Wondering how much to spend on vacation while being fiscally responsible and still having a good time? In this post, I offer a vacation spending guide to help you manage your spending responsibly without compromising on fun. I came up with this guide because I'm not sure people realize the true cost of their vacations are much higher than they think.
My vacation spending guide is especially important for those seeking financial independence because I often hear about and witness undisciplined vacation spending. Vacations are supposed to be awesome, but if you're not careful, you could end up spending way more than you can comfortably afford.
In this post, you'll learn:
- The true cost of vacation
- A vacation spending guide
- Two vacation spending case studies
- What my guide means for your next primary home purchase
Spending Big on a Family Vacation to Hawaii
I was talking to a dad the other day who mentioned that he goes to the Kahala Resort in Honolulu once a year. He said his family of four goes for 13 nights and spends $19,000! When I asked if that includes everything (food, flights, activities), he said it only included lodging.
Holy moly! It sounds like with flights, food, and activities, this family is spending about $25,000 a year on their Hawaiian vacation. Surely, he's rich, right? I'm not sure.
Not wanting to pry, I was left to my own imagination to figure out how he can comfortably afford to pay so much for his Hawaiian family vacation.
The True Cost of Vacation Includes Your Lodging Expenses Back Home
True Cost Of Vacation = Vacation Cost + Cost Of Living In Your Primary Home
Spending $25,000 on a 13-day family vacation to Hawaii feels extremely expensive to me. But I realized something significant. Perhaps the family's housing expenses are so low they can afford to spend more on an amazing family vacation!
Let's say hypothetically they have a currently valued $1.1 million 3-bedroom home they purchased for $700,000 with a $560,000 mortgage. After four years they refinanced their remaining $500,000 balance at a 3% rate. Now, their monthly mortgage is only $2,108 plus another $1,000 a month for property taxes and maintenance. So, all in, their housing cost is an affordable $3,108 a month for the San Francisco Bay Area before tax benefits.
With a household income after taxes of $20,000 a month (guessing), the family can easily save $10,000 – $12,000 a month, or $120,000 – $144,000 a year. As a result, spending $25,000 a year for an epic 13-day vacation is possible! It's not something I would do, but different people value different things.
However, the $25,000 isn't the true cost of their Hawaii family vacation. Instead, the true cost includes adding on their daily housing expense back home, which equals $102 a day if they are paying $3,108 a month. Hence, $102 x 13 = $1,326 + $25,000 = $26,326.
Of course, if this family or you rented out your primary residence while on vacation, you can credit back amount to the true cost of your vacation.
Vacation Spending Guide To Follow
From this family's perspective, their opportunity cost is low for going on vacation. The cost of their primary home cost is only 5.3% of the total cost of their vacation ($1,326 divided by $25,000). As a result, they might feel more emboldened to splurge.
A lower percentage may also indicate day-to-day frugality or extreme vacation spending. As I think about the percentage of primary home living cost to vacation cost more, I think shooting for a percentage between 20% – 40% is the ideal range for reasonable vacation spending and enjoyment.
Or simply take your daily primary home cost, multiply it by the number of vacation days you want to take, and then multiply that total by 2.5 to 5 times to get an idea of what you can comfortably spend on vacation. This is a simple vacation spending guide that forces you to calculate your opportunity cost of going on vacation.
Recommended Vacation Spending = Cost of primary residence expense X 2.5 to 5
A More Advisable Amount To Spend On Vacation
If the vacation spending guide says to spend no more 2.5 to 5 times your primary home cost on vacation, a family spending $1,326 on primary housing for 13 days should aim to spend $3,315 to $6,630 on the vacation versus $25,000. This would likely mean going on a shorter trip and staying at a less expensive hotel, of which there are many options.
Ideally, we spend the least amount of money on vacation and have the most fun. After all, this is a personal finance site that likes to optimize returns.
As a personal finance enthusiast, I understand that my views on spending are different from most. You are free to spend whatever you want on vacation. However, by providing a vacation spending guide, it may help you achieve financial freedom sooner while still having a good time.
The last thing you want is to go on vacation, come back broke, and then have to work longer to pay for future vacations. It's a bad cycle that should be broken.
Our First Vacation Flight With The Kids
My kids are now turning eight and five, which makes vacationing more enjoyable. We had a wonderful family ski trip in Tahoe in the spring, and a lovely family vacation to Honolulu over the summer.
Honolulu was our first vacation flying with kids. We purposefully waited until age seven and four partly because we dislike flying given all the delays. COVID also hit soon after our daughter was born. And memories don’t really form until after 3-5 years old. Finally, flying anywhere with a family can get pretty expensive.
