- Home
- Blog
I love to travel. If you don’t believe me, check my passport. I’ve been to 8 different countries in the past 90 days. So, I get it. I understand the need to just pack your bag and fly away.
But I also understand finances. I understand debt. And I understand the trade-offs between current desires and long-term needs. Unfortunately, it seems like not a lot of Americans do.
What Americans Spend On Travel
The average American spends about 10% of their income on travel, according to the 2017 LearnVest Money Habits and Confessions Survey. In fact, a quarter of people spend 15% or more of their income on travel. AARP Research found that last year, Baby Boomers were planning on taking a total of four to five trips for a total cost of about $6,400. (1) It isn’t any wonder since the Consumer Expenditure Survey found that those nearing retirement spent four times as much on travel as young people under 25. (2)
The average domestic trip costs about $144 per day while international trips come to about $271 per day. The major expense associated with travel and vacations is transportation. About 44% of travel funds are spent on getting to, from, and around your vacation destination. (3) Travel definitely isn’t cheap, but that doesn’t seem to be stopping many people from doing it.
What Travel Is Really Costing Us
The cost of travel probably should stop some of us, though. The LearnVest survey found that 74% of Americans have gone into debt to pay for a vacation, with the debt averaging $1,108. (4) Whether you think that sounds like a little or a lot, that vacation is actually costing them much more than it appears.
That’s because there is an opportunity cost involved. Let’s say a 30-year-old goes on the average 12-night international trip that costs $3,250. They put $1,100 on a credit card at 16% interest and pay the minimum $25 monthly payment. In the end, the trip costs $2,150 in cash and $1,675 in credit card payments ($575 in interest) for a grand total of $3,825. But that’s just the cost.
What if that money had been invested for retirement? If invested in the stock market earning 8% interest, that one vacation would be worth $56,553 at age 65. How many international trips would they be able to take with that money then?
You see, travel is expensive. Not planning ahead and paying for travel with debt is even more expensive. And spending all your money on travel instead of planning for the future costs a whole lot more down the road.
How To Budget For Travel
You can be financially responsible and still travel. You just have to plan for it. First, you need to make sure that your current wanderlust isn’t bankrupting your future. Make sure you’re setting enough aside for retirement and other big goals, like purchasing a house or funding a college education. As we saw above, a two-week vacation at age 30 could be worth over $50,000 at age 65. I usually recommend that my clients save at least 15% of their income toward retirement in order to provide for a secure future.
Once you’re funding your long-term goals, you can start planning your vacations. The key, though, is to plan. Over half of Americans (55%) fail to include travel in their annual budget even though they do it regularly. (5) If you eagerly pull out your credit card every time there is a fare sale, you will end up in debt and with regrets. Once you pay the interest on your purchase, the fare isn’t such a good deal after all.
When you plan ahead, you can save toward your vacation and pay cash. How much do you want to spend on travel in a year? If it’s $4,200, divide that by 12 to get $350 a month. Set up an automatic transfer from your checking account to a unique savings account just for travel. After a year, you will have $4,200 set aside for whatever trip you have your heart set on. If you have a separate account just for travel, then you always know how much you can afford to spend— whatever is in the account.
Tips For Affordable Travel
I don’t want you to stop traveling. I just want you to be wise about it. Here are some more tips for making your money go further while you travel:
- Shop budget airlines through websites like Kiwi.com and be flexible with your dates for the best deals.
- If you weren’t already planning on going somewhere, don’t buy a ticket or vacation package just because it’s a great deal. It may be half price, but it’s still more than you would spend if you never went in the first place.
- Look for parts of your budget that you value less than travel (like cable TV or lunch out) and divert those funds into your vacation savings account.
- Rent out your own place on Airbnb or VRBO while you’re gone for some extra money.
- Pick up a side gig, like driving for Uber, to help fund your travel habit.
- Ask your friends for recommendations where you’re going so you don’t waste money on things you won’t enjoy.
- Take advantage of credit card points and miles, but only if you pay it off every month. If you’re paying interest, you’re not actually saving any money.
- Pack your own food for the airplane. Paying $8 for cheese and crackers adds up quickly.
How I Can Help
Have I got you wondering how your travel habits are affecting your future? I’d be happy to sit down with you to look at it. Call me at 907-317-8454 or email [email protected] to schedule a free introductory meeting. Together we can develop a plan that builds your future without taking away all of your fun today.
______________
(1) https://www.fool.com/slideshow/heres-what-average-american-spends-these-25-essentials/?slide=20
(2) https://www.valuepenguin.com/average-cost-vacation
(3) https://www.valuepenguin.com/average-cost-vacation
(4) https://www.fool.com/slideshow/heres-what-average-american-spends-these-25-essentials/?slide=20
Jimmy Miller
James Miller is the founder of Baobab Wealth Management, and offers advisory services through Golden State Equity Partners (“GSEP”), an SEC registered investment advisor. With 20 years of experience, Jimmy works with individuals and families to create financial plans that address their individual situations.He has a bachelor’s degree in business administration and holds the CRPC (Chartered Retirement Planning Counselor) and the CMFC (Chartered Mutual Fund Counselor) designations from the College for Financial Planning. When not working on a financial plan, you will usually find Jimmy with his wife, Sonja, and his son, Hendrik, or his clients enjoying the great outdoors! Jimmy is an avid fisherman, hunter, scuba diver, mountain climber, sailor, and world traveler! He also enjoys volunteering his time with the Boy Scouts of America as a troop leader. Learn more about Jimmy by connecting with him on LinkedIn.
PrevPreviousSee A Sample Financial Plan
NextWhat Does Retirement Mean To You?Next
What's different about a comprehensive financial plan?
Jump-Start Your Financial Plan For 2021!
