Saving for a Sunny Day: Vacation Budgeting

It’s summertime here in the US and that means vacation season is in full swing. If you have taken a look at accommodation costs and flight tickets lately, you probably have seen high price tags. How can someone make a vacation work on any budget? What ways can someone invest some savings to grow a vacation account? Sally French, Travel Expert at NerdWallet joins Cassidy Clement, IBKR’s Senior Manager of SEO and Content to discuss.

Summary – Cents of Security Podcasts Ep. 51

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Cassidy Clement 

Welcome back to the Cents of Security podcast. I’m Cassidy Clement, Senior Nanager of SEO and Content and Interactive Brokers. Today, I’m your host for our podcast and our guest is Sally French, Travel Expert at NerdWallet.  

It’s summertime here in the US, and that means vacation season is in full swing. If you’ve taken a look at accommodation costs or flight tickets lately, you’ve probably seen high price tags. How can someone make a vacation work on any budget and what ways can someone invest to see their savings grow, maybe in a vacation account? So we’re going to discuss all that and more in today’s episode. Welcome to the program, Sally. 

Sally French 

Thanks for having me. 

Cassidy Clement 

Sure. So since this is your first episode on our show, why don’t you tell the listeners a little bit about your background in the industry and what you write about? 

Sally French 

I’m a travel expert at NerdWallet, which is exactly what it sounds like. I write about travel, and so I get to travel all over the world. I think the coolest place I’ve been is the Arctic Circle, which is definitely not a budget type vacation.  

But honestly, the budget-type vacations are my favorite. The type of trip where you can do a whole family at Disney World for $1000. That’s kind of the trip that really gets me excited because I know that’s what Americans are saving for. And those trips can be expensive. They can be memorable and hopefully not memorable because of the credit card debt that might go along with it. 

Cassidy Clement 

A lot of people who’ve done the Disney trip know that sometimes you get a little bit of a sticker shock. The happiest place on Earth can sometimes be the most expensive. You never know what it’s going to be like until you start doing all those add-ons.  

So just to jump right in here, we’re starting to get into school getting done and spring break and summer is upon us. So here in the US everybody’s, you know, gunning to go on a vacation. They just want to get out there, see some sunlight, get something exciting on the on the calendar.  

With our current economic state, though, in this country, it’s also really tough. Because as you said, a lot of people are on tight budgets, inflation is really intense right now. So with this current economic state, why is it important to have some type of like a savings vehicle or a vacation budget of some sort? And how soon should you create this budget if you’re going on a vacation? 

Sally French 

That’s absolutely right. Summer is coming up, which means hopefully you already have some sort of vacation budget. In fact, NerdWallet surveyed Americans who travel and found that one in five summer travelers say that they’ll use a credit card to pay for expenses, but they won’t pay off the balance within that first billing statement.  

Instead, that means we’ll carry over a balance, which just means racking up costly interest charges, so NerdWallet definitely recommends that you have some sort of plan to save. And that’s different for everyone, whether that’s having a separate savings account purely for a vacation fund or just planning on having a way to allocate that money, maybe purchasing various aspects of your vacation ahead of time. So you booked your flights five months ago and paid for it, then your hotels three months ago, and then you pay for those expenses like meal expenses actually during the trip. Whatever works for you to save.  

But it’s important because vacation is coming up and NerdWallet typically recommends, especially for a domestic trip to book that flight one to three months in advance, which is definitely now. 

Cassidy Clement 

I saw recently for a trip I’m taking.. I saw a ticket cost to and from Miami from the New York area, and I almost hit the floor. I couldn’t believe it. It cost almost as much as the accommodations for the vacation we were taking because it is such a busy travel time this year and I think a lot of people are starting to get a little bit out of the COVID thought of I really just want to stay local. Now it feels like almost everybody is just trying to get out and get a vacation on the books.  