Instead of flying around the country or the world in prior years, we just took road trips to Lake Tahoe and Sonoma. It's easy to load up the car and drive 1.2 to 3.5 hours to our vacation destination. Even if the vacation turned out poorly, at least the financial and time costs weren’t too high. But now, we're taking the next big step forward.
The Cost of My Hawaiian Family Vacation
Given I'm in savings mode to replenish liquidity after purchasing our house, spending anywhere close to $25,000 on an ephemeral vacation is absolutely out of the question. Here's the estimated cost of our vacation if you're curious:
Flights for four people in Economy Plus: $2,618
Our flights cost $4,218 for Economy Plus. However, we got to subtract $1,600 off the cost thanks to United voucher credits. We received travel vouchers after my parents' inbound flight was delayed 12 hours when they visited us earlier this year. My father-in-law's flight in March was also delayed, so we got another voucher from his trip that we combined. If we didn’t have any credits to use, I probably would have just purchased four regular Economy seats for $2,900.
Lodging for 8 nights: $0
We got to stay at my parents' place for five or six nights and then my aunt's place for two or three nights. I was very tempted to spend $1,000+ a night at a hotel for two rooms for the four of us. However, I just couldn't bring myself to pay the money given we have access to free lodging. We also got to see my parents more by staying at their home, which is the main reason why we are vacationing in Honolulu.
Transportation: $100 in gas and $240 in car seat rentals
I drove my dad's 1997 Toyota Avalon with 38,000 miles on it while we were there. We chose to rent car seats for our two children for this first trip. The alternative would have been renting a car for $80-$100 a day. My mother doesn't like clutter in the house, so we chose to defer buying car seats to keep there until our next trip.
Food: $1,200
We ate the best poke and Hawaiian food every day. Local mangos were not in season at the farmer's market. But we got to have some ones my mom froze for us from the last harvest. I fed six people a day on average and got to treat my aunt and family to dinner too. Several commenters have suggested my budget is too low, but we did fine eating like locals.
Excursions: $1,237
For activities, we had a dolphin adventure at Sea Life Park for four ($683), Kualoa Ranch jungle tour ($199), the zoo ($68), aquarium ($34), the Polynesian Cultural Center ($100), Hanauma Bay ($53), and the Dole Plantation ($100). We chose to skip getting swimming pool passes at a local resort. We found a lot of calm beaches with kid friendly swimming spots that were a hit.
Total cost of Hawaii family vacation: $5,395. Not bad. Unfortunately, it's not the true cost of our vacation.
The True Cost Of My Vacation To Hawaii
For number-crunching purposes, let's say our home costs $500 a night to rent. We can then multiply $500 by 8 nights to get $4,000. Therefore, our true family vacation cost is $4,000 + $5,395 = $9,395.
I use rent as a cost since we don't have a mortgage. However, I could also use the opportunity cost of not investing in 5%+-yielding Treasury bonds.
My Primary Home Living Cost To Vacation Cost Percentage
The cost of our lodging back home accounts for a significant 74% of the cost of our vacation ($4,000 divided by $5,395). Thus, we are spending 1.35 times our primary cost of lodging on vacation.
These figures could indicate that:
- We value spending more money on our primary residence than on our vacation. Given we spend so much time at home since we don't have an office to go to, we value a nice primary residence. This is especially true since I also believe the best time to own the nicest home you can afford is when your kids are living at home.
- We are cheap, frugal, or strategic when it comes to spending money on vacation. We should probably spend more money on vacation. Or at least we know based on my vacation spending guide that we can spend more and still be responsible with our money.
With 2.5 to 5 times as the recommended multiple to spend on vacation, we should aim to spend closer to $10,000 recommended ($4,000 X 2.5), and up to $20,000 ($4,000 X 5) maximum. Doable, but not now with our liquidity situation.
Example Of A Nice Vacation Property I Would Like To Rent
Below is an example of a great vacation home that is asking $28,000 for a month, or about $918 a night. If I could rent the property for eight nights, it would cost $7,344, bringing my vacation cost to $12,739 – inline with my guide. I would then add $4,000 for my primary home cost for eight nights to get a true cost of vacation of $16,739.
$16,739 comes under the recommended $20,000 maximum I could spend on vacation. So I say my vacation spending rule passes the sniff test. This vacation property just popped up in my search and I felt in my gut it was possible.
Unfortunately, short-term vacation rentals are now banned in Honolulu for certain properties in specific areas. As a result, I would have to rent this entire house for a month in order to stay there. That's not going to fly.
After five nights, our kids really start missing home. But we're stretching our vacation to eight nights because we're taking a five-hour flight and I want to maximize their time with their grandparents.
