There always seems to be the opportunity for a vacation: spring break, summer vacations, Thanksgiving, Christmas. Planning your next vacation should be something you do months in advance to avoid vacation-induced credit card debt. Total credit card debt in the United States has hit $1.13 trillion, and nearly half of those in credit card debt have said that paying for a vacation has contributed to being in credit card debt.
Credit card debt does not help a marriage. Researchers report that debt can result in significant psychological distress, which can lead to anxiety, depression, and helplessness.
To avoid the unnecessary stress of credit card debt, set up a vacation spending plan now and work toward paying in cash. Here are three strategies you and your spouse can employ to pay cash for your next vacation.
1. Establish a SMART vacation savings goal
S: [Specific] Goals must be clearly defined.
M: [Measurable] Measurable goals offer clear metrics for measuring success.
A: [Attainable] Make sure your goals are achievable before setting them.
R: [Realistic] Having realistic or relevant goals keeps your financial picture in perspective.
T: [Time-bound] Time-bound goals have a deadline.
When setting your SMART Goal:
Do the math. Save enough per pay period to reach your savings goal.
Communicate. You and your partner need to discuss who will be saving, how much, and to what account.
Do not over save. If you do, you’ll need to dip into savings more frequently and run the risk of checking account overdraft fees.
2. Stick to a budget – use financial windfalls for vacations
A financial windfall is when you receive a large, often unexpected, amount of money. Common financial windfalls include:
Tax refunds
Profit from the sale of a home or other property.
An employee bonus.
Inheritance of money or property.
Exercising stock options.
The payout from a lawsuit.
3. Create, name, and automate into a savings account
1. Open a savings account solely dedicated for vacation savings. You want to create obstacles to easily moving money in and out of your checking account, so the account should be at a bank or credit union separate from where you do your daily banking.
My wife and I used the Raisin tool to select our emergency savings accounts because the money is safe and protected, and we could not find higher interest rates anywhere.
2. Name your savings account after your future vacation destination!
3. Automate savings. Either split your paycheck into different accounts, including your vacation savings account or schedule automatic transfers from checking to savings.
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