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Play the IRA Game Smart - When planning for your retirement it is always wise to do it in the right order so that you have the plan with the...

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Saving For a Vacation

Posted On: 2006-08-28
Length: 8:38

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Need a vacation from the daily grind? While money can't guarantee a stress-free getaway, worrying about it can definitely spoil one. So before you book your next great escape, take some steps to ensure that you won't be pinching pennies when you should be feeling like a million bucks. We'll discuss four strategies that may help you take that much-needed breather without breaking the bank in this Fidelity Personal Finance Podcast.

First, save. Like any savings goal, your vacation target will be easier to reach the sooner you start. Financial planners say it's a good idea to put a small amount of every paycheck into a separate savings account set up specifically for your vacation, if you're budget allows. Morris Armstrong, a fee-only financial planner in New Milford, Connecticut, says, "it's not unreasonable to think about setting aside five percent of your income for vacation, as long as you're saving at least ten percent of your income toward retirement, it's okay to save for short-term goals, like vacation." He's quick to add a caveat. "Don't neglect your retirement savings in the process. You should contribute the allowable maximum to your 401K if you can, or at the very least, make sure you try to take advantage of any employer match." So where should you put your vacation's savings? Well, that depends on how soon you think you'll need it. If it's for vacation this year or next, look for a solid money market fund. That's what Armstrong advises. They pay regular dividends, and they even allow you to write checks on the account. By the way, unlike most FDIC insured CDs and bank products, a money market fund's yield and return will vary. On the other hand, if you're saving for a dream vacation that's further down the road, you might consider more aggressive growth investments, which could potentially help your savings grow more quickly. But be careful. Risk and volatility usually go together. So you'll probably want to shift your vacation money into more stable investments as the time to pack your bags gets closer.

Second, match your destination to your situation. To put it another way, be realistic. There are plenty of great vacations out there and all types of price ranges for singles, couples and families. But everyone's situation is different, and you'll have to decide for yourself how much you can reasonably afford. For families there are lots of vacations you can take for $1500 to $2000, but not many you can take for less than that. That's according to Dorothy Jordan. She's author of the travel book series, "Great Vacations with Your Kids," and publisher of the Family Travel Times newsletter. Singles on the other hand, may be able to get away for less.

Next, match your budget with the kind of vacation you want. A tranquil getaway with a significant other, or a rollicking adventure with a group of friends? A family touring vacation, or maybe a chance to experience the freedom of relaxing or exploring on your own. Although the Internet has made it easier for people to plan and book vacations on their own, Jordan still suggests using a trusted travel agent. She says a travel professional can look at your situation and come up with some suggestions that you might never think of. And, opt for quality over...

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