Rather Invest The Vacation Money Instead
Even if we all wanted to vacation in Hawaii for a month, I'd rather dump the entire $28,000, plus tax and cleaning fees, into the Fundrise venture. It's like paying for Economy to save money instead of spending 2-2.5 times more on First Class. I'm on a mission to build $500,000 of exposure to private AI companies.
The dilemma is this. My kids can enjoy a vacation house in Hawaii that's too nice for their own good. Or their dad can invest for their future since artificial intelligence will likely make finding a good-paying job harder. At an 8% compound annual return, the $28,000 could turn into $130,000 in 20 years. At a 20% compound annual return, the $28,000 could turn into $1,073,000!
Therefore, the choice is easy. Delayed gratification and discipline it is!
Staying at my parent's old house is a better way for kids to start their Hawaiian vacations. They can gradually work their way up like how we go from driving beater cars in high school to something nice after we've made some money.
The More Expensive Home You Own, The More Expensive Your Vacations
There is a phenomenon of “Keeping Up With Yourself” (not the Joneses) when it comes to vacation spending. Whatever home you own, you generally want to vacation in an equal or nicer home. Otherwise, your vacation can feel like a downgrade.
For the family spending ~$25,000 on vacation, they are probably having a blast each time. They are living far better than they usually do back in the Bay Area. In comparison, my family is living below our usual standard of living when we go to Hawaii for vacation because our house in San Francisco is nicer than my parents' house in Honolulu.
However, I don't mind because I love the feeling of our Honolulu home, where I've been going back for decades. Being in Hawaii makes everything better because it's so beautiful, warm, and relaxing. There's no need to stay in a luxury property because we plan to be outdoors most of the time. Our kids certainly don't care about the quality of housing.
So the next time you consider buying a more expensive home, think about how its cost will add to your future vacation costs. Will you be willing to pay more for vacations to match or exceed your living arrangements back home? It may be tougher than you think.
If you're still thinking about buying a vacation property, here's a post on the ideal vacation property size to own. Essentially, you want your vacation property to be large enough to enjoy comfortably, but have the least amount of financial drag on your net worth.
You Don't Appreciate Vacations As Much As A Retiree
As I conclude this article, I realize another reason why I'm unwilling to pay more for vacations, besides having a free place to stay in Hawaii.
When you haven't had a day job since 2012, you take your freedom for granted because every day can be a vacation if desired. My wife and I can lounge by the pool after playing pickleball every day if we want to. However, such leisure soon gets boring, which is why I enjoy spending ~15 hours a week writing on Financial Samurai.
If I were working 60 hours a week at a job I disliked and only got two weeks of vacation per year, you bet I'd pay up for the best time possible! Vacations would be rare and precious.
Hence, if you're miserable at work, spending a lot on vacation may help you feel all that misery was worthwhile. Besides, vacations are needed to prevent burnout. There's no point in working so hard if you can't occasionally enjoy your money.
After earning less passive income since late 2023, I am more appreciative of the income and freedom we had for 12 years. Now I'm striving to gain back what I lost by the end of 2027.
Follow My Vacation Spending Guide To Protect Yourself
Before going on your next vacation, think carefully about your budget. Take the number of days you plan to be on vacation, multiply it by your daily primary residence living expenses, and then multiply it by 2.5 to 5 times. If you follow this formula, you'll spend within your means and still have a good time in the process.
However, if you want to spend more money on vacation for a special occasion, go for it! I'd still keep the limit to 8 times your primary living expenses. If you find yourself needing more money after spending too much on vacation, you'll simply have to work longer.
Being on a permanent vacation is nice, but a life of leisure can feel meaningless too. It's better to find a balance between work and vacation so you appreciate your vacations more.
See: What It's Like To Vacation In An $18 Million Mansion
Reader Questions For Vacation Spending
What do you think about my vacation spending rule or guideline? Brilliant or absurd? Do some people lose control of their spending while on vacation? If you don't think my vacation spending guideline makes sense, what do you think is a better guideline to help people have fun while also spending within their means?
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Very interesting, thank you for sharing. I take about 8 vacations a year (usually 8 days each, but sometimes longer) and have been able to do so by being super frugal (always spending less than your 2.5-5 rule even when adding in the cost of my housing). I never thought about adding the cost of the unused space back home into the cost of the trips before. However I have often thought that the smartest travelers I know are the ones who are renting out their homes while they travel. I know people who are actually earning money by being on vacation because they can rent their Miami apartment for a higher rate than the costs at their destinations. I can see how this isn’t necessarily doable for parents of young children. Your vacation length needs to be longer than 8 days typically to make back the cost of the airfare alone in your travel costs through rental income. But for people like me who live to travel and have self-sufficient adult children only, the only property I would be willing to own and live in would be a desirable rental property leased out during my trips. However, I love to travel SO MUCH that I prefer not owning real estate at all. Good point that it increases even my travel costs to do so. Further supporting my decision to never own real estate again. I have no desire to be anchored in one place ever again. Why deal with the maintenance costs and time expenditure of home ownership? Not for me. The only real estate worth owning is that which provides rental income in my book.
