How To Take Your Dream Vacation Without Feeling Financial Guilt, According to Ramit Sethi
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Spring has sprung and with it, perhaps your thoughts of a vacation now or in the future. While you may not be able to afford your dream vacation yet, finance expert Ramit Sethi has big hopes for you, and a plan to help you get there.
In a recent TikTok video, Sethi said that even if you can afford your dream vacation now, he doesn’t want you to “shrink your dreams down.” In fact, he wants you to “dream big and then use your money to live that rich life.”
This might sound too good to be true, but Sethi wouldn’t tease you — he has a plan.
First Step: Guestimate the Total Cost
Sethi’s first recommended step: Take a ballpark guess of how much your dream vacation would cost. Not a high-level overview; get specific, he urged.
He wants travelers to think through every last detail closely, from what type of airline seat you want to where you want to go to how often and what kind of food you plan to eat each day.
Now Add 50%
Once you have a ballpark, you should spend no more than about 15 minutes googling prices, but don’t stop there, Sethi urged. “I want you to add 50% to that number to account for all kinds of phantom costs that you did not include. For example, 38% taxes on hotels, tipping meals, the taxi that you got to take because you missed the train,” he said.
Automate Your Savings
Once you have a solid idea of the actual cost of that trip to Disney World or the Italian coast, your next step is to set up your automatic savings every month toward that goal.
Sethi called this “easy math.” For example, if your trip is going to cost you $1,200 and you want to take it a year from now, your task is to automate $100 a month to go into a savings account that you call “my dream vacation,” he said.
This should remove guilt from some of the spending you want to do on your trip.
Follow Sethi’s Conscious Spending Plan
If you want more granular details on preparing your finances so you can easily save for a vacation, Sethi urged viewers to follow his conscious spending plan (CSP).
The CSP breaks your spending down into four main buckets:
- Fixed costs (50%-60%): These are your essential expenses such as housing, utilities, insurance and food. Sethi recommends adding a 15% buffer here for unexpected expenses.
- Investments (10%): This is the percentage you should put toward long-term financial growth, such as retirement accounts like 401(k) plans and Roth IRAs.
- Savings (5%-10%): These are funds you save for short-term goals and emergencies, aiming to have a buffer of three to six months’ worth of living expenses in a high-yield savings account.
- Guilt-free spending (20%-35%): Lastly, you should have a good amount left for discretionary funds for leisure activities such as dining out, shopping, hobbies or entertainment.
The secret to success is to automate as much of your finances as possible and track your progress, adjusting as needed.
By following this plan and adjusting your timeline accordingly, you should be on track to plan a truly memorable vacation.
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