How to Prioritize and Budget for Travel

One of my favorite topics is personal finance and budgeting. A collaborative family budget is the way to make sure you’re spending within your means and maximizing enjoyment in travel and other areas of life that are important to you. The below is how we prioritize your travel budget within the overall family budget in alignment with our values and goals.

1. Pay Yourself First – It is always a little startling when you’re on a plane getting ready for take off and the flight attendant goes over safety features and describes a situation in which oxygen mask dropping down, reiterating that everyone needs to put their own on before helping anyone else. First of all, I never want to be in that situation. And second, how am I going to remember to put on my own at all in that situation let alone anyone else’s? Startling as it is, it is applicable to a lot of areas of life. As much as we love travel, going into consumer debt and/or not taking care of our retirement is a non-starter. We always pay ourselves first, meaning we are maxing out our 401Ks ($19,500 per person) and IRAs ($6,00 per person) first. We don’t even recognize 401K/IRA money as part of our take home pay. That way any money allocated towards travel and other discretionary activities is only spent after we have taken care of our future. We spend less than we make, and I take this very seriously. Patrick, a little less so (I say it with love). This is how we balance each other. He could tell you I’m one tough cookie and stickler on our budget, but as long as we are being responsible with our money, I’m incredibly easy on what is spent on travel. Action steps:
   • Confirm enrollment in any employer sponsored 401K, 403B, Thrift Savings, etc.
   • If you don’t have an employer sponsored retirement plan, set up an IRA (roth or traditional) through a discount brokerage firm (Fidelity, Transamerica, etc.)
   • Once retirement accounts are set up and automated, determine what your true take home pay is and base your budget and spending plan off of this number.
2. Determine your priorities with your partner – Patrick is the “Diva Man” of the two of us and definitely has more expensive taste overall. I fully recognize I can be cheap, so we often have to have discussions on what our family values and family priorities are. There are more days than not that I ask Patrick, “is this a priority to our family?” for any expense and that is that. Our family priorities include: retirement, owning our home outright, “high end” groceries, and travel. If the expense in question doesn’t meet one of those categories, then we don’t need to spend money on it. It’s all about spending in the areas that are high value and high priority to you. We do not spend much at all on clothing or other luxury items. Action Steps:
   • Write down the things that are important to you. Is it family, creativity, career advancement, fitness, etc.?
   • Write down your financial goals. Is it getting out of debt, home ownership, retirement security?
   • With regards to travel, what are your priorities? Dining, nature, culture and museums, shopping, etc.
3. Compare expenses with priorities – Do a little digging on your monthly / annual expenses to understand where your money is going. Once you have an idea of where it is going, and have determined your family’s priorities, then you can decide which spending areas are “low value” that can be reduced in favor of activities that are more high value to you. Oftentimes this is cited as the daily Starbucks or lunch out. For some, this is high value and a priority as it could bring more joy than the dollar exchange. For others, it is more important to have their nails done once a week, likely the same price as daily lunches or coffees. Nobody is right or wrong, it is an individual value system. If spending doesn’t reflect your priorities, time to change how you spend! Action steps:
   • Use a tool to categorize your expenses for you (i.e. Mint) or determine based on your last few bank statements where your money is going
   • Necessary expenses aside (food, shelter) is your spending on a percentage basis aligned with the priorities you established in Step 2?
   • If not, what are the areas that are low value that can be reduced in order to prioritize high value activities/things?
4. Determine Travel budget and monitor regularly– Once you fully understand your money picture, where it is going, and if your values and spending align, then you can get into it on travel. Maybe you don’t need to allocate 3% of your family budget towards clothing if you work from home (hello, COVID) or have picked up the hobby of thrifting (I love ThredUp for high quality second hand). That 3% could shift down to 1% of your budget and you can use the extra 2% toward travel. You can apply this to just about every category on your budget. Once you determine the true dollar amount allocated towards travel that makes sense for your values, goals and family then comes the fun part of planning trips with that dollar value in mind! Every year in January Patrick and I come together to review the previous year’s performance and refreshed our budget based on any changes to priorities or income. On a monthly basis I categorize (with Mint’s help) our spending and track our performance. Some months we may be over, some under, but the important thing is that we are staying close to the budget established. If we are veering off, that is when a conversation is attached to the monthly spending email I send to Patrick 😉 Tracking it on a monthly basis may seem a little crazy for some, but it is our way of staying on top of it. You could easily do quarterly or semi-annual check ins with the spending to make sure you’re on track. Action Steps:
   • Look into online budgeting tools such as Mint
   • Determine how frequently you’re going to check in on spending
5. Leverage “free” benefits including loyalty programs, credit card points and business travel perks – This one is Patrick’s favorite. Assuming you’re not going into consumer debt and you’re paying yourself first, there is no reason not to use travel reward programs with credit cards, hotels and airlines. There are rules around “churning” credit cards, aka opening a credit card just for the sign-up bonus and then closing it. Read the fine print closely and don’t get caught up in the gamification of it. Patrick has a few credit cards to buy airline tickets (often for free or at least one of us is for free) and he uses Hotels.com loyalty program to occasionally get a free night. He could go on for ages about the churn game, but entire blogs are dedicated to the topic, including The Points Guy. Action Steps:
   • Sign up for free loyalty programs (Bonvoy, American Airlines, etc.) and read the fine print on any credit card programs

This is a snapshot of the budget conversation we had in January of this year. We laid out 2020 budget, 2020 actual spending, and determined our 2021 budget going forward. This is the same tool I use to track month over month (and it automatically displays % spend) and is available for digital download in our shop.

As you can see, we do a zero based budget (pay yourself first!) with a predetermined savings amount (18% for 2021) in addition to our automated retirement savings. In theory, we should have a Net Income of 0 every month as savings is built in as a line item. You’ll also notice our housing went up, as we refinanced in 2020 into a 15 year mortgage. Our travel budget is 9% of our take home pay, which is quite significant if you’re considering the average savings rate of Americans is ~7%. The percentages are rounded, but hopefully it will give you an idea of how our priorities dictate our spending habits.

Any tips you have for prioritizing travel in your budget?