How Much of a Vacation Can I Afford?

You don't want to go overboard on vacation spending. Here's how to figure out what price point works for you.

After spending the past year mostly cooped up at home, many of us are itching to get away on a big vacation. But vacations cost money. You could take out a loan to finance one, but that's generally not a good idea, because your trip ends up costing you much more when you factor in interest. A better bet is to plan a trip you can pay for outright so you don't land in debt. By answering these questions, you can figure out a vacation you can comfortably afford.

1. What does my emergency fund look like?

If you don't have a fully-loaded emergency fund -- one with enough money to cover at least three months of living expenses -- consider waiting on that blowout vacation until your savings are more robust. That may be disappointing, but funding your emergency savings should trump all else, including a getaway. If you have work to do there, stick to a low-cost vacation in the near term. Don't consider raiding your emergency fund for a vacation. That money should be earmarked for unplanned expenses only.

2. Do I have high-interest debt to pay off?

If you have a nagging credit card or loan balance, work on paying that off, then take a trip. The longer you hang onto that debt, the more it costs you in interest charges. For now, stick to a trip that's budget-friendly, like camping or driving to visit a friend, where you'll hopefully get free lodging.

3. Do I have non-emergency savings?

Though you don't want to raid your emergency fund to go on vacation, if you have non-emergency savings, that's money you might put toward a nice getaway. You probably don't want to spend every last dime of your non-emergency savings, though. If, for example, you have $20,000, but you're also saving for a down payment on a home, don't use too much of that sum for travel.

4. How much can I realistically save between now and my vacation date?

Maybe you plan to travel over the summer, or during the fall, when things are often less crowded. Figure out your target trip date, then calculate how much you can potentially save between now and then. Say you normally spend all but $200 of your paycheck per month on living costs. You might cut back on some luxuries, like restaurant meals, and boost that monthly savings to $300. If you're not traveling for another four months, that's $1,200 you can put toward your vacation.

5. Could credit card rewards help pay for my trip?

If you're sitting on a pile of unused credit card rewards, you may be able to apply them to your upcoming vacation and cover a lot of costs. Research your options. Say you want to take a week-long trip. You may have enough air miles to book a free flight, plus reward points to snag four free nights at a hotel. In that case, you'd only pay for three nights of lodging, travel to and from the airport, meals, and entertainment.

If it's been a while since you've taken a trip, you may be itching for a big vacation. The key is to avoid debt in your travels. Getting away could work wonders for your mental health, but landing in debt could have the opposite effect. Answer these questions to help you set up a travel budget and enjoy a vacation that doesn't hurt your finances.