How to Plan a Vacation

The long and short of vacation planning

What’s the most important part of a successful vacation? Sightseeing? Great meals? Fun activities? You might be surprised to learn that vacation experts and financial planners say it's none of the above. Sights, food and fun all figure prominently in your vacation experience, of course, but fully enjoying them depends on whether you can truly afford them—and that takes planning.

"The whole point of vacation is to relax and enjoy yourself," says Diane McCurdy, a financial planner and author of How Much Is Enough? (John Wiley & Sons, 2005). "If you spend the whole time worrying about how you're going to pay the credit card bill, then you defeat the purpose."

With that in mind, McCurdy says it's never too late — or too early — to make plans that will help ensure your vacation is the refreshing experience you want it to be. So whether you're getting ready to leave on this year's summer vacation or are already starting to think about next year, a little planning can take you a long way.

The short view: Tips for this year’s trip

Many people spend hours pouring over books, brochures, and web sites to find the best values in accommodations and transportation. Yet, even if you are able to take advantage of membership points or a discount program, costly meals, excursions and souvenirs can still push your spending higher than you expect. Here are some additional ways to maximize the fun and minimize the expense.

• Plan as much of your spending in advance as possible. Rather than waiting until you arrive to book tours or buy event tickets, do some research to find the best values. The same goes for deciding where to eat. Making reservations in advance allows you to anticipate your dining costs and also ensures that you'll get a table at the restaurants you want. And you can always cancel if your situation changes.

• Decide how much you can comfortably spend for the duration of your trip, then budget an amount for each day. Be flexible in your daily spending—consider swapping a fancy dinner and show today for a boxed lunch and hike tomorrow—but make sure the numbers balance in the end.

• Use travelers’ checks instead of a credit card. Not only is it helpful to see the actual amount of money you're spending, but you won’t come home to a huge bill. Consider labeling envelopes for each day of your trip and then putting your daily travelers' check allotment in each one.

• Set a souvenir limit. If you know you’re going to a destination that’s famous for a particular product or art—wine in the Napa Valley or Murano glass in Venice, for example—learn in advance how much you would expect to pay for a special item and then set a limit. Families can give children a souvenir budget and allow them to decide how to spend it, with some guidance.

The long view: Tips for affording your dream trip

On one point nearly all vacation experts and financial planners agree: the earlier you start saving, the better your vacation is likely to turn out. Setting a target cost a year in advance—or even several years if you're planning your dream vacation—is the best way to ensure your budget matches your expectations, says William Supper, a financial planner in Morristown, N.J.

"When you have a goal in mind, you can roll up your sleeves and carve out the assets you need to get there," Supper explains. "You have to take care of first things first, like making sure you're saving enough toward retirement and your kids’ education."

With the essentials covered, he says, you can make tradeoff decisions about which assets to earmark for your upcoming vacation and which to devote elsewhere. Some helpful strategies for reaching your vacation goal include:

• If you plan to sell stocks or mutual funds to cover the cost of your vacation, do it sooner rather than later. Waiting until your vacation arrives means risking having to sell in a down market. When you do sell, consider putting the proceeds into the highest interest savings vehicle you can find.

• Similarly, if you're setting aside a little every week, opt for an interest-bearing account rather than a stock fund. While it is tempting to try for investment gains to pad your balance, the risk could outweigh any potential gain.

• Be honest about what you can afford in your current situation.

• Scale back one year and shoot for a bigger vacation the next. Consider looking for something in your area, where you already know the best hotel deals and where there are probably plenty of attractions you've never visited. Taking a few short driving excursions can be fun and much less expensive than a major trip to a distant location.

One for the road

Perhaps the best advice regarding vacations is summed up by McCurdy: "Don’t allow yourself to be pressured into thinking that you have to take big expensive vacations," she says. "If you pick a place with activities you enjoy and spend only what you can afford, you’re going to have a much better time than people who go into debt and come home with more worries than they left with."