At a time when Canadians are being urged to pay down their debts, Ulla Meredith and her husband have set themselves a different goal: spend at least $5,000 a year on travel.
The couple, who live in Claresholm, a small town south of Calgary, are busy planning a dream vacation to Tuscany this fall. “We are going to rent a car and drive around the countryside, pretend we are college students,” Ms. Meredith said.
The $5,000 travel budget is not pocket change – roughly 5 per cent of their pre-tax household income. The couple are squirrelling money away each month for the two-week trip, but it might not be enough.
“If we have to borrow the money, we will. I am okay with going into debt if it is a conscious decision,” said Ms. Meredith, who is 48. “I am actually a pretty frugal person, but I also realize that the time to travel is now, before it’s too late.”
But how financially sound is that decision? Although there are well-known guidelines of what people should be saving (at least 10 per cent of their take-home pay) and how much they should have stashed in an emergency fund (three to six months of living expenses), there are no such rules on how much they can spend on holidays each year.
Rubina Ahmed-Haq, a personal finance blogger with alwayssavemoney.ca, says Canadians should allocate no more than 4 per cent of their after-tax income to yearly vacations. “Unless you have no debt, spending more than this amount will erode your long-term savings.”
Canadian debt loads have soared to record highs. Despite worries about how large mortgages and other consumer debts have grown, as well as how few people are adequately prepared for retirement, Ms. Ahmed-Haq still sees holidays as essential. “It’s important to take a break and have some time to recharge,” she said from the Mayan Riviera. (She clearly follows her own advice.)
However, going into debt for a holiday is not a good idea, she said. “Never charge your holiday on credit unless you have the cash already in the bank. If your take-home pay is $50,000, your holiday budget is $2,000. Want to spend more? Save longer.”
It is, of course, possible to take a break without spending a pile of money. You can take a road trip, visit family or friends, or have a staycation.
Kurt Rosentreter, a certified financial planner at Manulife Securities Inc., says each household must decide how much they can spend on vacations based on their own specific situation, factoring in their income, debt, savings and overall priorities.
“You should decide your vacation after doing your annual budget, so you can see what you can fit in,” he says. “Maybe you will need to be happy going to Algonquin Park once a year as opposed to flying to Sicily.”
The key, he says, is finding a balance among financial commitments such as paying off your mortgage, saving for your child’s education and setting money aside for retirement, and discretionary spending such as travel.
“You cannot totally ignore the total financial picture,” Mr. Rosentreter says. “If you tell me you have not made an RRSP contribution for three years because you have chosen to travel instead, that will at some point involve trade-offs.”
Chartered accountant Robin Taub, who is based in Toronto, believes that that if your finances are in good shape, a family vacation might be worth far more than the monetary amount of the trip. “If it is a special family trip, that kind of experience might have a lot of value to you.”
