Coming home with a bad sunburn isn’t the only thing you have to worry about on a beachside vacation. Debt may be another worrisome souvenir of your trip, and it can leave your budget a little burnt around the edges.
According to LearnVest, the average American goes into more than $1,000 in debt to finance their trip, and it takes them an average of six months to pay it off.
If you’re feeling the burn when you return home, this budgeting guide is a soothing balm for your finances. Here are some tips that may help you recover your budget. You can apply these shortly after your trip, or anytime you need some relief following a big expense.
Review Where it Went Wrong
If it’s a single expense that throws off your budget, it may be easy to pinpoint when and how your budget fails.
Let’s say your air conditioner broke down this summer. This may have come as a surprise if your AC is on the newer side, but an unplanned expense like this may be the obvious reason why you’re short on cash.
But when it comes to things like vacations, it’s usually not just one big purchase you can point to. Rather, it may be a cumulation of expenses that breaks your budget. Between flights, accommodations, eating, entertainment, and souvenirs, there are a lot of reasons why you may have gone over-budget.
Reviewing a long list of expenses may feel like rubbing your nose in an honest mistake, but it serves a purpose.
It reveals your biggest temptations
After pouring over your credit or debit card statements, you may notice patterns in your spending habits. Maybe you ate every meal at a restaurant while abroad, or perhaps you visited ATMs regularly and paid exorbitant fees each time.
In the moment, these individual expenses may not seem like much. But they may add up. Sometimes it takes seeing these expenses in the black and white of your statement to realize how much.
These insights into your spending flag problem areas to remember for future vacations. You’ll know what to avoid if you want to plan a more affordable trip next time.
How to Make an Effective Budget
Knowing which repayment method will work best for you is all well and good. But what’s more important is knowing how you’ll make these payments in the first place.
If your budget took its own vacation while you were away, it, like you, needs to get back on the grind. This financial tool may help you get organized and assist in deciding which repayment method works best for you.
Review your Expenses
When you’re making a budget, reviewing your expenses line by line makes this next task easier. You already have your statements out, so you can see how much you owe and to what financial organization. You’ll also see other details, like when your next payment will be and how much interest you’ll accrue.
Make sure to do a similar review for any other debts that you may have such as any personal loans or lines of credit. Also, make sure to keep track of what you owe and when you owe it.
Snowball Effect vs Avalanche Repayment Methods
In the financial world, there are different ways to tackle debt. Two examples of some of the commonly used methods require you to make the minimum payments on every account, but it prioritizes your extra cash in different ways.
The Snowball Method
This technique encourages you to put any leftover money on the debt with the smallest balance first. Once you pay this debt off, you’re to add the money you usually spend on its monthly minimum payment to the debt with the next smallest balance.
By attacking your smallest debt first, you stand to see results quickly. Seeing a balance of zero is a powerful motivator, which may help you stick with your payment plan.
By the time you get to your final, biggest debt, you’ll also have more cash free to put towards its monthly payments. You’ll pay off large chunks at a time, so it will seem like you’re making a bigger impact.
The Avalanche Method
This repayment option focuses on the debt with the highest interest first. Otherwise, it’s very similar to the snowball method.
Once you strike out your first debt, you’ll combine any leftover cash with the money you previously used on its monthly minimum payment. You’ll use this new sum to tackle the debt with the next highest interest rate and so on until you’re debt-free.
This method stands to save you money on interest, which is why it may seem like a better option than the snowball technique.
That being said, people with large debts may be more likely to stick with their payment plan if they focus on smaller balances first. It’s a lot less intimidating to focus on small numbers, and you’ll see the results of your hard work faster.
Slash Unnecessary Expenses
Unnecessary expenses cover things like takeout, bath bombs, baseball tickets, indoor plants, video games, movies, and more — a.k.a. the fun things in your budget.
Although your life may shine a little brighter because of them, these expenses may not be essential to survival. You may remove them from your budget and not have to worry about how you’ll get to work, eat, or sleep at night.
Unnecessary expenses are the easiest place to start for most people, but everyone’s finances are different. What works for some people might not work for you — especially if you live paycheck to paycheck or have already purged your budget of these luxury items and experiences.
Try to look at your monthly household budget in search of expenses you may reduce or cut out entirely. The more of these you can slash, the more cash you’ll be able to free up and put towards your debts.
That’s the basic rule behind any of the budgeting techniques outlined in our Ultimate Budgeting Guide as well as some other articles found on our blog. But it’s not always an easy rule to put into practice. If you aren’t sure which expenses to focus on first, we have some ideas.
But without unnecessary expenses, what’s left of your budget?
Reviewing your Bills
If you don’t spend enough on the fun stuff to make a noticeable difference to your loan payments or savings, you may have other options. You can try to earn more by switching jobs or getting a side gig. Sometimes bringing in a little more cash is as easy as downloading the right app.
But if you’re already working as much as you can, you may not have time to get a part-time job or side gig. Instead, you may have to spend less by targeting the necessities. These expenses may be a little harder to change, but it’s possible with some hard work.
