This is a great time to start planning ahead for what you want to do in 2014, especially if you anticipate a year-end bonus or holiday money to tuck away into a savings account. The key to success is that it's not just what you save but how you save. Here are five ways to optimize your saving habits and make that dream vacation a reality.
1. Strategize: Think ahead to when you will get the most out of a big trip — over the holidays or during summer vacation — and when you are most likely to start saving toward that goal. It may be after receiving a bonus, holiday cash or during tax-refund season. Plan your timeline accordingly.
2. Embrace Risk: There's such a thing as considered risk. If your travel date is a couple of years away, consider depositing your funds into an investment account rather than a savings account. It's possible to grow your money while taking an acceptable amount of risk.
3. Be Specific: Traditional budgets don't work because they focus on self-denial. Rather than setting restrictive limits on yourself like "spend less on restaurants," try to visualize yourself on the beach or in the mountains on vacation. Research shows the more you see yourself achieving the goal, the more likely you are to get there.
4. Make Saving Automatic: Automating deposits into your savings or investment fund keeps you on track. It's easy to make good decisions, like vowing to save up for family time in Paris, when you're rational. It's harder to achieve these things when it comes to resisting short-term temptations or juggling expenses. Automating your deposits helps you stick to the plan no matter what happens.
5. Think Buckets: It's a good idea to keep your vacation account separate from other savings or investments. By creating a “vacation bucket” you can help avoid poor mental accounting. Separating your vacation "bucket" enumerates what you're working toward, instead of having a slush fund that may be raided for other expenses that come up along the way.
Don't waste your time trying to will yourself into good savings habits. Try these steps instead. You've got a vacation to plan!