There is a similar show on Canadian TV. I can’t remember what it is called but the premise is the same. People getting themselves into financial trouble and an expert coming in to rescue them and show them how to budget. I’m always amazed at just how clueless some people are about financial stuff. The pattern is always the same. Spend more than you make and keep the game going with credit card debit.
Of course, they pick people that make for good television, but the money choices they have made are astounding.
One couple borrowed to finance a big wedding. The expert crunched the numbers and figured out the loan would be paid off at the same time they celebrate their 30th wedding anniversary! They were shocked to be told that since they hadn’t really paid attention to what that wedding was really going to cost them.
We are a long way from retirement, but I’ve gotten less tolerant of those as well - for me it was kids. I don’t want my kids to have the stress of the what-ifs. My kids wouldn’t understand a survival budget, and I sort of hope that - at least while I’m responsible for them - they never have to go through one.
(A few years on a survival budget during college is good for you - builds character - teaches you money doesn’t grow on trees.)
That’s basically the bottom line. If you save for a vacation, you can earn interest on your money. So not only are you saving money by not paying interest (and thereby making your vacation cheaper), you are actually gaining money instead. You can even think of it as “paying off a loan” if you want…if you can work a payment plan for a loan into your budget, you can just take that money and deposit it into a separate account each month, until you have enough for the vacation.
Let’s say you spend $5K on a vacation. You put the whole thing on a credit card at 10% interest, and you pay it off over 6 months. By my calculations, that’s less than $150 in interest.
Sure, it’s some cash, but it’s hardly a huge amount especially when compared to a $5K vacation.
If someone wants to save for a vacation before they go, go ahead. But it’s absolutely not fiscally or morally irresponsible to make the choice to put it on a credit card for a while, as long as you have the means and the motivation to pay it off in a reasonable amount of time. The arguments I’m hearing here seem to see credit cards as Things of Evil, which they are, to some people. But others can use them responsibly, and if they want to charge a vacation, I say go for it.
If you want to play the “every penny saved” card, then I ask you: Have you ever gone on a vacation when you had any debt? A car payment, a student loan payment? What about your retirement savings? If you put that $5K into a retirement fund it’d be worth ten times as much or more when you retire! How do you justify spending any money at all?
I don’t, actually, pay interest, except on my house. But I do know that some credit cards are way more than 10% interest…up to 22%, I think some of them are.
I wouldn’t say that it was necesssarily “irresponsible” to do so…I guess I just don’t see the POINT in doing so. If you are going to be able to pay it off in 6 months, why not just plan ahead and start saving 6 months ahead of time? Personally, I don’t think credit cards are Things of Evil at all…probably 90% of what I buy is paid for with a credit card…and then paid off at the end of the month. And, when times used to be hard, they got me out of some tight spots. So, no, I think they are tools to be used for certain things. And, if you have some wild opportunity come up to take some fabulous trip, and the only way you can do it on the spur of the moment is to charge away and pay it off later, then I can see where you might want to do that. But for a regular vacation that is usually planned ahead of time, it just doesn’t make any sense to me to pay for it afterward, with interest, rather than saving for it ahead of time.
That’s really not the point…the point is not to spend more money on something than you need to.
The problem I have with Dangerosa’s comments is that they ignore the human reasons why a vacation NOW is different from a vacation in six months.
NOW I get to see my old friend get married and see all the other people at the wedding.
THEN I get to see my old friend and his wife, if I’m lucky.
NOW I get to travel to Africa with my grandmother.
THEN no one goes to Africa becuase my grandmother is too frail to travel.
NOW I see the Cherry blossoms in bloom, or the Aspen turn yellow, or something else seasonal
THEN I don’t. And always wish I could have. Especially as I walk along the beach and wish the water was warm enough to go swimming.
Feb. 2005 NOW I get to celebrate Mardi Gras in New Orleans
Feb. 2006 Celebrate Mardi Gras amid the chaos caused by Katrina
Feb. 2007-future Celebrate Mardi Gras in New Orleans, but not the New Orleans that was there pre-Katrina.
And one can imagine many others. There is an opportunity cost to taking a vacation THEN versus NOW. That’s not to say that it isn’t fiscally smarter to save the money first, but there are times when waiting until you have the money in hand does mean making trade-offs, which are more significant than the difference to your long term bank balance than travelling now vs. then.
Let’s say you have a 30 year mortgage going, any money you save up to spend on vacation could be going to pay down that debt. It’s the equivalent of having already paid down the mortgage and taking out a HELOC to pay for the trip, the only difference is in your head.
