Why younger generations are prioritizing travel
Plenty of Gen Z and millennials have hit pause on their savings in order to prioritize meaningful experiences right now — especially after the COVID-19 pandemic left them holed up in their homes for months.
Tsoi says many people may have bolstered their savings during pandemic restrictions and are now making use of the extra cash to travel around the world. She goes on at least one trip that requires a flight every four months, but enjoys shorter road trips on weekends as well.
According to a June survey from wealth management firm Personal Capital, 55% of respondents aged 26 to 41 said they spend more time planning for vacations than their retirement.
Ellis says when you’re older, your health may be compromised or you may be dealing with other responsibilities that hinder your freedom, such as caregiving.
“It just makes sense for a lot of people to kind of maximize their 20s in that way, and see as much as they can of the world before they reach those major life milestones.”
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How to stay on budget on vacation
Ellis says that while the intangible benefits of experiencing new places can often supersede the “dollars and cents” aspect for some people, there are ways to make travel affordable and stay on top of your financial goals.
She says the more advance planning you can do, the better. “Look ahead, say, ‘Okay, what are my upcoming travels that I want to do for the year?’ And start putting money aside to help cover the costs.”
Ellis also recommends “travel hacking”, in which you maximize your credit card rewards and bonuses toward expenses like flights and accommodations. She says she and her husband went to Dubai and the Maldives “for free” a couple years ago by making use of these perks.
Tsoi mentions she made use of her Chase Sapphire Reserve card for airport lounge access and is saving up her points to treat her parents or grandparents to a business class flight. She also suggests bundling up on hotels and flights for deals and discounts.
It’s important to be mindful of surprise costs along the way — Tsoi says it’s a good idea to budget an extra 5-10% in case your plans change or there is an emergency.
And Ellis says, part of the planning process includes making a budget for how much you plan to spend while you’re actually on the vacation itself. It’s easy to stay on budget when you’re booking your flights and accommodation, but harder to stay on track when it comes to things like experiences and food. Especially when you want to soak in the culture of your surroundings.
“I had that mentality of, ‘Oh, you're only here once, go to this restaurant.’ I’m that person.”
Ellis also explains that traveling doesn’t necessarily have to involve flying across the world — you can do road trips or travel domestically, which won’t cost as much as booking a plane to the Maldives, for example.
Flights alone can take a big bite out of your travel budget. Personal finance site ValuePenguin notes that traveling to a destination can often account for half the vacation spending — with the average airline fares coming to $3,304 for households.
Should you compromise your financial stability for travel?
Tsoi says not exactly. “I don't think it's worth going into debt for. And that's something that does stay with you for quite a while.”
Taking on debt for a vacation can impact your credit score — which lenders use to determine whether you’re a reliable borrower when you apply for things like mortgages or more credit — plus interest makes it harder to pay off that incredible trip.
Americans are already holding a lot of household debt — the Federal Reserve Bank of New York says it’s climbed to $16.51 trillion in the third quarter of the year. And with inflation still keeping prices high and Fed rate hikes raising interest rates, it’s becoming even more expensive to borrow.
Tsoi believes that traveling makes sense only if you can still afford your fixed living expenses, like rent, utilities and groceries, and pay off your monthly credit card bill in time.
She also sets money aside for her retirement and savings — whatever’s left over goes into travel or other fun activities.
And she emphasizes that you’ve got to prioritize what you value most in your life.
“For me personally, right now, it's comfort, convenience, and utility … I'll upgrade a flight, like a business class upgrade. A little bit more leg space, I'll check a bag, or I'll stay in a slightly nicer hotel.”
She adds that she doesn’t typically spend money on other things like getting her hair and nails done or decorating her apartment, but this might change later on if she makes more money or her priorities change.
“Whatever makes you happy.”
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