Vacation (Latin)

Noun

1. A period spent away from home or business in travel or recreation.

2. A period of exemption from work granted to an employee.

3. A respite or a time of respite from something.

– Merriam-Webster Dictionary

Who doesn’t like vacation? I suppose there’s a workaholic scrooge somewhere that hates to relax & unwind, but for the rest of us; vacation is a wonderful time of year.

Vacation is a time to forget the cares of the world for a few days, to spend quality time with those we care about most, and to have some fun doing something we enjoy doing.

Are you ready to start planning your financial future? Contact Sapiat Asset Management to see how we can help.

My wife & I prefer to take a warm weather vacation for a few days in July and a cold weather vacation between Christmas Eve & New Years Eve. We know people who take mid-winter Caribbean vacations and others who prefer to jump in an RV & explore the country. We know people who enjoy ski vacations in February & others who enjoy motorcycling the Mexican coast. We have friends who’ve biked through France and others who’ve explored Machu Picchu.

No matter where we go or what we do, it seems like everyone loves vacation.

So let me ask you a question; “If you know you’re going on a vacation this year, what have you done to prepare your finances to pay for it?”

Yeah, I know; I’m a party-pooper. That’s o.k., because it is my job to ask.

According to Credit Donkey, the average American spends $1,145/year on vacation. That’s $4,580/year for a family of four. For most families, that’s about 8%-9% of their annual household income. So who makes that large of purchase without first figuring out how they’ll pay for it? Americans, that’s who.

Nerd Wallet says the average American family has $6,929 in revolving credit card debt (debt that never really gets paid off). I can add in what Americans spend on Christmas, put two and two together, and easily see that most people are charging vacation and Christmas on their credit cards.

If most Americans stopped charging on their credit cards, it would take them 13 months to pay-off the balance ($6,929). That means that with an average interest rate of 15.95%, you’d pay the credit card company $613 in interest. Why would you do that? Your vacation now cost $5,193 ($4,580 + $613 = $5,193). Another way to look at it; you ran up the cost of your vacation by 13%.

How about this; instead of charging your vacation on a credit card, set aside some cash every payday and use that cash for vacation? If you get paid monthly, set aside $382/month. Bi-Weekly, set aside $176/payday. Weekly, $88/week. When vacation rolls around you have $4,580 in cash to pay for your rest & relaxation.

Take the $613 you would’ve been paying in credit card interest and invest that in your retirement account or the kids college fund. Over 20 years it could add up to $48,019*. And you haven’t spent any more money than you were already spending! All you did was spend it differently.

It’s not difficult to become wealthy in America. In fact, it’s a very easy thing to do. We just have to stop and think about our decisions, then make some wise choices. Like paying for our vacation in cash.

*The S&P 500 has averaged an 11.76% return every year since inception.

Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them.