So normally you would think I’m going to estimate some travel costs. I’m going to see what spending habits I have and try to save here and there and then some people might look at travel insurance depending on what type of vacation they’re going into or if their lifestyle can be a little hectic where they’re like, oh, might not be able to go, but let’s book it anyway. 

So before you take this vacation, what are some tips that you could give to listeners when thinking about creating their own vacation plan or their own vacation budget? 

Sally French 

Yeah. Well, the first thing you said, Cassidy, was that expensive flight to Miami, and flights are really interesting right now. So we do sort of have this COVID brain where in 2020 and 2021, flights were really cheap and Americans got really used to cheap flights. And we have this short-term memory of 2021 airfares.  

And now they’re a lot higher. But what’s really actually interesting is that airfares are not that much higher than what they were pre pandemic. So you look at inflation and how much everything is more expensive versus pre pandemic, but airfares are actually only up 2.6% from the same time in 2019.  

Compare that with restaurant prices are up 29%. So we’re paying 29% more for meals, but flights we’re only paying 2.6% more on average, so it is kind of important to remember that, you know, luckily, airfares aren’t that much more expensive.  

Where we see airfares get really expensive is when it comes to booking last-minute flights. So unlike hotels that we tend to see fair deals because hotels just want to fill whatever remaining room that they have. We really do not see last minute airfare deals, which means that the other thing that happened during COVID is people got really used to booking last minute because often you didn’t know if there was going to be a lockdown next week. So people booked airfares last minute with you know, week to go and now people are still doing that and that’s a big reason why airfares seem to be a lot more expensive than they are. 

Cassidy Clement 

So another thing that I noticed in some of my research was people talking about utilizing maybe a travel agent to help look for deals or looking in lower, we’ll say like not in season type vacation sometimes. Could you speak a little bit to that? Because I recall using a travel agent when I was younger on my family vacation.  

It’s not as popular now as it used to be. I remember like seeing commercials for it. What does that look like in this scheme of today’s vacation economy? I haven’t heard that phrase in a long time. 

Sally French 

We have travel agents are interesting. They’re definitely less common. They can make sense for some travelers and not for others. So you have to understand how that travel agent is getting paid to start out with. So some people, especially if it’s a luxury travel advisor, you’re actually paying them to plan your trip because you might have a lot of demands. A lot of complicated itineraries to wrangle together. Maybe you want them to do something special for you that you want them to plan something that you can’t just book on your own. And then there’s the type of travel agent who makes a commission, and in this case, you typically don’t pay them any more. You simply book a hotel and that hotel company pays a percent to the travel agent. Of course, with this, you want to understand, is that travel agent recommending you the place that’s best for you or the place where you can get that commission.  

That said, travel agents can certainly be really helpful, especially if you have complicated travels with lots of questions. You’re not sure if you need a visa. Even you might need help making a restaurant reservation. Travel agents are there to help you do this. So for some people they can be helpful. At the same time, they can also just create this middleman. Now it’s so easy to book travel online. It’s so easy to compare flights for yourself that you might not need that travel agent to do that work.  

In some ways, they just become that extra middleman. So whether or not a travel agent is good really just kind of boils down to how much work you want to do and planning, how much work you want to do in looking for those deals for yourself.  

And if the answer is I don’t want to do a lot of work, then a travel agent could be it. But if you’re someone who’s excited about doing research and you really want to know the best options, then it might make sense to actually not use a travel agent. 

Cassidy Clement 

Makes sense. I mean, we’re going to talk about soon the ways that you could save money or hopefully grow money to be able to afford, whether it’s through a travel agent or through your own research.  

Before I get to that. One thing I haven’t done myself, but I’ve always seen is factoring in different travel insurance, whether it’s a policy or I guess you could say coverage per trip. 

What are your opinions on that and in scenarios like this where the expenses seem to be getting higher, is it like worth it from the insurance perspective or is it kind of a balancing act of trying to make it work for what you’re trying to visit on your vacation? 

