How to Plan a Vacation Budget

Before you start clicking through resort photos or airline websites, make drawing up a budget the first step in planning your next vacation. 

More than half of Americans prioritize saving money for travel over hobbies, retirement savings and home improvements, a recent survey found. But taking a memorable vacation doesn’t have to drain your bank account, sideline your 401(k) contributions or derail your bathroom renovation. 

Setting a comprehensive budget for your trip is a integral part of the travel planning process—and it can help you avoid overspending at the expense of other goals.

One popular—and good—guideline is the 50/30/20 budget method, where you allocate 50% of your take-home income to needs (essentials), 30% to wants (discretionary expenses) and 20% to paying down debt or beefing up savings. Travel expenditures would fall under the 30% bucket for wants.

Gearing up for a trip? Here are the categories to consider when it comes to calculating your travel costs. 

Airfare

Airline ticket prices jumped by nearly 25% between September 2022 and September 2023. Domestic flights clocked in at an average of about $254, according to the Consumer Price Index. But don’t be discouraged: There are tools you can use to set a budget for airfare and even save money—especially if your travel dates are flexible. 

“Search engines like Google Flights and Skyscanner have a calendar view that compares daily flight prices over the course of a month,” says Matthew Kepnes, author of the travel blog Nomadic Matt. “If you don’t know the exact day you want to fly, use this calendar feature to average a rough price for your budget.”

Becky Blaine, who spent 19 years in the tourism industry before joining travel advice website The Points Guy, recommends setting a Google alert to track airfare prices for your destination. Other free price-alert tools include Airfarewatchdog, Hopper, FareCompare and Skyscanner. 

Smart way to save: After you book a plane ticket, keep an eye on prices for that specific flight—many airlines will offer a credit for future travel if the fare drops and you contact them. Also, consider getting an airline credit card to snag free checked bags, discounts on in-flight purchases, such as food and drinks, and points you can use for future flights. Most airline cards offer bonus points for flight bookings. 

Lodging

Hotel prices haven’t skyrocketed like airfare prices, but U.S. hotel rates in September averaged $160 a night, up 3.5% year over year, according to data from hotel analytics firm STR. Hotel prices are also trending upwards in many popular international destinations, such as Buenos Aires (+17.5%), Cairo (+14.6%) and Paris (+11%), American Express Global Business Travel’s Hotel Monitor 2024 report says. 

Comparison sites such as Expedia, Kayak or Priceline can provide an overview of hotel rates at your destination. If you’re traveling domestically and prefer renting an Airbnb over staying at a hotel, take a look at Joybird’s research showing the average price per night by U.S. city. (San Francisco tops the list for most expensive Airbnb rates in America, while Tulsa has the lowest.)

Smart way to save: If you prefer to stay at a particular hotel chain, make sure to join its loyalty program to rack up points that you can cash in for lower rates or rewards in the future. Or, if you’re willing to book accommodations at the last minute, the mobile app HotelTonight offers same-day or week deals on hotel rooms in hundreds of cities worldwide.

Rental car, gas and insurance

Blaine suggests shopping around using a rental-car aggregator such as AutoSlash or AAA to check prices from several companies. “Assess the type of car you need on your trip,” she says. “Sometimes, a compact car might work just fine versus an SUV, which usually costs a bit more and takes more gas.” 

She also likes the Gas Buddy mobile app for checking gas prices not only along the way during your trip while on the road but also ahead of time to budget for the price a gallon in advance. 

Don’t forget to factor in the vehicle’s fuel efficiency when estimating gas expenses, Carnicelli says. Tip: Renting an all-electric vehicle or a hybrid vehicle that gets more miles a gallon than a gas-powered car could help you save money on fuel costs. (Make sure you know where you can charge.)

Moreover, you may want to purchase rental car insurance if you don’t have auto insurance or your primary policy doesn’t cover rental cars where you’re traveling (internationally, for example). Alternatively, your credit card might provide rental car insurance free, but the coverage could be limited, so take a close look at your card’s policy.

