5 Steps to Save for Your Next Holiday

We travel as much as we can.  Luckily in Australia, it is standard that everyone with full time employment receives a minimum of 4 weeks annual leave or holidays every year.  On top of that we get on average 10 public holidays a year (this include Christmas and Easter).  Many employers now also give employees the option to “buy” annual leave.  This means, for example you can take an extra weeks leave (making it 5 weeks a year) and reduce your annual income by one weeks pay spread out over the year.

But how do you save to be able to travel some or all of that time?   These are 5 steps on how we have saved and continue to save for our holidays.  They work for us.  But you need to work out if they can be helpful to you.  (Note – if you are unsure about your finances, you can always talk to an accountant or financial adviser)

I hope these 5 steps will help you think about how you can save for not only your next holiday, but for many more into the future.

Step 1: How much can you save from each pay?

Your first step is to realistically work out how much you can save from each and every pay to put away for your holidays.  And I do mean “realistically”.  If you say you can put away $200 per pay but that is a struggle and realistically it was more like $100 per pay, you will probably need to dip into your holiday savings for things other than your holiday.  You don’t want to be doing that.

Also, work out the amount per pay.  For example, if you are paid weekly, how much can you put aside each week, not each month.  If you are paid monthly, how much can you put aside each month.

So how do you work out how much you can save?  It means working out a budget.  Noooo!!! I hear you scream!  It’s easy for me, I’m an accountant.  But a budget isn’t hard to work out if you don’t have one.  Work out what your income is (if you have two incomes, include both) and work out your expenses (including those nasty yearly expenses such as insurance and car registration).  Once you have worked out your budget (and hopefully you have extra funds available), work out how much of those funds you want to include in the new line on your budget – Holiday.

Worked out an amount?  Great.

Step 2: Open a separate bank account for holiday savings

Open a separate bank account for your holiday savings.  Why?  So you are less inclined to dip into those funds for reasons other than your holiday.  If the bank account is only for holiday savings, the only time you should be making withdrawals is to pay for holiday related expenses such as airfares, accommodation or withdrawing spending money for the trip.

Step 3: Open the bank account at another bank – one where you don’t have accounts

Consider opening your holiday savings account at a bank where you don’t hold other bank accounts.  Why?  It makes it harder for you to withdraw funds from.  If you have the account at the bank where you usually bank, whenever you log into internet banking you may be tempted to dip into your holiday funds for another reason.  Don’t get me wrong, sometimes you need to access those funds in an emergency and that’s ok, but you want to make sure you’re not tempted to simply spend the money when you don’t need to.  If your holiday account is with another bank, you have to log into that bank’s internet banking facility to transfer funds.

 

Step 4: Select the bank account that’s best for you

The last thing you want is to open a bank account to save for your future holidays and watch bank fees chew into your balance.  When working out the best bank account to use consider the following:

  • You don’t want to pay bank fees if possible.  The first preference is of course, to find a bank account that doesn’t charge fees.  If there are bank fees make sure they won’t be more than the interest you will receive otherwise you will be going backwards.
  • Try to find a good interest rate.  This is pretty hard with the current economic conditions, but shop around.
  • Some banks offer bonus interest, for example if you make at least one deposit and no withdrawals in a month.
  • Don’t be tempted to get an ATM card on the account – you don’t want the temptation of making withdrawals that aren’t holiday related.  If the bank does give you one, put it away for safe keeping (and not in your wallet or purse).

Step 5: Organise an automatic funds transfer after each pay day

Make it as easy as possible to save for your holiday.  Arrange for your holiday budget amount to be automatically transferred to your holiday bank account a day or two after you receive your pay.  If you are paid weekly, that means it’s a weekly transfer.  Don’t leave it until the end of the month – you may have already spent your holiday money on other things.  Just check with your bank that they don’t charge fees for automatic transfers.

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