Most People Are Unknowingly Borrowing Tax Money from the IRS, Are You?
The Biggest Problem with Retiring Early? Health Insurance
Baobab Wealth Management is a fee-based financial advisory firm that provides real value to clients, putting their interests first and offering complete transparency with fees, services, and philosophies.
Follow us on social:
Contact
Baobab Wealth Management
Mobile: (907) 317-8454
Fax: 206-420-5370
Florida
169 Tiziano Way
North Venice, FL 34275
Alaska
450 E. Tudor Road
Anchorage, AK 99503
Disclosures
Golden State Equity Partners (“GSEP”) is a Registered Investment Adviser with the U.S. Securities and Exchange Commission. Baobab Wealth Management is a DBA of GSEP. Registration as an investment adviser does not imply a certain level of skill or training.
Baobab Wealth and Baobab Wealth Abroad do not provide tax, legal or accounting advice. This material has been prepared for informational and educational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
COPYRIGHT © 2024.
Who We Best Help
Although it would be great to help everyone achieve financial independence, the truth is, like everyone, we have limited time and capacity. Thus, we like to focus our work on those we can serve best with our expertise.
First, we are only looking to work with those seeking a long-term, trusted relationship with a fiduciary financial advisor and have specific goals and ideas for their future. We enjoy working with those who strive to be and do better than average.
Our most valuable work is done for those in the retirement ‘Red Zone’, where getting it right is crucial to long-term financial success. This is the 10 years leading up to your retirement (financial independence) date as well as the first 5 years of retirement.
We are comprehensive financial planners, but specialize in tax-efficient retirement income planning. If you want to understand the best way to create a safe, increasing and predictable income you can’t outlive, we are the right firm for you. We best serve savers who have accumulated between $250K and $3M of investable assets.
If you also want to pay the IRS the least amount of tax and achieve (or be as close as possible to) the 0% tax bracket (yes, this is absolutely possible) in retirement, we are probably the right firm to work with. We wrote the book on this subject and you can learn more at www.Divorce-The-IRS.com.
You don’t want the cookie cutter advice you have realized is offered at most financial planning firms these days and would prefer a personalized plan that reflects your specific dreams and goals. You would like to see choices in how your retirement income could be structured and not just offered one solution or product. You tend to be more optimistic than pessimistic.
If this sounds like you, and your situation, we invite you to schedule a friendly introductory meeting with us to learn more and explore the possibility of a partnership.
Request a Physical Copy of Divorce the IRS
If you would like to request a physical copy of the Divorce the IRS Retirement Kit, please fill out the form below. Want to save the trees? Consider scrolling through all of the same resources on this page instead.
HOW WE CALCULATED THESE LIFETIME EARNINGS
To project the salary of a 30-year old woman currently earning $85,000, we used a women-specific salary curve from Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc., which includes the impact of inflation. We added up her projected salary each year over her 40-year career.
HOW WE CALCULATED THIS INCREASED EARNINGS WITH A RAISE
We projected the salary of a 30-year old woman currently earning $85,000 and one earning $110,500 (assuming a 30% raise) using a women-specific salary curve from Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. We sum up both projected salaries over 40 years, in today’s dollars, and calculate the difference.
HOW WE CALCULATED THIS RETURN BY SAVING IN THE BANK
The banking account results assume a 1% long-term average annual cash return over 40 years.
HOW WE CALCULATED THIS INVESTMENT PROJECTION
The low end of the range assumes that you invest 20% of your salary ($85,000 currently) with a financial advisor in a diversified mutual fund portfolio comprised of 60% equity and 40% bonds, which is rebalanced to this allocation each year. Fees include average mutual fund fees and an assumed advisory management fee of 1%. The high end of the range assumes that 20% of your salary is invested with Baobab Wealth in a diversified low-cost ETF portfolio comprised of 91% equity to start and growing more conservative towards the end of the investment horizon (40 years). Fees include those for the recommended ETFs and Baobab Wealth’s fee of 0.50%.
We assume salary growth based upon a women-specific salary curve provided by Morningstar Investment Management LLC, and that you save 20% of your salary each year. These results are determined using a Monte Carlo simulation—a forward-looking, computer-based calculation in which we run portfolios and savings rates through hundreds of different economic scenarios to determine a range of possible outcomes. The results for the low end of the range reflects a 70% likelihood of achieving the amount shown or better, and the high end of the range reflects a 50% likelihood of achieving the amounts shown or better. All results include the impact of inflation, and estimated taxes paid on dividends, interest, and realized capital gains.
The results presented are hypothetical, and do not reflect actual investment results, the performance of any Baobab Wealth product, or any account of any Baobab Wealth client, which may vary materially from the results portrayed for various reasons.
Divorce the IRS: Digital Edition
Flip the pages with your mouse.
Book Jimmy to Speak
Please fill out the details below and we will get back to you as soon as possible.
Get Personalized Help
Please fill out the form below to get started.
"*" indicates required fields
*We respect your privacy and will never give your information to any third party.
Get our FREE Expat Guide
Please fill out the form below to receive access to the ultimate guide for navigating the complexities of living abroad.
"*" indicates required fields
*We respect your privacy and will never give your information to any third party.
Get your FREE Divorce the IRS Retirement Kit
View and download resources from the Divorce the IRS Retirement Kit and learn how to set yourself on a path to a tax-free retirement.
"*" indicates required fields
Privacy policy: we hate SPAM and promise to keep your email address safe
Get FREE Chapter
Please fill out the form below to receive the first chapter ofDivorcethe IRS:How to Defuse Your Biggest Tax Time Bombs Before You Retirein your email.
"*" indicates required fields
*We respect your privacy and will never give your information to any third party.
