Saving up for that special vacation

As summer approaches, Americans dream of getting away. But, with money tight, how are they paying for it?

Loretta and Mark brought their two adolescent boys, Holden, 16, and Cooper, 10, from Michigan to camp in northern Virginia. Rather than renting a car to see the sights in the Capitol, they save money by taking public transit.

Nearly 140 million Americans, or 59 percent, plan on taking a vacation this summer, according to a survey by American Express this month. The U.S. Travel Association reported similar numbers and added that 69 percent of Americans have taken a leisure trip — compared to business travel — in the last year. That number is still less than its February 2009 high of 78 percent.

California-based personal finance expert Andrea Woroch says the planning process should chart every possible expense.

“Regardless of where and when you are traveling, the first step in assessing a planning and saving strategy is to come up with a general budget of how much the total trip will cost,” she said. “Figure out the financial big picture of your trip and then make a budget.”

Young newlyweds William and Katy began their honeymoon in historic Williamsburg, Va., and slowly made their way to the District. Sitting on a bench on the National Mall on a sunny afternoon, the couple said they knew exactly where they wanted to go after the wedding.

Being able to plan travel in advance saved them money, William said.

Still, Katy said, they are still suffering from a little bit of sticker shock of the cost of the trip and admitted to using credit cards often.

Credit card debt increased almost 8 percent over last month to $803 million, the Federal Reserve reported. It has remained steady at that amount since its 2008 high of $957 million.

Nearly half of consumers planning to take a vacation expect to use credit to finance it, according to American Express data. Those earning less than $100,000 per year are more likely to pay cash or use savings accounts than credit cards.

“Credit cards can lead to sticky situations,” Woroch said. “Ideally, you shouldn’t rely on a credit card to pay for your trip … However, a credit card that offers travel or cash rewards could help you get extra points, especially when used for a big trip. Remember, however, that each time you request a new line of credit, your credit score gets a negative hit. This makes mortgage and car loans more difficult and more expensive to negotiate, so keep this in mind before you open a new card.”

The explosion of the credit bubble in 2007 seems to have caused a surge in American savings; the U.S. consumer savings rate has more than doubled since 2008, and Gallup research shows that people enjoy saving more than they do spending money. But if they are going to spend, analysts say they are happier when they purchase an experience rather than material objects.

In shorts and T-shirts, the family from Michigan sat on the grass outside the Smithsonian, eating ham and cheese sandwiches, chips and bottled water. Mark admitted to using credit cards during the vacation, but the family managed to cut costs by packing lunches for themselves.

“Whether limited in time or limited in funds, there are a few tricks to help boost your savings account. Look at your monthly expenses and find areas to trim your bills,” Woroch, the personal finance expert, said. “Some of the mistakes people make when trying to save money is making too large of a goal. Creating smaller goals each week or month and making smaller changes to your spending habit will help you succeed in the long run.”