Traveling is fun indeed.
For the 44 weeks you don’t travel, wouldn’t living in an amazing home be worth it though? That’s how I think because I don’t travel more than 4 weeks a year. And having a nice house to care for my wife and two kids feels meaningful.
Great article but wish you would address the issues of a retiree and spouse in their early 70’s who have the means to spend liberally to vacation and travel and who realize that getting into and enjoying the world is time challenged and that it has greater value than your formula might suggest
Yes, makes sense to spend up on your golden years.
I think my vacation spending rule applies because if you’re in your 70s, because your home is probably paid off, so the opportunity cost of taking a vacation is much lower. As a result, you can more easily spend more if you want. And you can go on vacation more frequently.
The guide is just a guide to help one be more conscious in their vacation spending.
Here’s a related post: the best age to start accumulating your wealth
Your guidelines don’t really work for someone who has paid off their primary residence and just pays taxes & insurance. What is your advice in that case?
One of the two examples is mine, where I don’t have a mortgage. I share what I use instead as the denominator.
I don’t follow. Why is the cost of my home relevant here? I’d obviously be paying for it either way, so it’s not a marginal expense.
As a parent of four small children, I can’t bring myself to rent car seats when traveling. There is both the cost of renting (which can be the same as purchasing), but also the unknown history of the seat for safety. I have invested in Ride Safer travel vests for my kids, which has made travel infinitely easier due to their small size, and also gives me a backup car seat option at home if my kids travel by vehicle with a friend or family member. We did a multi-week road trip with my daughter when she was almost 5 across the US and Canada, she loved wearing the vest each day.
I have no association with this product, just an impressed parent.
Sam, you parents live in a vacation destination and your biggest expenses were provided by them. This example doesn’t really help most people either get budget for a vacation or save for one.
You’re a small business owner and you need to pay the IRS taxes. Why do you not have a united airlines business credit card? Your miles earned from business expenses including tax payments could fund the cost of your plane tickets. You could even get one with a club membership and get free food and drinks at the airport.
Timeshares are great for space with kids. You should have negotiated for a sponsorship from a Disney vacation club point rental company and tall about staying at aulani.
Don’t fixate on my example. Use the formula to help you determine how much to spend on vacay.
I did, and it made me realize I could and should easily spend $5-10k more on vacation, specifically on lodging and more food for 8 nights.
I’ve got a Chase business card. Going to have a business meeting tomorrow on the beach. Will be productive!
Hi Sam, We are currently living at Waikoloa Beach Hawaii for three months. Local weather is wonderful with every day 85/65F and ocean 80F. Kona and other areas of Big Island lots of rain.
$8,000 to $6000/ month is rent for 2 bed/2 bath one million dollar condo with excellent pool and 1000 steps from A Bay or Queens & Kings shops.
$1,600 / month Rental car
Flights free with points from East to Kona AP. Cost of Hawaii stay in paradise just makes me laugh and be thankful for opportunity to enjoy life.
We purchased $5000 One year pass for unlimited family & friend scuba diving with Blue Wilderness on zodiac boat with excellent dive guides. We return March 2025 so using pass for 5 months scuba diving great value. We each do 3 boat trips and 6 dives/ week. Scuba at 70 & 68 LOL.
Buy all food at Farmer markets enjoying grass feed local Hawaii beef $6/pound for hamburger or pot roast and $12/pound NY stripe steaks. Carnivore YUM !
Retired spend the money and cancel travel expenses with credit card point/miles.
We started CC hacking in 2014 always have $10k in points, miles and free nights to use.
After Hawaii visiting family in USA for 2 weeks. All free hotels, free flights and free rental cars.
I NEVER count food because we eat every day !
3 months a year sounds ideal. It was my goal before having kids. I’m not sure about anything longer than 6 months a year though.
Enjoy your trip!
I am 71 and remember when Mom said to us 4 kids get ready to swim.
Dad took the afternoon off to go to the creek.
This is how I remember the first and only 100F day of my childhood in Hamburg , N.Y.
Cost priceless. I remember all the afternoons visiting creeks and lakes in South Towns.
Winter sled and skate in backyard most nights.
My Parents made a simple family outing the priority.
Both my parents suffered a health crisis in their early 30’s and living took priority over money.
