What’s the ultimate secret to saving for your holidays? Before you put away anything for that crazy Bali vacay, you need to have a good understanding of your income and your expenses.
In this article, we’ll walk you through exactly how to save enough money to enjoy an amazing holiday – without counting every cent, and without completely draining your bank accounts.
Let’s get into it.
1. Implement a Budget
The first and most important part of saving money (for anything, not just a holiday) is getting the basics right. By basics, we mean ‘budget’.
Without a budget, you’ll never achieve financial security, you’ll spend an unnecessary amount on unnecessary things, you could find yourself in avoidable debt, you won’t have enough cash on-hand to deal with emergencies, and you’ll probably be extremely stressed.
Yes, a budget really is that important. There are plenty of different types of budgets, but one that’s designed for ordinary Australians is the Barefoot Steps, developed by one of Australia’s top financial advisors, Scott Pape.
The Barefoot Steps are designed to simplify budgeting by getting rid of strict ‘spend tracking’ – it’s pretty stressful and time-consuming trying to constantly track how much you’re spending and on what. Most of us who’ve tried budgeting can’t stick to it long-term because of how difficult it is, so we give up and go back to spending our money whenever and however we like.
Scott recommends something a little different. The Barefoot Steps include a roadmap for exactly how much to save – and, surprise, it’s actually doable.
There’s a whole book written about the Barefoot Steps (it’s called the Barefoot Investor, and we seriously recommend reading it), so we’ll just summarise the main points about budgeting here.
Scott recommends creating three different ‘buckets’ to hold your money: the Blow, Mojo and Grow buckets.
The Blow bucket is designed to be spent (we’ll get into that in a minute). The Mojo bucket is designed to give you back your financial ‘mojo’, so you don’t get caught out by expensive emergencies. Your Grow bucket is designed to, well, grow, and grow big enough that you can retire happy and comfortable.
100% of your take-home pay (the money you earn, excluding taxes and superannuation) goes into your Blow bucket. This is the bucket that will fund all your expenses – everything from food to holidays to buying a house.
Your Mojo bucket is a savings account that contains $2,000. Yes, that’s it. $2,000 that just sits there, accumulating interest, in case you ever need it for an emergency, like a health crisis, losing your job or having your house burn down.
Finally, your Grow bucket contains your superannuation (9.5% of your wages) and any other investments you have.
Now, let’s jump back to the Blow bucket, because that’s what we’ll use to save up for that awesome getaway.
Your Blow bucket comprises four different ‘sub-buckets’: Daily Expenses (60%), Splurge (10%), Smile (10%) and Fire Extinguisher (20%). We recommend creating four different bank accounts for each of these sub-buckets. Here’s why.
Your Daily Expenses account, which should contain 60% of your take-home pay, is what you live off. Housing, utilities, transport, insurance, food, Netflix, gym – all your daily and fixed expenses come out of this account. Use a daily spend/access account for this sub-bucket.
Your Splurge account, which contains 10% of your take-home pay, is for, well, splurging! Get your dose of retail therapy, indulge in those extravagant coffees, hit the clubs, go out to dinner – it’s all funded by Splurge. Use a daily spend/access account for this sub-bucket.
Your Smile account, which contains 10% of your take-home pay, is for making you smile. Long-term goals that are going to put a big grin on your face should be funded by this account. Think things like weddings, holidays or divorces. Use a savings account for this sub-bucket.
Your Fire Extinguisher account, which contains 20% of your take-home pay, is for putting out financial fires. Credit card debt, home deposits, mortgages – they’ll all be extinguished by that big chunk of cash. Use a savings account for this sub-bucket.
Here’s a diagram of how it works:
| Blow
100% of your take-home pay. |
Daily Expenses
60% |
| Splurge
10% |
|
| Smile
10% |
|
| Fire Extinguisher
20% |
|
| Mojo
$2,000 goes into this account at the start of your budget. |
|
| Grow
Superannuation and investments. |
The reason the Barefoot set-up is so effective for helping you save is because all your different sub-buckets have their own bank account. This makes it harder to dip into your savings for things like coffee and shopping – instead, you have to actually open up your bank’s app and make a manual transfer, which makes you more aware of the choice that you’re making. You’ll also end up with two debit cards – one for Daily Expenses, and one for Splurge.
Oh, and you’ll want to ditch your credit cards. Scott recommends a bunch of strategies for paying off your credit card debt and then destroying the offending pieces of plastic. Nothing kills your attempts to save up for a trip away like an ever-mounting pile of completely avoidable debt.
Before we move on, let’s do the maths.
Let’s say you’ve followed the Barefoot Steps, and your debt is down to a mortgage and your unpaid HELP loan. The median Aussie personal income is $49,805 per year, and, for employees, that number rises to $50,861.
