Are you a little obsessed with planning your next big trip? We hear you!
You are not alone. You’ve probably seen the statistics that, as a society, we’re more into doing than buying: A University of Texas at Austin study found that experiences can enhance happiness more than acquiring additional possessions.
That wanderlust runs deep, especially after a couple of years of being cooped up due to the pandemic. The excitement of seeing new places — whether that means a faraway tropical island or a neighboring state — is a powerful lure. But there’s one thing that may get in the way: Money.
Let’s be real, travel can be expensive. Even if you’re hopping in the car for a short weekend road trip, the cost of gas, food, entertainment, accommodations, and more can get a bit overwhelming. But, with a little bit of planning, you really can indulge in your travel dreams. And it can all begin by creating a travel fund.
What Is a Travel Fund?
A travel fund is exactly what it sounds like — a fund exclusively used for gallivanting around the world. It’s a place to stash some cash that you don’t use for rent, for bills, for repaying student loans, or any other of the obligations typically requiring our monetary focus. This fund is just for your passion in life. And your passion is clearly traveling.
How to Fund Traveling
Sadly, a travel savings account will not grow by magic. If only! You need to find ways to funnel some cash towards your travel plans. There are a variety of ways to do this. Perhaps you got a raise recently (nice!) and can have that amount funneled towards travel. Or maybe you can automatically whisk $25 or $50 per paycheck into your savings. Or you might give up concert tickets or takeout food for a while to allow some wiggle room in your budget that goes towards paying for your next vacay. There are many options — some of which we’ll explore below.
Setting Up a Dedicated Travel Savings Account
There are a few options for where to keep your travel fund. Yes, you could keep your vacation fund in the same account as your day-to-day savings, but separating the fund could provide even more clarity.
Keeping your travel fund in a separate account can make it easy to see how close you are to reaching your travel goal. It allows you to see exactly how much money you’ve saved for the cause with ease.
Having the money in a separate account also means you can set up automatic contributions, just as you might already be doing with your other accounts.
This means you can eliminate another task from your to-do list. You’ll be making progress toward your dream of cruising down the Nile without even having to think about it. And, since it’s stashed separately, you don’t need to worry that you’ll use it on, say, entertainment or new shoes without realizing it.
Tips on Selecting an Account to Use
When it comes to setting up a dedicated account, the first order of business is usually to pick an account type. There are a variety of options to choose from. Part of what will likely influence your decision is how long you plan on saving. If you want to take a trip in just a few months, a savings account may be a good vehicle. You can easily contribute to it, and you’ll earn some interest (online banks usually pay more than traditional banks).
Another option could be using a certificate of deposit (CD) which locks up your money for a particular term, typically from six months to a few years. This type of account can sometimes offer a more competitive interest rate than a traditional savings account but comes with withdrawal restrictions. If you choose to withdraw the money before the term ends, you’ll likely have to pay a penalty or fee.
Yet another option is a high yield savings account. These accounts are often designed to provide the flexibility of a checking account while offering a more competitive interest rate than most traditional savings accounts. Some of these accounts may come with certain restrictions, like a limited number of withdrawals a month or maintaining a minimum balance, so read the fine print on each account you might be considering.
A different option to consider is a cash management account with a brokerage firm. These accounts are meant as an option for your uninvested money. They can also be great for putting away some extra money to save, but again — do read the fine print. Fees may be involved, and commissions if a broker steps in to help you with your investments. Make sure that these won’t cut into your savings.
These options will allow you to keep your vacation fund separate from your checking account, emergency savings, or regular savings account. You may even be able to give it a unique name like “travel fund” or even more specific like “Tahiti fund.” It’s much more exciting to watch “dream trip to Bali fund” grow than just “account: 3283052.”
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Growing Your Travel Fund
After you’ve created your unique travel fund, it’s time to put in some savings work. And that begins with your budget. If you already have a budget, that’s great. All you need to do is add in “travel fund” as a new line item and shift as much money as you feel comfortable moving to this new account each month.
But, if you’re starting from scratch, that’s OK too. Trying to save for the trip of a lifetime is just as good an excuse as any to start budgeting.
To build a budget, people generally start by gathering intel on your income as well as your debt (loans, mortgages, credit-card balance, etc.).
Next, it’s good to create a list of all your monthly expenses. Here’s where you should include all the basics like rent or mortgage, car payments, student loans, credit card statements, food, gas, insurance, gym memberships, streaming accounts, your investment account and emergency fund, and anything else you can think of. Make sure to get as granular as possible about your spending.
Ready for the next step? You’re going to create a budget on after-tax income, otherwise known as net income, rather than pre-tax. This will give you a more realistic look at how much money you’re working with.
Compare your must-spend list vs. your income list to see how much you have leftover. If it’s more than $0, that’s excellent news! You can put that extra money in your travel fund. Just make sure to reevaluate your budget from time to time to see if you can make any tweaks to add more to your travel fund.
You also might want to make sure you are on track for your long-term financial goals such as paying down bad debt, saving for an emergency, or planning for retirement before allocating your monthly surplus towards short-term travel.
Finding Extra Cash for Your Travel Account
If you’d like that leftover number in your budget to be higher, maybe it’s time to take a look at both your spending and your current income level. Perhaps you can see where changes can be made.
One of the potentially easiest ways to create more cash for your travel fund is to look deeply at your monthly spending. Are you still subscribing to that streaming service you no longer? Are you signed up for that premium version of that social media platform you haven’t been on in months?
What about that gym membership? How’s that going for you? Go ahead things that aren’t bringing you joy or are dispensable. Then, refocus those funds in your travel fund.
If there’s no room for cuts, then it might be time to increase your income. Of course, you could always ask for a raise at work, but if that doesn’t come through, explore some other options — like a side hustle. A side hustle is a gig you take on outside your normal work to rake in extra dough. If you can, pick something you really enjoy doing so it feels less like “work.” For example, if you love dogs but aren’t ready to own one, maybe walking dogs before work would be fun for you.
If you are a handy person who likes to fix things, creating a listing on sites like TaskRabbit may be a good idea. And, if you want to indulge your other talents like photography, writing, or graphic design, try reaching out to a few places as a freelancer. That way, you can get paid for what you love to do and save for what you love too.
SoFi: Your Partner in Creating a Travel Fund
By now you’ve committed to re-adjusting your budget and setting aside cash in a new fund, which is wonderful. But, why not take it one step further by putting your travel fund into an account that will grow for you too?
With SoFi Checking and Savings, you’ll earn 2.50% APY on all your cash when you set up direct deposit. And we don’t let fees eat away at your money as you save for your next tip. You won’t pay any monthly maintenance or minimum-balance fees.
Want to travel more? Find out more about how SoFi Checking and Savings can help you save smarter not harder.
How much should I keep in my travel fund?
Figure out how much you’ll need for the trip you are saving for, and then contribute regularly to get to that number. The amount you’re saving for will vary tremendously depending on whether you are planning a long weekend in the mountains with pals or spending a week (or more) on the other side of the planet.
How do I set up a travel fund?
Setting up a travel fund can take only a matter of minutes. It can be as easy as opening a savings account online and then directing money towards it. You can also go into a bricks and mortar bank to set up an account.
How can I save money on a travel fund?
First, to save money on a travel fund, look for a savings account that doesn’t charge monthly fees. Then, scan for an account that offers a competitive interest rate. These two factors will help boost your savings and get you on your dream vacation as quickly as possible.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.50% annual percentage yield (APY) on all account balances in their Checking and Savings accounts (including Vaults). There is no minimum direct deposit amount required to qualify for 2.50% APY. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.50% APY is current as of 09/30/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.