Sally French 

Now travel insurance is a really interesting one, so it’s important to understand there’s two types of travel insurance. There’s kind of your standard travel insurance, and then there’s something called cancel for any reason insurance. So that second one is exactly what it sounds like. No matter why you want to cancel, you can go ahead and do that.  

Typically, you still have to have some skin in the game. So if you’re insuring a huge $10,000 once in a lifetime trip and you decide at the last-minute you don’t want to go, typically these policies will only refund you 70 to 80%. So you’ll have to pay for the cancel for any reason insurance, and then you’ll typically in that $10,000 trip example still be on the hook to owe $2000.00 for a trip that you end up not taking, so understand that there’s some skin in the game.  

The more standard type of travel insurance is not cancel for any reason. They’ll only give you your money back or some sort of coverage or compensation for very specific reasons. And a lot of people get tripped up because the reason they want to cancel is not covered. So of course, reasons vary by policy.  

A more comprehensive policy might be more lenient on the reasons. But even understand things like pre-existing health conditions may mean you’re not covered. Simply not wanting to travel because there is maybe a new pandemic coming up and you just say I don’t want to travel. Typically that’s not a covered reason. You typically need a doctor’s note to not travel. Even if you have just a little sneeze and you don’t want to go on the trip, you’re now going to have to go to the doctor’s office to get a note for a little sneeze, which might not be worth it. So understand what’s covered.  

What I will say on travel insurance is the best way to insure your trip if you’re not sure that you want to pay for travel insurance because this can be really expensive, it can be easily, you know, over $1000 for a higher end trip just for the insurance, is to pay for that trip on a credit card that offers travel insurance as a benefit.  

There are increasingly more credit cards these days that will offer very comprehensive travel insurance policies, and these cover all sorts of things. They cover lost luggage. So if you fly and your bags get lost and they don’t arrive for two days, but you need to buy clothes and toothpaste for those two days, a good travel insurance policy will actually cover the cost of the toothpaste and the clothes that you bought for the two days, and so this is something that if you pay for the trip or your credit card, this is an included benefit. 

Now it’s typically only found on these more luxury credit cards that have multi $100 annual fees. But you figure, if you’re going to pay $1000 for travel insurance policy for your big bucket list trip and the credit card has a $500 annual fee, that’s actually better than paying $1000 for the travel insurance policy. So don’t overlook that. 

Cassidy Clement 

That’s a good point. That’s going to roll right into my next question. So we’re talking about bundling some money together here to make it all worth it. What are some common investment facilitators, securities, et cetera that people may flock to because it’s in the right term or the right return for travel funds? I mean, no investments guaranteed of course. But what are some ideas of some of these areas that people tend to go to when it comes to a vacation savings account? 

Sally French 

Yeah, I wish I had my crystal ball that I could tell you the best way to invest to make your vacation possible. The most important thing is that you have some sort of plan to pay for that trip in a sense that you won’t get hit with interest charges because you’re paying for that trip after the fact. So keep in mind, according to NerdWallet’s annual summer travel study, the average American says that they’ll spend at $3500 on a vacation. And so have a way to pay for that.  

Now there is one really compelling way that people pay for vacation, and that is with travel rewards points. So Americans earn these on credit cards and then you can also earn points and miles just by frequent flying. But actually, credit card, either in terms of their unit bonus or spending rewards, can be a really excellent way to pay for your vacation.  

The thing is, I would not consider credit card rewards an actual investment. A lot of people sort of sit on these rewards. And they’re sitting on, you know, 5 million points that they’re waiting to use, and then they’re not sure when they’re going to use them.  

I would not consider these points in investment because they don’t grow, they don’t increase in value. You can’t invest them in fact, they don’t earn any sort of interest. And in fact, credit card rewards tend to just devalue all the time and we’re all very familiar with inflation and points inflation is even more real than actual cash inflation, so do spend down those credit card points.  

