How to finally save for that once-in-a-lifetime holiday

Whether you want to lounge on a Caribbean beach for weeks or cruise around the world, lots of us have spent years longing for a luxurious ‘once-in-a lifetime’ dream holiday. 

You might feel like the space to undertake this adventure is slowly starting to appear – but affording it is quite another thing. 

However, there are ways to enjoy your trip guilt-free without feeling like you’re risking your future financial security. 

There are a lot of elements to consider when saving for a dream holiday – but knit them together in a way that works, and you can forget about the cost and start getting excited about where you might go... 

Start budgeting and set goals 

Now, budgeting sounds like an obvious step, but it might be a few years since your last check on your household expenses. 

If you’re already used to budgeting, update the process to get an up-to-date view of how much you’re spending and where. 

If you’ve never written a household budget, now’s the time.  While it might feel like a chore, it can be a therapeutic and insightful process.  

You’ll be able to see exactly what’s happening with your finances and gain a new sense of control, while finding where you can free up some cash for the all-important trip.  

First, list the money you’ve got coming in each month - whether that’s from work, pensions or other investments - then list your expenses.  

“Deduct essential expenditure such as your mortgage or rent, utility bills such as electric, gas, broadband, council tax and mobile phone to ascertain [potential] disposable income for a holiday,” explains Jane Hawkes, Consumer Expert at ladyjaney.co.uk. 

“Set realistic, achievable goals, prioritise spending and look for effective ways to save money and spread payments.” 

By looking at what you’ve got coming in and going out, you can make any tough decisions to ensure you’ve got the financial power to save a bit more for holidays than you might have done previously. 

And if you’re a little short on how much you’ll need to have the ‘absolute dream’ holiday, there are plenty of ways to bring in extra income you may have never considered. 

• How to build your most effective budget ever 
• 9 easy ways to earn some extra cash 
• Is there money lurking in your shed? 

Don’t forget about your retirement plans 

Planning a trip of a lifetime is hugely exciting – and certainly well-deserved after years of working.  

But it’s important to ensure that saving for your holiday doesn’t knock your long-term retirement plans off course, especially if you’re considering using part of your pension to fund the plans (taking part of your tax-free cash lump sum, for example). 

“Make sure your holiday savings plan is integrated into your overall financial strategy,” says Angela Davy-Makwana, Financial Planner at wealth management firm Quilter.  

“This way, you can enjoy your dream trip without compromising your financial security or the lifestyle you’ve worked hard to achieve in retirement.  

“Balancing short-term desires with long-term goals is key to a fulfilling and financially stable retirement.” 

• How much do you need for a comfortable retirement? 
• Not ready for retirement – working beyond State Pension age 

Set a holiday budget 

Once you’ve created your new, powerful budget, you need to decide how much this dream trip will actually cost. 

Think of everything you can – this should include accommodation, transport (flights, trains, ferries or a cruise ship), food and drink, entertainment and excursions. But also factor in costs such as travel insurance, vaccinations and visas.  

You’ll make some savings when away – such as spending far less on things like energy or water (if you’re on a meter) - but there might be some bills that rise: 

“You must also evaluate the costs that will continue back at home while you’re away... such as pet care if you need to check a dog or cat into a boarding kennel or cattery. These must all be included in your budget,” says Alice Haine, Personal Finance Analyst at investment platform BestInvest. 

Plan ahead 

You might want a trip with ‘complete’ luxury, but this doesn’t mean forgetting about being smart about choosing when to book and being flexible on when and where you go. 

Doing your research as early as possible will give you a good idea of how much your trip will cost, the best times to go, and how long it will take you to save up.  

Don’t be in any rush to book anything, but also be on the lookout for early bird discounts. This applies to airport parking and car hire, as well as accommodation and flights. 

Reducing (or giving up) work gives you the obvious advantage of year-round choice of when you go, and the more flexible you can be, the more you’re likely to save.  

“It’s unlikely you’ll want to leave your dream trip to the mercy of last-minute deals so it’s worth making use of any discounts that might be on offer for booking well in advance,” says Charlene Young, Pensions and Savings Expert at investment platform AJ Bell.  