My parents would escape one weekend each month to dance the night away as a couple.
When Dad had a stroke at 80 , his advice dance more !
Dad & Mom had a small plumbing business.
Dad would say self employment allows making more money in 2 hours than 8 hours at a factory.
Dance more!
Love it! I’m trying to live life to the best of my abilities every day. Thank you for this great story and reminder.
Very helpful way of thinking and planning. A few questions. Is the vacation spending limit per family or per individual in the family? Are flights included?
Thx.
It’s for the entire household, so per family, not individual. And yes, flight costs are included.
Seems like the equation should be based on net monthly disposable income–not housing value. This seems like the primary variable to assess “affordability”. E.g. if you live in a $4M home but are saddled with debt payments each month and aren’t saving anything—you probably shouldn’t be going on a vacation–but paying down debt or saving.
Conversely, if your house is paid off and you live well below your means and save $20,000 per month–it’s time to party!!
It could be. I take the stance that we act as rational homebuyers or renters. Hence, if we take on a lot of debt to buy said $4M home, then we rationally can afford to do so due to our income and net worth. Therefore, we should rationally spend on vacation in relation to the cost of our primary residence.
If we have a paid off home, then we still have the opportunity cost of not living in the home when going on vacation, since our capital could have been invested or earned risk-free income. Time to party is not that way I’d look at it with a paid off house, as aggressive spending could lead to trouble.
My hope is that for folks who want to be better investors, to think in relation to other similar opportunities.
My significant other and I are both in medicine. We use our work sponsored CME (continuing medical education) funds to subsidize our vacations. Just pick any place you want to go and sign up for an on-line lecture or two while on your trip and voila, free vacation!
Thanks for the thought provoking article.
It is not clear to me why a vacation budget should be tied housing costs. Is there a simpler way to determine a range? An internet / a.i. inquiry revealed that 5-10% of gross or 7-18% of net income is an acceptable range for budgeting purposes. A family with a $200k gross income, 120k net income (due to large 401k self-employed contributions) would explore options at $8,400 to $21,600. Obviously, the latter figure would be used rarely or only for special occasions. $10,000 may appear to be reasonable round figure.
Another way to look at it would be the same as F.S’s rule for buying a car: never spend more than 10% of your annual gross salary when purchasing a car. It only remains for us to determine whether that proportion should be 5, 8, 10 or maybe even 12%, depending on how much cash is left over after standard living expenses.
Has any thought been given to families which own a second vacation home and rent it out during their non-preferred times of the year? How much of a second home should they consider purchasing?
Hi Sam,
I would say that when you have children, the value of family trips can have a profound impact on their perspective of the world, cultures, and environment, and they can develop a fuller appreciation of this planet and how people impact it. It depends on the kind of vacation certainly, but it can also be an opportunity for education, and teach them how to live a life to protect this little ball we all live on, thinking conservation and sustainability as well as building lifelong memories with the ones they will share it with. I really appreciate your unique insight on how to value a vacation and put guidelines on how to do it without breaking the bank. I like to travel with my wife and young son and nephews and take great pictures that they will look back on fondly and inspire them to see how other places and cultures do things, and learn why they are different, all so interesting, and budget busting at the same time.
My formula is a simple one. I allocate 5% of my yearly net income towards vacation/entertainment outings. (It used to be 10%, but I lowered it to 5% last year. (Gives me more to put towards savings).
I take 2-4 vacations per year with my family or business related/personal for myself. Each vacation usually ranges from $1,000-$2,500.
Some years i stay under the 5% or go over the 5%. I carry over the credit or excess and treat it as a penalty or bonus for following year.
I have the same format for my other leisure spending category’s “going out to eat/ ordering food budget” (3%), “material purchases” (5%).
Everything else is eighter fixed costs (mortgage, car payment, utilities, etc.)
Then variable costs (household goods, food costs, childrens classes, camps, etc.)
The finally savings. (Roth IRA, Brokerage, Masterworks, Fundrise)
68%-Housing/car/ fixed monthly expenses
13%- Dining/Vacations/Material Purchases
19%-Savings/Roth/529/Additional Investments
(Percentage represents portion of total annual net income)
It’s hard to grasp how an adult Foreign Service kid is taking his children on their first flight at 7 and 4 years of age. My children were born in the FS. My older child flew for the first time when he was 10 weeks old so we could return from DC, where I gave birth, to Guatemala. My younger child was born in San Diego – we got in the car from our assignment in Tijuana and drove across the border when I was in labor (my husband drove the car); his first flight was at 2 months old to visit my sister (with me) in Houston. My kids have had 3 passports since they were 2 months old – regular, dip, and their dad’s nationality. You know what they say: EFMs grow up and either never want to move anywhere ever again, or they can’t sit still. I guess you’re the former! Sorry, didn’t read the rest of the article – I got stuck on the flight issue and ages of your children…..