Here are four areas where you may be able to unearth some extra cash in your budget.
In most states, you’re required by law to have car insurance if you drive. On average, this tags on $1,503 to your annual budget, or $125 a month.
Whether you’re above or below this average, the cost of your insurance isn’t static. You may be able to change it by shopping around. Generally, each insurance company has different underwriting processes, so one may offer better rates than the others.
If you don’t drive often, you may also consider usage-based auto insurance. Some companies offer discounts for low mileage.
If you’re on the road a lot, you may consider bundling your auto insurance with home and flood insurance from the same company. These packages may be cheaper.
Cable and Internet
It may be the golden era of TV, but you don’t need cable to tune into the best shows of the year. Streaming giants like Netflix, Prime, and Hulu make it possible to catch up on episodes without needing to pay cable — and they come at a fraction of the price of your TV package.
While just one streaming subscription may cost you between $8 and $15 each month, basic cable costs as much as $107 a month. By cutting the cord, you may save almost $100, and in some cases, the only content you’ll sacrifice is the commercials.
If you switch your viewing from cable to streams, keep an eye on your broadband. You may end up using a lot more Internet than you did before the switch.
To make sure you don’t replace your costly cable bill for an inflated Internet bill, check in with your plan. You may be able to negotiate better rates or simply switch to a better plan to avoid overage penalties. You may also want to research smaller providers to see if they can connect you for less.
You may be able to save more than $100 a month on prescription medicine simply by changing where you shop. Prices fluctuate from retailer to retailer, but an NBC report shows Costco consistently sells its medication for less. And you don’t need a membership to pick up a prescription from the bulk store.
Do your research to find the pharmacy with the lowest prices. But be wary of those before you try them. Make sure the pharmacy has good reviews and a license to dispense medication.
You may save even more by opting for generic versions of brand-name prescriptions. As long as it’s approved by the FDA, the generic drug tends to have the same active ingredients as the brand-name option. However, always speak with your doctor before you make the switch to make sure it’s the right decision for your health.
Combine generic drugs with coupons from a site like GoodRx to maximize your savings. Some of the promotions may have strict eligibility, but others have no limits on how and where you use them.
Oil, gas, electricity, and water — add them all up, and your utility bills take a big chunk out of your budget. The average American spends more than $2,000 each year on utilities.
But you may not have to. You may reduce what you pay by learning to conserve energy when possible.
Sometimes, it’s as simple as setting your thermostat lower when you’re at work. Lowering the temperature by 10 degrees for eight hours per day may save as much as 10 percent on your annual heating and cooling costs.
Other times, you may have to invest some time and effort in addressing an energy problem, like a leak. Fixing a common water leak may save you 10 percent on your water bills.
Between careful use and regular maintenance, you may be able to cut down on how much you use your utilities. Take some time to understand your usage and look for more ways to save.
How Do Installment Loans Fit into This?
After a large expense sweeps out your savings and adds bills to your budget, you may be in a vulnerable position. You might not have a financial safety net that your savings usually provide.
If anything goes wrong while you’re rebuilding your budget, you may need some help in order to handle some extra expenses.
Let’s say, your car breaks down unexpectedly, and the bill is too much. If you can’t negotiate a payment plan with your mechanic and you have no other way of making your payment, then you may want to consider an installment loan.
Some installment loans may help you take on unavoidable, short-term bills or repairs when money is tight. But they’re not a catch-all solution for every financial hiccup, as small-dollar, short-term loans, are designed for emergencies.
What they aren’t designed for is financing your next vacation. It’s also not a good idea to rely on an installment loan to pay off an existing loan.
Remember this general rule of thumb if you ever work with Installment lenders: these products are for unexpected yet unavoidable expenses only.
Start Saving for the Next Vacation (or Expense) in Advance
Following a budget isn’t always easy. It may take a lot of effort before you get your bills under control and a lot of time before you restock your emergency fund.
Remember how hard it may be when you start planning another vacation. The stress you feel now may act as a warning for the future: don’t spend what you can’t afford.
If you don’t want to repeat the same mistakes again, consider sticking with your budget to meet your financial goals.
Saving throughout the year may help you pay for a vacation without dipping into your emergency fund or line of credit. While savings and personal lines of credit can help when disaster strikes, they’re not an excuse to buy things you can’t afford.
The same rule goes for any big expense — whether it’s an unexpected household repair or an anticipated wedding gift. By squirreling away a bit of money each month for discretionary spending, you may be able to cover these expenses with ease.
Like life, your budget is all about balance. If you went on an expensive vacation — or if you dropped a lot of cash on an unexpected event — you may have to slow down in the months following your big expense. If you want to afford something big later on, you may have to sacrifice some of the fun things to save up.
As an online personal loans lender, we know emergencies may be a year-round threat to your budget. There may be household repairs to make, a car repair here and there, and maybe an emergency medical bill to pay. And unlike a planned summertime vacation, some of these expenses may sneak up on you. Take some time to find out what balance looks like to your budget and remember our money-saving tips for when you need to recover from a big expense.