As Jack reminds me almost daily, next week is his last in kindergarten which means summer is just around the corner. Soon we’ll all be packing our bags and heading to the beach (or elsewhere) for a vacation. As I was thinking about my family’s summer plans, I was reminded of a question a client emailed me a few months ago (Used with permission. Name changed.):
“How much do people with about the same income as Charlie and I spend on vacation, groceries, home improvement, cars, etc. I’ve looked online and this varies a good bit. Wondering if you could provide a breakdown of savings, housing/utilities, food, car, entertainment, vacation, home improvements, etc. I’m asking b/c I feel good about the money we are saving, but when things feel tight and we have extra expenses it seems like we should save more and spend less. I’m trying to figure out how the ‘Jones’ do it’. I would love for Charlie and I to get away for a weekend to New York before Christmas, but costs look to be approaching $2,000. It’s hard for me to feel comfortable spending this much money on a three-day getaway, especially when we have already spent our ‘vacation allowance’ this year. On the other hand, I think it would be healthy and fun for our relationship and you can’t really put a price tag on that. I realize we could perhaps do what we usually do in these instances and go somewhere more local for less money.”
The answer to her first question, how people with similar incomes spend their money, is easier to answer. Below is a graphic from Business Insider showing how the top 20% of earners, those with average earnings of $177,851, and the bottom 20%, averaging $10,916 in income, spend their money:
For more detailed breakdowns of spending by income level, you can follow this link. Courtesy of Flowing Data, it offers great detail on how people with different incomes allocate their spending.
With regard to vacations, average annual spending is $1,145 per person or $4,580 for a family of four. You can see how much of that is spent on travel, lodging, food, and entertainment by clicking here. Not surprisingly, most of that goes towards travel and lodging, so a vacation that avoids the airport or involves staying with friends or family will cost a lot less.
The answer to the latter question—can they afford another vacation—is more subjective and, I would argue, vastly more important. More important because benchmarking your spending to others discounts how your values may differ from theirs.
From a strictly financial point of view, yes, they could afford another vacation. They had met their savings goal for the year, they had sufficient cash reserves to pay for the trip, and they are well on track towards their long-term financial goals.
But what ultimately led me to encourage them to take the vacation were two things that can’t be quantified.
First, this particular client is a born saver, it comes naturally to her. While a great quality to have, it can also be challenging for people with this trait to feel comfortable spending money on themselves. In a sense, they need permission to spend, they need to know that it’s alright.
Second, at the very beginning of my time working with this client, she looked at me and said, “You know, I feel we’re in great shape for retirement. But what if we want to go on a vacation this year?” What a great question and one that gets to the very heart of financial planning! How do all of us make the most of the money that we have? How do we balance long-term goals, like retirement, with short-term goals, like a family trip?
The beauty of a well-crafted financial plan is that it allows you to enjoy spending on your present-self knowing that your future-self is being taken care of. And that balance should give you peace of mind, whether you’re a born saver or a born spender.
Have a happy Memorial Day Weekend!