Yeah, after flying so much, I’m long over it! Been screwed over way too often on delays or cancellations.
My parents’ flight was delayed 13 hours to SF. They got screwed and had to be in the airport for 6-7 hours.
My FIL’s flight got delayed by 7 hours, so he went to get a hotel. 2 for 2 getting screwed this year already, and they hardly ever fly!
With our Lake Tahoe place we just drive there for vacay, and a friend’s place in Sonoma, which is 10X nicer than our place. So it’s hard to fly anywhere else.
We’ve resorted to flying out folks in. Bless them!
If there wasn’t COVID, we probably would have flown a year sooner.
I hear you. Then again, from my perspective, if we get from A to B alive, that’s good enough for me.
Dr. Wayne Dyer would say East coast to West coast in pioneer days arrive in 1.5 years and 1/2 group alive = excellent trip. Fly from East coast to Hawaii in 12 hours amazing. Fly from Baltimore to Buffalo NY in 50 minutes versus 9 hour drive, think about that for 10 seconds. Next flight while waiting looking out the window to see the amazing workings of an airport.
PS – Unless we eat out a lot (we usually stay at AirBNB and cook quite a lot ourselves) I don’t count the cost of food as part of the vacation because we need to do that anyway.
I don’t understand why you are adding your cost of accommodation back home as part of the vacation cost. Seems to me that that is a sunk cost. You are going to pay it anyway, whether you take the vacation or not. So, it shouldn’t be included in the calculation.
No worries. I want people to think of their primary residence as an opportunity cost, as people move up the property ladder and think what they’d have to give up to go on vacation.
As real estate becomes a more common investment with flexibility in renting, a primary residence is no longer considered a sunk cost.
If you have a better formula or vacation spending guide, I’d love to hear it and it’s reasoning.
I agree that our primary residence is an opportunity cost, because we can rent out our primary residence when we’re away if we want to.
$19,000 for day in Honolulu is definitely excessive. You can easily rent a house in Kahala or Hawaii Kai for that for an entire month for that price. Ive found decent stuff between $7,000-12,000/month. For longer stays I dread staying in hotels, nothing worse than eating out every day for an extended period. Because I live far away from Hawaii now im typically staying close to a month and it works out to being around the same price as a hotel or a little less for the time period. You also have the added benefit of being in a normal neighborhood, not in Waikiki, Ko Olina or Turtle Bay.
Love your articles like this one. Do you think you could do one on beauty budget/clothes? A lot of research shows pretty privilege is real in the work place. Just want to know your thoughts on the topic and what you think is appropriate for men and women to spend on such stuff. This topic could an excellent one for you and your wife to talk about on your podcast as well. Thanks.
Flying steerage to Hawaii is not a vacation. It is 5 hours of misery. I vacation with my wife, son, daughter and a 13 and 8 year old grandchildren. We always fly first class, if available, or leisure class. There is a reason for this. My grandchildren know the difference between first class and coach. I tell them if they want to fly first class, they must study hard in school and then have a superior job. It does no good to tell our children to work hard if they don’t experience what hard work buys. My grandchildren do not want to fly coach. I believe they will study hard and succeed at work because they know this is the cost for first class.
Sounds good to me! I wouldn’t want to fly coach either if my grandfather will pay first class for me. I would rather not work hard and just be nice to you. Work smarter, not harder!
To me, I don’t find flying economy to be suffering. There are way worse things that are true suffering than sitting on a plane and watching TV or napping for five hours. But everybody’s tolerance for hardship is different.
I will fly business/First to hawaii but coming from the East Coast find its only really worth it unless flying from Texas/NYC, the long haul planes have more space and are much more comfortable than taking a red eye from california.
Yeah, from the east coast, first class is nice.
The thing is, 4 first class tickets is expensive. And 4-7 year old kids don’t deserve to fly first class IMO. They are small so the seats are relatively huge for them.
My kids know it’s never worth it to spend on an upgrade for short flights of less than 8 hours’ duration. That seems like such a waste of money for only a 5 hour flight, unless you have money to waste.
Perhaps your kids will change their minds when over 5’9″ tall. We are 6’2″ and 5’10” so the $100 for economy plus with excellent legroom is worth every dollar. Keep SMiling.
Huh, very interesting! Never heard of this formula before but thinking of my vacations I believe we just squeeze in there. We have a savings account for vacations and usually do a couple per year but I have not thought about what percentage that is before in terms of my house. I think we’re on the high side (like 5x) because we have a very low mortgage.