“You can usually pay a deposit and leave the rest until nearer your trip. 

“Make sure you factor in any payment due dates into your savings goal and budget plan. Using a travel agent might give you access to the best deals on hotels or travel, and perhaps give added protection that comes with a package holiday along with tips from agents in the know if you use a specialist provider.” 

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Consider using rewards 

Certain credit cards offer travel incentives such as airmiles that could help someone achieve their goal faster, where points are earned for every purchase made. 

However, if you’re not a regular credit card user, make sure you fully understand what interest may be added to your purchases, and have a clear plan about how and when you’ll pay the money back to avoid building up debt. 

Paying for flights with airmiles can help save on tickets, but the bonuses vary between providers and may come with fees to use the card scheme, so it’s important to do research here.  

Some cards also offer a ‘companion voucher’ if you earn enough points, giving the user a second ticket for free on the same flight (though there’s usually still taxes and other fees to pay). 

Rob Burgess, Editor of frequent flyer website headforpoints.com, says: "On paper, saving up frequent flyer miles and hotel loyalty points to use after you’ve retired is attractive.  

“For a start, the biggest gripe about frequent flyer schemes - that you struggle to find availability at times you can go - becomes much less of an issue when you have total freedom to pick when you go away.” 

However, do your research before signing up. Loyalty points can expire on some cards, and you should be careful not to overspend in a bid to rack up points – a big credit card bill won’t help with your budgeting. 

Additionally, some credit card providers may not accept retirees without employment income, but this will depend on the lender.  

Burgess suggests signing up for these cards whilst still in employment may be preferred, as some may struggle to be accepted when no longer working. 

Think about opening a dedicated savings account 

Opening a separate holiday savings account and paying into it regularly can help keep you motivated and on track. 

By having the savings head out to a different account, you may be less tempted to spend if you’re not seeing the money sitting there (although do check on it regularly, of course, and make sure you’re saving in the most tax-efficient way, such a maximising an ISA allowance). 

“Automate your savings so that a set sum goes straight from your bank account into the savings account at the start of the month, or directly after you receive your income,” says Haine.  

Best-buy tables on price comparison websites can help you to find the most competitive interest rates and give you the maximum return your money can ‘make’ while saving.  

But to make life a little easier, you could use a savings platform that lets you choose from multiple savings accounts from different providers.  

These enable one to spread or move money between accounts, without needing to fill in a new application form each time, making it possible to get better rates when they appear. 

It’s important to consider if these platforms are right before signing up, as they may not always have market-leading rates, come with fees or have higher minimum investments than going direct. 

• How to save money without really noticing 
• 5 ways to easily boost your savings 

How will you spend when abroad? 

Think about your spending options when you’re overseas. Some countries still rely heavily on cash, while others are more geared up for card payments – if you’re taking a card with you, check it won’t charge you a transaction fee every time you make a payment or withdraw cash. 

Taking out cash on your credit card is best avoided as interest is usually charged from the date of the transaction.    

Haine says: “A number of banks, particularly challenger banks, now offer fee-free overseas spending. Just make sure the countries you’re travelling to qualify for the deal and remember there may be a cap on the number of fee-free ATM withdrawals you can make and the amount.” 

Alternatively, a prepaid travel card lets you top up with cash in advance and then make payments and withdrawals often fee-free. 

Olein Webster, Owner of travel agent Diamond Travel, says: “If using a prepaid card, keep an eye on the exchange rate for a few months before your trip. When it’s favourable, load your card with the currency.  

“Any money left on your card after your holiday can be converted to other currencies ready for your next trip – and again watch the exchange rates.”  

• How much cash do you still need to take abroad? 

Key takeaways 

• Set a realistic budget – but it’s easier to cut back when you’re looking forward to a dream holiday. 
• Don’t forget about your retirement plans – if you’re thinking of taking anything from your pension to fund the trip, talk to an independent financial adviser. 
• Be smart with things like loyalty points and discounts for early booking – every small part really adds up. 
• Plan ahead and set a budget for spending on holiday – and consider dedicated travel cards or accounts that offer fee-free spending.