I know several people who claim not to be able to save money for travel.
“If the money is in a bank account, even if it’s set aside for something else, I’ll spend it. I have no discipline,” is a constant refrain.
Many of these people have discovered some savings “tricks” that they use to save money for their trips wile keeping it away from themselves. The problem is, these tricks can backfire on you and leave you in a bigger mess than simply blowing your travel money on gizmos. Here are two strategies that can cause you problems.
Converting cash into gift cards
Many people with a financial discipline problem try to work around it by converting cash to gift cards for gas stations, restaurants, and the hotels that they will use on their trip. When they get paid, they quickly take, say, $50 to the store and buy a gift card that they can use on their trip. But the problem is this: If something happens and you can’t go on your trip and you need the money for a medical expense or a repair, you don’t have access to that money. You may have thousands tied up in gift cards, but that won’t help you pay the doctor bill or the roofing man.
Retailers will not give you back the cash once it’s on a gift card. The best you can hope for is that you can sell the cards on a site like Plastic Jungle, but even then you likely won’t get full value. You also have the problem of having all of that, “cash” stored up around your house. If you are burglarized or there’s a fire, you’re in trouble unless you kept meticulous records of your gift card numbers, balances, and receipts. (And you stored those records somewhere where they weren’t stolen or damaged, too.)
Paying a little on the trip each week/month
The other trick a lot of people use is to pay a little on the trip every time they get paid. If they know they need to pay $2,000, for example, they’ll divide that by the number of weeks/months until the final payment is due and then pay that amount every time they get paid.
The trouble here is that you are giving control of your money to the travel provider. They are earning the interest on that money, not you. And while most will give you a refund if you cancel within a specified time frame, it may take weeks to get your money back. Since most refunds are given in the same form as the original payment, if you paid by credit card the money will go back on the card but if you paid by check you’ll have to wait for them to cut and mail you a check. If you want to double your pain, make your payments with gift cards. The travel provider will put the money back on the gift card (or issue you a new one) and then you’ll be stuck with the problems discussed in number 1, above. In any case, if you need the money immediately, that’s tough. You’ll just have to wait.
The answer to this problem is to open up a separate bank account for your travel funds. Make certain that the account has no ATM use and no check writing privileges. Then, have a set amount direct deposited from your paycheck every pay period and forget about it. Online banks like ING or Ally are great for this. If you’re not comfortable with online banking, open your account at a local bank that has very few locations and none that are near your home or work. Make it as inconvenient as possible to get to that money.
By keeping your cash in a bank account rather than paying early on a trip or converting the money to gift cards, you retain control of the cash until it is ready to be used and you earn a little interest. As long as the account is difficult to access, it should cure your discipline problem. If something happens and you need the money for something else, it will only take a couple of days to move it into your main account. You won’t have to wait weeks for a travel provider to issue your refund or, worse, be stuck with a bunch of gift cards that you can’t convert to cash at all. You want to keep the money in your hands and spendable for as long as possible, especially in an unpredictable economy.