If we work off the employee income (77% of Aussies earn their income as employees), you’ll end up having $4,831.8 of your income automatically added to your superannuation account by your employer. You’ll also end up paying $6,506.49 in tax, and $920.58 in Medicare levies.
This leaves you with $38,602.13 take-home income, and so your buckets will look something like this:
| Daily Expenses | Splurge | Smile | Fire Extinguisher |
| $23,161 | $3,860 | $3,860 | $7,720 |
2. Optimise Your Expenses
Now we know how much we’ll have in each of our buckets, it’s time to do some expense optimisation.
What do we mean? Well, if you’re like most Aussies, you probably have a bunch of unnecessary expenses that contribute nothing to your life, and it’s time to get rid of those.
No, we’re not talking about penny-pinching and making your life miserable – we just mean cutting the costs that aren’t helping you.
Those online accounts that charge $10-something a month that you forgot about and never use. The household junk items that you admire for a week, and then proceed to accumulate dust and become trip hazards. Online retail therapy syndrome (involves joyfully clicking ‘Add to Cart’ on dozens of different items as a form of emotional release).
You get where we’re going? Once you’ve eliminated bad spending habits, your Splurge and Daily Expenses will be looking better. But there’s still more work to be done.
Here are a few tips to help your expense optimisation:
- Reduce provider fees. These fees accompany your regular expenses – mobile plans, electricity costs, your bank fees, your superannuation fees, your insurance, and so on. Many of the bigger providers – the Big Four banks, for example – charge high fees and give you sub-par returns. Doing your research and considering cheaper, more efficient alternatives can save you a lot of money in the long run. For example, Scott Pape recommends using high-interest online banks like ING and Greater.
- Shop with purpose. We all know the lure of a good browse. Grab lunch, grab a drink, and wander around those giant air conditioned shopping centres with a friend. Our advice: There’s nothing wrong with browsing, but purchasing without intent can lead to a lot of money being wasted. Only buy things you actually want.
- Shop smart, not often. Grocery shopping is a massive drain on your Daily Expenses account, particularly if you have kids, so it’s important to do it right. Save money by meal prepping, shopping with a list, and buying bulk/on-special items.
- Yes, it’s pretty amazing how much you can save by just doing something yourself. Instead of buying a coffee on the way to work, make one at home. If you know how to perform a regular car service, do it for every car in your household. Instead of buying takeaway, cook at home. That room your partner wants repainted? Get the equipment from Bunnings and do it yourself.
Want more easy expense optimisation tips? Check out this awesome list from Canstar.
Okay, now you’re saving as much on everyday expenses as you can. Maybe you’re ending up with a bunch of spare money in your Daily Expenses and Splurge accounts each week. To help save up for that holiday faster, consider tweaking your percentages slightly – you could allocate 55% to Daily Expenses and 5% to Splurge, adding the remaining 10% to your Smile. This will help you save up twice as quickly for a getaway.
3. Calculate Holiday Costs
Calculating your holiday costs is the final step you’ll need to take to effectively save. We’ll call it your ‘holiday number’ – the amount you’ll need to get to your destination, pay for accommodation, and enjoy an incredible, experience-filled getaway.
When calculating your holiday costs, start by planning an itinerary. This will give you a rough idea where you’re staying, how long for and the things you want to see and do. Do some research, and calculate how much it will cost.
You should factor in:
- Plane tickets
- Rental car hire and fuel costs
- Accommodation costs, including nightly rates, service fees and gratuities
- Food (bear in mind that you might be eating out a lot)
- Activity costs, like entrance fees and equipment hire
- Travel insurance (get it – you’ll regret not having it if something goes wrong)
- Visa/passport costs
- International phone plans
- Play money (for shopping, spur-of-the-moment experiences, etc.)
When you’ve added and rounded up all of the above costs, you’ll have your holiday number.
Now add $500 to it. Emergencies can and do happen – whether it’s something like your child getting sick or your flight being delayed – so you want to have some spare cash on-hand to keep you covered.
The final figure is the amount of money you’ll need in your Smile account before you can head off on holiday. Everyone holidays differently, but research from Budget Direct shows the average Australian spends $4,000–$5,000 on an overseas holiday.
You can use tools like Budget Your Trip to check average holiday costs for different parts of the world.
And that’s it! You’ve done the hard work, and now you can enjoy an incredible family holiday without returning home to drained and empty bank accounts. Holidays should be a source of joy, not a cause of stress.
To recap, here’s how to save money for your next holiday.
- Implement a budget. We recommend the Barefoot Steps by Scott Pape.
- Optimise your expenses. Cut down on unnecessary expenses which contribute nothing to your life.
- Plan your holiday, get your holiday number, and add $500 for emergencies.
- Pack your bags and head for the airport! It’s time to relax and enjoy two amazing, guilt-free weeks.
Saving for a holiday really is that easy. You don’t need to deprive yourself or your family of the things you love. You can get the money you need by implementing good saving practices and thinking about what you spend.