That said, they can be an excellent way to pay for a trip. I’m going to Europe this summer, and I used a credit card that had an introductory offer where you had to spend, I think, $3000 on the card and you got free hotel room nights. 5 free nights. And that’s an amazing way, when you figure a hotel room night costs $300 or $400, to really save on a vacation. 

Cassidy Clement 

So if we’re looking at rewards, like you said, they’re kind of they’re not perishable in a way, but they can fluctuate in value. And that’s where, if you do have that $1000 that you said, alright, this is going to be my vacation fund, you might want to look into a high yield savings account or maybe a CD for a short period of time. Or maybe a savings bond. Or if you are somebody who likes to do some type of short-term investment with a little diversification, it might work for you.  

It all depends on your scenario, but the biggest one is that rewards one and people tend to look at that as an investment when you’re right, it’s not necessarily an investment, it’s just a perk. And they’re not going to totally grow for you in the way that some other types of accounts that are a little more traditional finance style will help. But that’s also if you’re lucky enough to look into them and invest in them in the right time frame. Some people, they book a vacation and it’s two months from the day they book it, so it changes what their options are. 

But going into something else, what are some ways that users can create a budget and then hopefully stick to it when it comes to vacationing? Because, like I said, some people use rewards. Some people have the chance to invest for an account, some people don’t. What are some ways that they can start to create a little bit of a spending plan? 

Cassidy Clement 

Yeah. So creating a vacation budget is interesting because a lot of people think airfare is going to be that big factor in a vacation, and sometimes it certainly is, especially if you’re doing an international trip. If you’re someone who likes to fly business class, then airfare can be a huge chunk of your vacation budget, but don’t overlook those other costs.  

So there’s hotel rooms, but there’s not just hotel rooms. There are resort fees that tend to go with those, you might get hit with a pet fee, you might get hit with a parking fee. So understand those costs. Understand are you going to have to rent a car? And rental car prices are one of the biggest stories that NerdWallet is looking at. In fact we saw rental car prices hit all-time highs in the early years of the COVID pandemic because everyone was renting a car.  

Luckily car rental prices are dropping but they are still up 39% since the same month in 2019, before the pandemic. And then of course restaurant prices are up 29%. Entertainment prices are up 22% since the pandemic, and these are all things that people sort of forget until they’re actually there. So it’s easy to say my flight cost X, my hotel costs Y, but factor in all those other costs if it’s a rental car and then it’s parking and then it’s tips and then it’s restaurants and then fees on top of that. All those things are really important to factor into your budget. 

Cassidy Clement  

Yeah. And I think creating a budget ahead of time at least helps you get a general idea. One thing that I think most families out there are super familiar with is the column for unexpected costs. So when you get to your beach destination and somebody forgot their sandals or like how it was when I was a kid and who got sunburnt and who forgot their allergy medication and oh, they didn’t have ketchup at that restaurant and I got leftovers and I want to take it back to the condo. You’ve got to have a budget for all of that, too. 

Because in some places it may be cash only. It may be credit card only. You don’t know. And if you’re not prepared for that, unfortunately stuff happens. Life happens. You’re going to have to spend a little extra once you get to your destination, even if it’s not on a souvenir, and it’s on something else you didn’t anticipate. 

Sally French 

Absolutely. It always feels like sunscreen costs like three times as much as the beach town as if you had just bought it ahead of time at the normal the normal store back at home. 

Cassidy Clement 

Absolutely. I bought sunscreen recently and I couldn’t believe it. For a moment, I thought is this a gallon of gas? It was not. It was just Banana Boat!  

But when it comes to these unexpected costs and then the like, surprise fees that people don’t realize, it’s almost feels like, you know, you get off the plane, you get to your destination and they’re like this is the breathing fee. This is the look at the sun fee. This is the hold the door fee. There’s a lot going on there! 

So what tips can you give to keep the cost down or manageable at any stage of the vacation research process? Whether it’s booking all the way to opening the front door on your way back home. 

