How to budget for a holiday

With the average family holiday costing £2,725 (source: http://www.guardian.co.uk/uk/2004/aug/31/travel.money) it represents a significant chunk of annual expenditure so your holiday planning really should start by asking yourself the question ‘can you afford it?’ long before you start thinking about where you want to go.

If you already have money in the bank ready to pay for your holiday then you can skip the next couple of paragraphs, otherwise to answer this question you need to have an annual budget that you are confident you can stick to. If you have never done a budget before then check out this article on MoneySavingExpert.com. Make sure you have captured everything in your budget as it is amazing how many people miss things out (even us accountants make mistakes!) and don’t forget to include savings, as you don’t want to spend the money if you should have been saving. 

Hopefully once you have done this your income will exceed you expenses with enough left over to pay for a holiday. If it doesn’t then I suggest you read through my Money Saving and Money Making posts for ideas on how to improve your financial situation. I would never recommend spending money on holidays that you don’t have unless you are confident you can repay any borrowings quickly upon your return, otherwise your holiday will end up costing far more if you have to start paying interest too.    

Once you have sorted out your finances you can start thinking about whether you can afford the sort of holiday you want. Obviously your choice of destination and the level of luxury you want will make a big difference to the overall price of your holiday. That isn’t to say that more expensive holidays offer less value as it’s all about what you get for the price you pay. You probably already have a destination in mind so the next step is to put together a quick estimate of how much your holiday will cost.

1) Start by researching approximate prices for a flight on one of the many flight comparison website’s to that destination at the time of year you want to fly and make a note of the average price you find, you don’t want to pick the cheapest as these may not be available for the exact dates you want to fly. Also make sure that the prices you have found include taxes as these can quickly add up, particularly if you are flying to multiple destinations. Obviously if your choice of holiday does not involve flying then substitute the word flight for ferry, train, car, space rocket etc.

2) The next thing to do is get a rough idea of how much accommodation is going to cost. Again the comparison website’s come in handy for this as they enable you to get a feel for prices quickly. It is important to be realistic here as if you don’t plan to stay in anything less than five star then you shouldn’t be looking at the prices of two star motels. Same as with the prices of flights select an average price that is easily available for the time of year you want to go and multiply this by the number of nights you will be away.

3) If you asked people to name the three biggest costs of going on holiday then they are very likely to have said ‘flights, hotels and umm….’. Try it you will be amazed how many people answer like this. From my experience the third biggest cost is your daily spending money, i.e. all those little costs which are frequently paid for in cash but over the course of a holiday add up to quite a lot, which for me includes food, drinks, entrance tickets, tour buses, public transport etc.

Think about what you will be doing on holiday… will you be eating out every night or self-catering? what attractions do you want to see?  Then try some quick google searches to find out how much things are likely to cost or searching the lonelyplanet forums as questions are frequently asked about how much spending money you need for different destinations. If your holiday includes lots of expensive attractions, for example a theme park holiday in Florida then its probably worth splitting this out as a separate budget category. Once you have an idea how much you need then you need to multiply this by the number of days you will be on holiday.

4) Now it’s time to think about all the hidden extras that you have to pay to go on holiday. Unless your chosen destination is in the UK then you’ll probably need holiday insurance so do a quick search on one of the insurance comparison sites such as moneysupermarket.com to get an idea of how much you’ll have to pay.

Also don’t forget to add in the cost of getting to the airport and parking your car if necessary, a quick search on the airports website will give you a rough idea how much you have to pay. The final hidden cost to add in is any visas or passport renewals as if relevant there is no way of getting around paying these.

Holiday Budget

Price of flights (make sure you include taxes) = £xx

Price of accommodation x number of nights = £xx

Daily spending money x number of days =£xx

Cost of Insurance = £xx

Cost of getting to the airport = £xx

Cost of Visas/passports = £xx

Once you have added everything up then add 10% to the total (i.e. multiply the total by 1.1 on your calculator) as the same survey that found the average family holiday cost £2,725 also found that the true cost of a holiday is underestimated by an average of £214. This acts as your buffer to ensure that if the holiday ends up costing more than you originally planned, which hopefully it wont, you still have enough money to pay for it. This ensures you don’t suffer a financial hangover when you return from holiday. 

This should have taken less than an hour and you should have a good estimate of how much the holiday you want is going to cost. Next comes the hard bit of deciding whether you can afford it by looking at your annual budget. It’s important to be realistic here as its easy to get carried away with the dream of that expensive holiday and overstretch yourself financially. If you clearly cannot afford it this year then think about postponing that holiday until next year, hopefully an extra year of saving for it enables you to go on your dream holiday. If you are just short of having enough money then read through my Money Saving and Money Making posts for ideas on how to make up the difference.

Don’t forget this estimate is just that, an estimate. Over the next couple of weeks I’ll be posting ideas of how to save money on the price you pay for your holiday and how to get more for your money.