Smart way to save: If you’re renting a car, refill the tank before you return the vehicle, since rental car companies typically charge higher rates a gallon than most gas stations. To save money at the pump, consider getting a gas rewards credit card. 

Food

Before taking a trip, Kepnes uses Numbeo.com to view estimated prices for restaurant meals and groceries at his destination. The site uses crowdsourced data to determine cost estimates for common items such as beer, eggs and bottled water. 

Still, food budgets can vary significantly from one traveler to the next, Kepnes says. “I budget more for food than most travelers, since I travel specifically to eat and enjoy different cuisines,” he says. To make up for it, he’ll spend less on accommodations and get around via trains and buses rather than renting a vehicle.

Smart way to save: Enjoy lower-cost meals by eating at locals’ homes. You can use a peer-to-peer dining app, such as EatWith, to find in-home meals and cooking classes. 

Entertainment

Many travelers forget to earmark funds for entertainment, but these costs can add up, so it’s important to plan accordingly.

Looking for things to do? Kepnes recommends using Get Your Guide. “It has tons of activities in destinations all around the world, from food tours to excursions to entry tickets,” he says. “It has prices, too, so you can build an itinerary of things to do while also seeing how much activities are going to cost.”

How much money Kepnes allocates for entertainment depends on where he’s traveling. “If I’m going to, say, New Zealand, I’m going to spend a ton of activities because it’s a country whose tourism is based on doing cool things, like hiking, skydiving and bungee jumping,” he says. “However, in a place like London, where most museums are free, I’ll spend less.”

Smart way to save: “Think about if you’ll be visiting museums, national parks, or any other locations where an annual pass might make sense,” says Blaine. For example, “Usually, after one to two visits, the National Parks ‘America the Beautiful’ $80 annual pass more than pays for itself,” she adds. 

Travel insurance

Travel insurance reimburses you for a portion of your nonrefundable expenses if certain events cause cancellations or disruptions to your trip. Some travel insurance policies also cover medical treatment if you become ill or injured on the trip, medical evacuation costs up to a set limit if you suffer a serious injury, and reimburse you for lost or delayed baggage. But experts say travel insurance isn’t always necessary. 

If you’re traveling domestically and not taking a very expensive trip, travel insurance may not be worth the cost. However, the calculus could be different if you’re going on a luxe vacation or a trip abroad. “In any international trip, I would recommend travel insurance,” says Kristin Pugh, a certified financial planner at Creative Planning in Atlanta, GA. “There is too much unknown in the world today to not do this.”

In some cases, travel insurance isn’t optional. “Travel insurance for an organized tour, cruise or safari is often required,” says Marguerita Cheng, a certified financial planner in Gaithersburg, Md., who travels frequently to visit family in Germany and Indonesia. “Some countries may even require it” for entry.

Generally, travel insurance costs 4% to 8% of a trip’s total expenses, according to the U.S. Travel Insurance Association. But costs can vary depending on the provider and the policy’s deductible and exclusions. So do a little shopping to get insurance estimates for your coming trip.

Smart way to save: If you take several trips a year, consider getting an annual travel insurance policy. For a flat fee, you’ll receive a certain level of travel protection for the whole year. Most annual plans will set you back a few hundred bucks, but they often make sense for frequent travelers. 

Says Chang: “Purchasing an annual travel policy may be more cost effective than purchasing multiple policies.” 

Emergencies

Even with travel insurance, carving out a portion of your travel budget for emergencies and other unforeseen expenses is crucial, Carnicelli says. His recommendation: Calculate your trip’s overall budget and set aside an additional 10% to 15% of the trip’s cost for the unexpected. “Having this reserve can help provide peace of mind during your travels,” he says. 

Smart way to save: Like your regular emergency fund, keep your travel-emergency fund in a high-yield savings account. That way it will be easy to access and earn some interest. And if you don’t end up needing the money, you’ve already started saving for your next trip. 

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