Vacationing with a Pipeline


Summer is the season of vacations and judging from the current hotel rates, people are back out in force.  Hotels, airlines, and rental car companies all suffered when housing prices collapsed in 2008 and people were no longer able to use their house like a piggy bank to reset their credit cards and continue spending money they didn’t have.  Indeed, many of those underwater in their mortgages were actually underwater because of all the equity they took out of their homes rather than a drop in home prices to below where they bought their homes.

Now that home prices have recovered a bit and we’ve seen that the end of the world did not come, people are whipping out the plastic once again.  Many are shocked by the credit card bills waiting for them when they return.  Bills that may be past due since the statement wasn’t sent out until after they left and was due before they returned – thanks Mr. credit card issuer.  Indeed, the attitude is often “I’m on vacation” so people stop worrying about the price of things and splurge a bit.  Hotels and shops love people on vacation.  (As an aside, why is everything extra and overpriced at the upscale hotels like the Hyatt, Hilton, Ritz, etc…. I mean you are already paying about 50% more for the room – couldn’t they throw in some things besides a fancy lobby to make it worth the extra cost?  Do they really need to charge $10 per day for internet and $4 for a bottle of water when it’s all included at the Ramada?)

For some, this spending leads to remorse and perhaps fights when they return and need to face up to the costs.  For others, this leads to a great deal of aggravation while on vacation.  It’s not fun when you’re trying to scrimp and save your way through a vacation.  No one likes to be the gate-keeper when the kids want the $6 souvenir cup they will use once and then leave around the house for the next five years.

People who have built up pipelines can vacation without the stress – either during or after the vacation.  Recall that by pipelines, we mean sources of income beside a job, such as stocks or real estate.  The secret is to use the pipelines to fund the trip and plan the trip wisely.  Specifically:

1.  Determine your budget.  The first step is to determine how much from your pipelines you are going to use for vacations.  This could be a fixed percentage from all of your pipelines – for example, 10% from all of the income received from your assets for the year, such that your vacation funds would grow as your wealth and pipeline income grows. As another option, you could set up a specific pipeline just for vacations.  For example, you could put $10,000 in a mutual fund after a few years of working and then withdraw 10% of the funds each year to pay for a vacation.  When you are just starting this would be meager – only $1000 – so you might need to supplement with some of your income from work, but this would grow with time.  You could also add funds each year – maybe $2500-$5000 each year – until it reached $40,000 or so and then it would generate enough for a nicer vacation.

2.  Plan your trip scaled based on your budget.  Let’s say that you have $2500 for a vacation.  You might choose to drive to the beach.  Figure up gas, hotels, and money for activities, food, and souvenirs.  Add or remove nights as needed, or find ways to reduce costs like choosing a cheaper hotel if you are over your budget.  Budget in maybe $50 extra each day for things you don’t know about yet.  From experience, plan about $100 per day for food for a family of four at moderate restaurants.  Add more for dining at a fancy restaurant or less if hitting the fast food for a meal a day.

3.  For things that will be fixed, like hotels, gas, and amusement parks, fell free to pay with debit.  The cost of these things are relatively fixed, so it makes no difference if you pay with debit or cash for them.  You really don’t want to walk around most places with $2500 cash in your wallet, plus the hotels and rental car companies will give you endless grief if you pay for cash since they want a way to charge you if you make a phone call or break something.

4.  For things that are variable, like food and souvenirs, consider bringing cash.  You don’t feel the same twinge from a $150 meal when you drop down the credit card as you do when you lay out eight $20 bills, so you will tend to spend less.  Plus it is much easier to track your spending when you have cash.  You can also set limits for the children and yourselves by using cash.  Give the kids $10 each for whatever they want that day from the shops and you won’t need to tell them yes or know when they want something.  If you limit yourself this way, bring a little extra cash in case there is something you weren’t expecting, but keep it in a different place so you know you’re blowing your budget for the day.

5.  Agree on the plan before the trip.  Remember that you and your spouse are in this together.  Agree on the amount you want to spend on the trip and have for extra spending cash.  Agree on the itinerary, which level of hotels you’ll stay at, and what you’ll do for meals.  Remember that it is more fun to have plenty of cash than to scrimp and save, so it is probably better to shorten a vacation than try to vacation on $25 a day.  You can stretch a budget, however, by maybe buying some food and lunching in the room.  Be sure it is an agreement and not one side forcing their will upon the other.

6.  Tap the pipeline.  Just before the trip, withdraw the money for the vacation from the pipeline and place it in your checking account so it is ready.  Get needed cash, and you’re ready to go.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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