I would calculate the specific number as my formula forces vacation Spanish to think about how much they are truly spending on vacation as well as their primary residence.
5X is within the ballpark!
Factoring in the cost of your house defies all basic economic principals. Housing is a sunk cost!
If you’re looking for a realistic framework, something better would allocating a percent of discretionary income towards vacations. In your example the families discretionary income would be around 140k per year. Spending 10-25% of income on vacations, depending on other preferences seems pretty reasonable. This is a much better framework than thinking about the sunk cost of homeownership.
Is it a sunk cost? Or is it a rational cost based on your desires and housing needs? I argue the latter.
People can rent out their houses for semi-passive income or sell their houses and make a profit, as I have done before in 2017.
I lived in my primary residence for almost 10 years and then rented it out for three years. Then when my son was born in 2017, I decided to cash out and reinvest the $1.8 million in proceeds in 100% passive income investments.
And then I bought a smaller fixer to better fit my wife and I’s living needs and spent on vacation accordingly.
Of course its a rational cost based on desires and housing needs; however, this does not mean that said choices in the context of taking a vacation are not sunk costs or fixed costs if you will. The discussion on renting a home, upgrading or downgrading, doesn’t’ really have anything to do with the cost of a vacation. If anything you’re proving my point that the metric should a percent of your post fixed cost disposable income. In your example of downsizing and sticking to your metric you’d have less to spend on vacations not more despite having greater disposable income because of the choice to live in a smaller more cost effective house. Conversely, by moving into a larger more expensive house you’d have more to spend in vacations. Similarly, in your framework traveling for work costs money, despite being free, because you’re paying for your house you’re not using, which of course is ridiculous. I mean I get it, you’re trying to be unique with click bait type headlines but really its not a good framework, not logically or economically. That said, I completely agree with your point that people should think about how much they are deciding to allocate to a vacation and there should be certain parameters to consider to both enjoy the fruits of ones labor while also being prudent and saving/investing.
Got it. Do you have a better vacation spend guide proposal? It’s totally fine and encouraged to disagree. But offering a solution would be more helpful instead of just disagreeing.
As for the article having a clickbait title, what would you propose not being a clickbait title? The title describes what the article will be about. Does the title offend or agitate you? If so, why? Always looking for feedback to improve.
Finally, please share some background about yourself. Age, net worth, where you are on your financial journey, family size, how much and how you decide to spend on vacation. It’s always great to understand where commenters are coming from, especially if they disagree. Thanks!
No problem. I did state a proposal in my first comment…but to reiterate…it would be something along the lines a percent of discretionary income after fixed costs (mortgage/rent, insurance, car payments, utilities, groceries, etc). Now this can fluctuate based on what a personal/family values spending money on, but I’d say something along the lines of 10-25% of total discretionary income seems pretty reasonable to me. So in your first example of the guy being able to save 140k a year after housing, lets even whack off some tither fixed type costs to get it to 110k…spending 11-27.5k a year on vacations seem reasonable. That leaves a lot left over for other things such as savings/investing, goods (clothes/toys), activities (sports/concerts/restaurants), kids activities, etc.
Its not that the title offends per se and I’m not trying to be so jerk that is just criticizing…but it seems as if…and I could be wrong…that its a top down concept to drive content rather than a bottoms up analysis and framework. By this I mean “vacations cost more than you think” is very catchy (look at me hammering away in response) and to fit that you need to factor in the cost of your housing though as I’ve argued this is not an appropriate framework. Of course “A framework for vacation spending” is a much more boring title.
40s, HENRY in finance, 2 kids, net worth in low single digit millions. I don’t really spend that much as a percent because I can’t get over the mental hurdle of the high prices despite being able to relatively easily afford them. Though this is a personal “problem” of having grown up in a very frugal down to earth family.
Thanks for sharing. I will try to work on more boring titles that describe the post better. I’m limited to the number of words btw.
Spending 10% to 25% of discretionary income is reasonable. It just doesn’t compare the cost of vacation lodging and spending to Primary home lodging and spending costs, which I think is a good comparison, because lodging is often a huge component of most vacation expense.
I also believe my tie-in to primary home expense is a smart way to help people think about their next home purchase. Investing in real estate is my favorite way to build wealth. As a result, I’m trying to help people think more strategically about investing in real estate and spending money on Joy.
Based on your comments it seems like you could use my vacation spending guide to spend more on your primary residence and spend more on vacation to enjoy life more.
But housing is not a sunk cost if you can rent out your primary residence when you’re away.