Sally French 

You’re right. It does feel like sometimes there is a breathing fee. It is wild. There are some really compelling ways that we find people paying for vacation. So one of them that’s becoming more popular is all-inclusive vacations. And this is just one of these ways that it’s something you pay for up front so that way, you know when you get there, you have very few expenses.  

That way, you know, if the kids forgot the sunscreen, typically a good all-inclusive is going to have sunscreen. Things like that can really avoid those extra costs. Even we’re seeing really compelling deals. I talked earlier about going on a Disney trip and we’re seeing at Walt Disney World, they’re offering a deal this summer for Disney Visa Card holders where you book a trip and you get a Disney Dining Plan.  

What’s compelling is the trip isn’t necessarily any cheaper, but we find a lot of visitors love the dining plan purely because it’s paid for up front. They don’t want to have to worry about how much a Coke costs when you get to Disney because you just know you’ve already paid for it. It’s already included. So that way you don’t get hit with all these little sticker shock costs.  

Sometimes the more you can do to pay for that trip up front just makes it so you can go on your vacation and really just enjoy the vacation and not worry that the Coke costs $8 or whatever it costs now. It’s already paid for and you can just relax. 

Cassidy Clement 

I will say I’ve been to Disney a few times. Loved the meal plan because nobody wants to pay ballpark prices for the soda as you said. You get a lot of families there and when somebody wants a Gatorade cause it’s 90° in Florida and you didn’t do the meal plan, you know, if you could swing it, I’d say do it. It’s very helpful.  

But, you know, there’s a few different ways that you mentioned that you can kind of stay in your target budget area. There’s also a lot of places people don’t think about using maybe some public transportation over the Uber every time. Or to maybe go directly to a hotel when you’re booking, like calling them directly instead of using the online website.  

Another thing that’s really helpful is when you have this, such as a beach house versus a condo at the beach, or maybe a ski house versus a hotel by the resort.  

If you have a kitchen, you could save yourself a lot of money by going to the grocery store locally and maybe having a few nights in where you cook the meals, especially if you’re going somewhere that maybe has some attractions that are very expensive that you want to take the whole family or your friends with.  

But otherwise, and this is just me asking, are there any other ways that people can like, actually optimize their travel budgets, whether it’s any apps or websites that you can talk about that maybe have some type of like application or widget to help people plan out their vacation budgets? 

Sally French 

Yes, Cassidy, I have so many. And we’re going to need 10 podcasts to talk about all of them. But NerdWallet’s best tip for traveling is to simply be flexible. Now, I realize this isn’t possible for everyone, especially if you’re on a tight schedule, but sometimes adjusting your trip dates by just a day or two can save you a ton of money. And one of the easiest ways to understand this is using Google Flights.  

Google Flights has a really compelling cost calendar, and you can see flights for every single airline compared and it displays them on a calendar and sometimes you’ll see a flight out on one day is $349 and then the day after it’s $149. Now times that by your whole family and that is hundreds of dollars in savings.  

And another thing that goes along with being flexible on the dates is being flexible on the airport. So there are some cities that are served by multiple airports. You know, Chicago has Midway and O’Hare. Even San Francisco is often closer accessed by Oakland Airport. And so with Google Flights, you can actually compare flights in and out of multiple airports. So that way you can simply say, hey, it’s a 20 minute longer drive, but we have a way better flight. That’s an excellent tool that you can use.  

Even if you can adjust your location if you’re trying to go to Europe. You might have your heart set on flying into, let’s say France, but can you get an amazing flight deal to London and then maybe spend one night in London, take the train into France? Whatever you can do to be flexible is really going to help you save money. 

Cassidy Clement 

Public transportation. There you go. You said it. Right. So it works out well.  

Thank you so much for joining us, Sally. I hope you enjoyed the conversation. 

Sally French 

Reach out anytime. Let’s travel! 

Cassidy Clement  

Awesome. So as always, listeners can learn more about an array of financial topics for free at ibkrcampus.com. Follow us on your favorite podcast network, and feel free to leave us a rating or review. Thanks for listening everyone.