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Mike Loo, MBA

Vice President of Investments


Should You Establish a Vacation Fund?

| November 17, 2017
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As my kids get older, I’m finding myself wanting more and more to create lasting, meaningful memories that they’ll always cherish. Part of that entails going to the nearby family fun amusement parks such as Disneyland and the San Diego Zoo. However, trying to justify the rising ticket prices against the thoughts of “Will they really enjoy it?” or “Will they even remember it?” gets tougher and tougher.

One day, I sat down and realized that it’s not that we can’t afford to go; it’s more a matter of not wanting to spend the money if we’re not going to get the most bang for our buck. As I thought more and more about it, I realized that my problem was related to the fact that we don’t budget for these mini vacations.

At the end of the day, kids are going to be kids, and if there’s one thing I’ve learned as a parent, it’s that nothing ever goes according to plan. So more than likely, I probably won’t get the biggest bang for my buck by going to the amusement parks. It would, however, inspire a fun memory, so it’s important to not be too concerned about the costs of going and just enjoy it, especially since it’s not an everyday event. From this came an epiphany about the importance of establishing a vacation fund.

The Benefits of Establishing a Vacation Fund

A vacation fund is exactly what it sounds like. Similar to an emergency fund where you save and build a separate fund only to be used for emergencies, a vacation fund is a separate pot of funds you allocate towards vacations.

Particularly for young families, I recommend establishing these various funds because they make it easier to save for specific occasions. Like an emergency fund, there are a number of benefits in establishing a vacation fund. For one, it can be a compromising middle ground in a family dynamic where one spouse wants to spend a lot on vacations while the other would rather be more thrifty. By putting away a small amount per week or month, when it comes time for your vacation, it won’t feel like you’re eating away at your main bank account.

Establishing a vacation fund also helps your family set boundaries and ensure you don’t overspend. When you go on vacation, you only use the money in your vacation fund, so it helps you stick to a budget and not dip into your main account. While a vacation fund helps you avoid overspending, it also allows you to actually spend money on a vacation and enjoy yourself, rather than stress about the costs involved.

Lastly, I’ve found that many of my clients enjoy building a vacation fund because they can view it as a reward for all the hard work they’ve put into their savings efforts for retirement, college savings, and other goals. Whether they choose to allocate their vacation fund to one big vacation per year or several mini-trips throughout the year, it’s a great way to enjoy the assets you’ve worked hard to build without overspending.

How to Build a Vacation Fund

The number one tip I give to my clients for building a vacation fund is to create a separate savings account for it. This ensures that you don’t blend it with your emergency savings or other goals that you are saving for. If you blend them together, you will more than likely not want to spend as much on your vacation because, in the back of your mind, you’ll know that your emergency savings won’t be what it should be.

Next, you’ll want to decide how often and how much to contribute to your vacation fund. I recommend making it a consistent contribution, whether you want it to be weekly, every two weeks when you receive your paycheck, or monthly.

Deciding how much to save is a trickier decision. There’s no one set amount or percentage because it differs by household. Ultimately, you need to determine what is most important to you. To some, saving for the future is more important, whereas others want to live for today.  

However, it’s important to know the trade offs of your decision. If you want to vacation more frequently, you’ll want to be aware of how that will impact your ability to live the lifestyle you want in retirement. Or if you’re on the other end of the spectrum and would rather save primarily for the future, it’s important to remember that your kids will only be young once. It’s important to find a healthy balance in enjoying today as you’re planning for tomorrow.

A Partner for Decision-Making

I help a number of clients work through these decisions through my Decision Coach program. As a part of this program, I work closely with you to understand your needs, define a course of action, develop a financial strategy, and review them on a regular basis. The goal is to integrate your financial strategies and help you feel more confident in your decision-making.

As an independent financial advisor, my mission is to make a meaningful impact on the lives of my clients and the people they love. I help families make informed decisions with their money and pursue a strong financial future. To learn more about the benefits of a vacation fund and how to get started, or to learn about my Decision Coach program, call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com.

About Mike Loo

Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at michael.loo@lpl.com.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes.

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