We have a different problem because we don’t spend enough on our vacation. We often use credit card points for airfare and hotels, so we only need to pay cash for food and attractions. We spend less than 2%-3% of our annual income on vacation now that kids are grown and out of the house. We often vacation to Asia and Europe and as we are getting older (60), it is uncomfortable to set in economy class for 12-15 hours. To entice my husband to go on another oversea trip, I suggested to fly business class for the first time since we are financially very secured.
We have been frugal all our married life, and it is hard to spurge but it is time to enjoy life.
Maybe my vacation spending guide can help you then! Give it a go! At 60+, if you are financially secure, then you should probably spend more money to avoid dying with too much.
Good job highlighting the true cost of a vacation by including the cost of your primary residence.
I like how you anchor your vacation spending guide to how much you are already spending back home. It makes sense because whatever you’re spending on home has been carefully thought out to fulfill your needs. There are already conditions in place for how much home you can rent or buy.
That family spending $19,000 for 13 nights of lodging is pretty aggressive if they only live in a 1200 square-foot three-bedroom home. I don’t know how normal this is what I definitely don’t think they should be used as a barometer for all the average mass affluent American spends on vacation.
What I’ve noticed is a lot of these families have the bag of mom and dad pay for their primary residences. They either get their homes for free or they have a sweetheart deal where they were able to buy their homes at a big discount.
I’m happy to spend 2 to 3 times the cost of my primary residence for vacation. If I go on vacation twice a year for four weeks total.
But if I’m going on vacation much more often than four weeks a year, I’d probably spend closer to 1-2 times.
I’m more of a fan of a vacation sinking fund than an “spend no more than this amount” approach. With the sinking fund if I’m willing to stick it out a little longer then I can go for the more expensive vacation I may want to go on despite it falling outside of conventional boundries. It allows me to strike a better balance between saving for the future as I work towards FI and enjoying the now.
For people who don’t have a system to save money for vacations some kind of rule of thumb is helpful and I think in those situations the system you outline above seems good. Some of the numbers seem kind of arbitrary though. How did you arrive at the upper bound of no more than 5x or no more than 8x your daily home costs? I’m not saying those numbers are bad, I juet don’t see a justification for them.
I also found some other issues with the system as well. For at least a few years after I retire, whenever that is, I plan to do some slow travel and live abroad, essentially a perpetual vacation. During that time I don’t plan to own/rent a home in my home country. I guess I could use the place I’m renting abroad for that, but there are some edge cases that I think may need to be accounted for in the system you outline.
At 23 years old, curious what has been your most expensive vacation you’ve taken and for how long? For those who don’t know, how do you create and use a sinking fund for vacation spending? Thx
My vacations are fairly cheap. The last one I priced out came in at about $800-$900. But tjat was mostly in travel costs. It wss about 7 days for a wedding. But I was able to stay with my parents which eliminated any hotel type costs. Outside of that, a vacation for me is to go spend a week or so in the woods backpacking and most of my equipment for that I picked up years ago. Most of my hobbies are outdoorsy so I can do that very cheaply.
As for my sinking fund I found what works best for me is to roll over my discretionary fund into a savings account. I shoot to roll over between $50-$100. Although I rarely meet that goal. I’ve considered putting aside just so much every month regardless of discretionary spending, to make planning easier, but haven’t implemented that yet.
What is $900 as a multiple of your primary home living expenses for that period?
I’m trying to encourage people to think in percentages or ratios as it relates to their primary living expenses, given everybody has different tastes and cost of living.
Thx
It comes in at about 3x my current rent adjusted as daily expenditure. My rent is ~$50/day. So over a week it works out to 280.
Something I just thought of, how does this adjust with cost of living? If I was living in a similarly sized place in a more expensive area that ratio drops quickly. Currently I live in a place with extremely low cost of living.
I like the idea of comparing it to other things but I wonder if maybe the bounds should be adjustable based on some other metric compared to it. for instance right now I could spend up to ~$200/day on a vacation. But that’s more due to the fact that I live in a more affordable area rather than the type of taste that I have.
Cool. So you are spending slightly above my recommended 2.5 times primary residence expense multiple, and within my 3 – 5 times range. In other words, my vacation spending guide holds true for a single young guy living in an extremely low cost of living area as well.
The beauty of my vacation spending ratio is that it takes into account a rational decision to rent or own whatever it is a person is currently living in now. For example, as a 23-year-old single guy, you probably aren’t going to rent or buy a 3-bedroom house, just as a family of four isn’t likely going to rent a one-bedroom apartment.
You can spend $200/day on vacation if you want b/c you have extremely low living costs. However, you rationally won’t if you want to achieve FIRE. But, my guide does say you can spend up to 5X your primary living expenses, so there you go.
Ah, I appreciate the simplicity and brilliance of the guide!