09 Sep How can I save enough for a vacation?

Q. I want to take my family on at least one big vacation a year, but I never save enough and I end up using credit cards. Then it takes me longer to start saving again because I have to pay off the cards. Any suggestions on how I can break this cycle?
— Family guy

A. You have the power to break the cycle. Here’s how you start.

First, ask yourself how important is it for you to take your family on vacation.

If it is important, then you will want to make the necessary adjustments to your spending to be able to save for the vacation, said Deva Panambur, a certified financial planner with Sarsi, LLC in West New York. and adjunct professor of personal finance at Montclair State University.

“Your income is limited, on the other hand there is no limit on how much you can spend,” he said. “Therefore, the concept of ‘opportunity cost’ is important – every time you spend a dollar on something, you are giving up the opportunity to spend it on something else.”

He said this a concept that is hard to appreciate and capitalize on unless you have a plan.

When planning and saving for a goal such as a vacation, it helps to first analyze your income and spending, and then to make an allowance for that goal, he said.

Your expenses can be separated into fixed expenses, such as rent/mortgage, debt payments such car loans or student loans, utilities, health insurance, tuition for children and more. Then there are variable expenses such as shopping, restaurants, groceries, gas, auto maintenance and others.

Panambur said fixed expenses are more definite and easier to manage, but think carefully before you get into them because once you do, it is difficult to get out of them. For example, breaking a rental lease or selling your house is not easy and comes with significant costs.

“There are rules of thumb you can follow for these expenses such as not more than 28 percent of your gross income on housing or not more than 36 percent of your gross income on total debt service,” he said. “These are only rules of thumb, and I would suggest you be more conservative than these numbers especially if you are several years into your working life.”

Panambur said variable expenses are where most people lose control and are often shocked when they learn how much they have been spending on various items. Fortunately, though, this is also where you can wring out the most savings. For example, you can cut down on eating out, buying only essential items, buying items on sale and so on.

He said you should earmark maximum monthly amounts for each category of your variable expenses.

Next, consider your savings, which is your income less total expenses.

This is what you would use for various goals such as retirement, a down payment on a house or saving for a vacation.

“Some goals are long term but much important and critical, such as saving for retirement, or contributing to an education account for a kid’s college,” he said. “You will want to fund the more important goals first and the less important ones next.”

He recommends you use can use a tool such as Mint.com or YNAB – short for You Need A Budget – to analyze your expenses and savings. This will help you identify expenses that you can cut down to make room for more savings towards your goals, he said.

Then set up separate bank accounts for each goal.

“You can have one main bank account into which your paycheck is deposited and other accounts for various goals,” he said. “You can set up a direct transfer from your main bank account – which receives your paycheck – to the other accounts earmarked for various goals.”

Panambur said if you earmark set amounts for your expenses and goals, you will set yourself to live within those amounts because they will act as “guardrails.”

Then, he suggests using debit cards for all expenses because that will prevent you from going over the earmarked amounts.

“Credit cards are very convenient, and you get some benefits such as miles and perks, but if you are overspending using credit cards, then perhaps it is best that you get rid of them – at least until you get a handle on your expenses and are able to live within your means,” Panambur said.

Email your questions to .

This story was originally published on Sept. 9, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.