Can You Afford Luxuries if You’re in Debt?
|February 20, 2013|
Vacations and other luxuries can seem out of reach if you’re trying to get out of debt or if money’s just tight. But setting a goal and saving a little at a time can be the ticket to getting what you want.
Even though we’re working to pay off a big student loan debt, I’ve been saving up for two back-to-back trips this summer. In July, I’ll join my mom for a visit with my sister in Portland, Ore., then I’ll meet a friend from college for a weekend in the wine country. While neither trip will be cheap, I’m definitely saving money by combining them so I buy only one plane ticket to the West Coast.
Saving up for these trips has taught me a few things that might help you, too. Here are six tips for saving for a specific goal:
1) Crunch the numbers. First, figure out exactly how much money you need for your goal. Remember to give yourself a bit of a cushion for unexpected expenses. Vacations can cost more than you plan, and tax can really add up on big purchases. If you’re saving for a vacation, IndependentTraveler.com has a detailed vacation cost calculator.
2) Decide how much to save. How much you decide to put away might be based on several factors. If you’re planning a trip, when do you want to go? If it’s a purchase, do know when you want to buy the item? Divide your total cost by the number of months or weeks, and you’ll have an amount you need to put away regularly to meet your goal.
3) Figure out how to handle a shortfall. Depending on the amount, time frame and how much money you have to work with, you might find that you need to either adjust your timing or figure out how to save more or make more money. I’m going to fall a little short of my goal, so I’m planning to sell a bike and some furniture I no longer want on Craigslist. In the past, I’ve also sold books to Half Price Books. And I have a friend who does pet sitting to earn money for beach vacations.
4) Set up a special account. Sometimes, it’s easier to save for a specific goal if you have a dedicated account that makes it harder to get your hands on the money right away. I had an old ING (now Capital One) account I decided to use. I set up an automated monthly transfer from my personal checking account to the dedicated account. I had considered using SmartyPig, a virtual piggy bank that allows you to save for specific goals. It seemed intriguing, but after reading reviews from a few consumers who complained of delays or snafus in getting their money transferred back to their checking account once they’d reached their goal, I decided to stick with a known commodity.
5) Motivate yourself. It’s a lot easier to regularly put money away for something if you feel motivated, so figure out how to stay excited. Work on planning the details of your trip, or set a photo of your destination as your screen saver or put it on your fridge.
6) Plan ahead to withdraw the money. As your trip or other goal draws near, you’ll want to figure out when to withdraw the money and how. If you have a dedicated bank account for your savings goal and plan to transfer the money to your regular checking account, check to see how long the process takes. Set an alert on your calendar to remind you to make the transfer in plenty of time. If you’re using a service like SmartyPig and are thinking about having your funds put on a card like the SmartyPig Cash Rewards Card, make sure you learn how it works and check out the fees. For example, the SmartyPig card costs $9.95 initially, then $1.95 per domestic ATM withdrawal and $4.95 per withdrawal from an international ATM. There are also other fees, including a 2 percent foreign transaction fee for purchases made in another country. So, if you’re traveling out of the country, watch out.
So far, my saving is going really well. Knowing that a lot of my “want money” is going toward a much-needed vacation, rather than being frittered away on small purchases that might not make me as happy, makes me feel like I’m getting a lot of bang for my buck.