How To Build a Travel Fund Without Hurting Your Long-Term Retirement Plan
Written by
John Csiszar
Edited by
Levi Leidy
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When it comes to saving money, a travel fund is something you want, while a retirement plan is something you need. But there’s no reason you can’t have both. It just takes careful planning.
The best way to do it? Prioritize your retirement savings but treat your travel fund like a regular, planned expense in your budget. That way, you can cover both costs responsibly. Here’s how to do it, along with suggestions as to how to stretch your dollars.
Your Retirement Comes First
Although travel may be more fun, your retirement has to always come first. At the end of the day, if you live a life full of travel but end up broke after you retire, you’ll have nothing but regrets in retirement. But if you automate contributions to your retirement plan first, you’ll find a way to build the rest of your budget around your travel expenses without having to worry about financial security after you stop working.
To ensure you hit your retirement savings goals, most financial advisors recommend setting aside at least 10% of your income, and ideally 15% to 20%. Remember, the more you save early on, the more time you have to let compound interest work its magic and boost the long-term value of your nest egg. If you’re fortunate enough to have a retirement plan with an employer match, at the very least max out your contributions to get the full amount of the match. If your employer matches 100% of the first 5% of your income, for example, be sure to contribute at least that 5%.
The best way to prevent life from getting in the way of your retirement contributions is to automate them. As every paycheck comes in, have your employer deduct money and deposit it directly into your retirement plan. If you don’t have an employer-sponsored plan but are instead contributing to an individual retirement account (IRA), for example, set up regular bank transfers so that money is automatically moved to your retirement account at least monthly.
Budget for Travel
Just like you can’t build a retirement nest egg without planning for it, you can’t accrue a travel fund unless you allocate money to it. But here’s the thing — a successful travel fund is one that is completely independent from all of your other spending buckets. This way, when it’s time to go on a trip, you won’t be dipping into your retirement account or emergency fund to pay for it.
Here’s how it works:
- Create a dedicated travel savings account outside your emergency and retirement accounts. A high-yield savings account is a good option for this.
- Treat contributions as recurring “payments” you have to make, just like you would for your rent, internet or power bill.
- Automate transfers each month or payday so you never “forget to save” or use that money for other purposes.
One slick budgeting trick to boost your travel fund more quickly is to use it as a catch-all for other discretionary expenses you don’t incur. For example, if you budget $100 per month for dining out but eat at home all month instead, you can divert that $100 into your travel fund.
View Spending in Terms of Opportunity Cost
All spending ends up being a choice. If you spend your money on one thing, that money can’t be used for anything else. If travel is really a priority for you, adopt this mindset whenever you spend money on something else.
For example, if you spend money on streaming subscriptions that you don’t really use, consider if you’d be happier if that money funded a vacation or two instead. Saving $50 per month on needless subscriptions adds up to $600 per year you could spend on travel instead.
Leverage Points and Miles
One way to stretch your travel fund is to be strategic about acquiring points and miles. Rewards credit cards can be a great help in this area, but only if you can use them responsibly. Any time you pay interest on credit card debt, it negates the value of your points and miles, so if you tend to carry balances, skip rewards cards entirely. But if you have the money to pay your bills, transferring your everyday spending on things like groceries and gasoline to a credit card can provide you with lots of rewards for purchases you would have made anyway.
Be Travel Savvy
You don’t have to become an obsessive travel hacker in order to score a deal on your travels. Just use common sense strategies that historically have saved travelers money.
Flexibility is a big key when it comes to getting cheaper prices. If you can fly midweek instead of on a weekend, for example, you can potentially save tens or even hundreds of dollars on your airfare, depending on the route. The same can be true if you can use an alternate airport, such as JFK instead of LaGuardia in New York (or vice versa).
Similarly, traveling during shoulder seasons instead of peak summer and holiday periods can also save you money on everything from airfare and hotels to cruises and rental cars.
The Bottom Line
With proper financial planning, saving for both travel and retirement needn’t be an “either/or” situation. Your retirement savings should always take priority, but by incorporating travel as a line item in your budget, you can build long-term financial security while still creating lifelong memories.
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