.

We use this budgeted savings technique to pay for our vacations.  In our monthly budget, there is a line item for vacations.  As soon as we get home from the last vacation, we begin saving for the next.  We have a general idea of when we will want our next vacation, and a general idea of how much it will cost (we're talking ballpark estimate).  We divide the total dollar amount to save, by the time remaining until this vacation, and that gives us the figure to work into the monthly budgets (the same amount each month). In actuality, its all rolled into our main savings account, but on paper, I know just how much we have at any given time.

I add extra, when we have mini windfalls.  I get a rebate, it goes into the vacation fund.  I get paid for a survey, it goes into the fund.  We spend less than budgeted on gifts or supplies for a particular holiday (we were way under budget on Easter this year, in part because I made most of the basket stuffers), that goes into the fund.

As we begin to firm up our plans with reservations, I get a clearer picture of how much it will cost. I sometimes make adjustments to the dollar amount we're setting aside each month.  But most of the time we rework our plans.  We may postpone our trip for a month or two. Instead of a 7 day vacation, we reduce it to 5. We might decide we'll eat out just a couple of times, and find a grocery store to pick up supplies most days. We may swap out 1 or 2 days of expensive amusements for free sightseeing. (Example -- On our most recent trip to Disneyland, we decided not to go into the parks every day we were there.  We bought park tickets for 1 day less, and had time to enjoy the hotel's pool, and wander around town.)  When we can fit our plans into our savings, then we know we have a trip.

Every last bit of the trip is paid or saved for before we leave town -- no surprise Visa bills a month after the vacation. And we generally have a surplus from each vacation. This gets rolled over into the fund for the next.

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