I consider loans nothing more than ways to manage your cash flow. As long as you keep your overall spending in line with your overall income, taking out a loan to pay for a particular item is no big deal. Yes, you pay a bit more, but time has value too. I’d pay more for a contractor to finish a job NOW, rather than pay less for someone to finish it, eventually.
That’s the logic we use, as well. I was raised by depression parents. Borrowing was for necessities like cars, houses, catastrophic situations. Never for something frivolous like a vacation! In fact, we took one “real” vacation when I was a kid. The rest of them involved going to the beach, Riverview, museums, etc.
My dad once loaned money to a friend who had his own business as a landscaper. He couldn’t make payroll once and the crew was standing in the street in front of his house with baseball bats. That’s a good reason to borrow money. :eek:
We never pay credit card interest. On the other hand, we’re earning 5% in a savings account, so we’re ahead of the game automatically. I always vote for the option that gives me free money.
I have done, not so much money though, and due to peculiar circumstance.
In the first case, my employer needed to send me to Europe. Having never been, I arrainged to take some extra time off while there, and see a bit. Since this was not forseen, I didn’t have a chance to save up ahead of time, and since I had just purchased my first house, I was a bit strapped for cash. I borrowed against my 401K in that case.
In the second case, my car was stolen. While very reliable, it was old enough not to be very valuable, so I had only liability coverage. I found exactly the used truck I’d been talking myself out of for a couple of years to replace it. I stretched a bit to come up with a sizeable down payment.
A month later my first car was recovered by Chihuahua (Mexico) State Police. But If I want it back, I have to go get it. A friend with some experience in Mexico voulenteered to go with me. Now just having stretched to make an unforseen down payment on the replacement car, I took out a loan to finance this adventure. This was a simple signiture loan from my CU.
These fit into the “cash flow” catagory though. Not extravigant and nothing I couldn’t have paid for up front given 6 months warning, and I ended up repaying both loans very early.
I totally get opportunity cost, and the idea that some things are worth taking out a loan for. I just don’t know how many of the scenarios you gave are relevant (the OP was talking about “dream vacations” with the implication that it is not a spur of the moment opportunity to grab. A dream vacation usually can be planned for any time.)
Weddings are great things to travel for, but they aren’t really in the “dream vacation” category that you would have to borrow against your house for. A plane ticket there & back, one or two nights in a hotel…that’s far different than borrowing thousands of dollars to take a dream vacation.
This would be the kind of thing that I would consider possibly worthwhile to take a loan for, if it was a fabulous opportunity that might not be an option next year or the year after.
The Cherry blossoms bloom every year…plan it for next spring, instead.
You can’t really plan every move in life based on what MIGHT happen…I don’t think I could live my life thinking "that city might be GONE by next year…I’d better take a trip there now!
As I said, some opportunities you have to grab when they arise, but a dream vacation? Just don’t see a reason not to plan ahead.
There were times when I was really a bad money manager (in my reckless youth). But there is no escaping “the look” you get from a depression parent when you do something really stupid with your money. It’ll chill you to the bone!
It depends on what some see as a dream vacation? While I didn’t get a loan I had only eight months to plan, save and prepair for a trip a couple of years ago. In October of 03 I found out there was a huge swim meet in Italy, usually that wouldn’t be a big deal to make, but I found out that I could take five weeks off work, not something that’s easy to do. I ended up finding a motorcycle I borrowed and rode around Europe for five weeks. There’s not too many vacations that can get better then that, plus that’s the only time the meet was going to happen in Europe and everything fell my way.
I ended up spending $5000 or so, but I lived cheap. I didn’t need to take a loan, but even a couple of months difference and I would of had to take one. I would have too, maybe not a home loan, but some sort of loan. I can see in some limited situations where taking a loan would be worth it, for most vacations no, but some yes.
Absolutely! I think, to me, part of what would make a vacation worth taking out a loan for is that once in a lifetime opportunity. Saving up money for the vacation in advance is great, but part of what makes it a truely dream vacation (in MY mind) is that perfect, magical arrangement of dreamed of places, the people you can travel with, the freedom to travel then . . . all the details which might make it
Not sure I agree-- but it may be a difference in how we percieve dream vacations, rather than a difference of opinion over the time-value of money.
My friend is getting married on the West Coast, I live on the East Coast (we met when we both lived in the MidWest almost a decade ago). I’ve always wanted to go to the West Coast and if I go, if I pay the $800 airfare, I might as well stay for a week and have a chance to explore the coast, do some other sightseeing in the areas, get my money’s worth out of it–especially with 12 hour minimum travel time–that’s the time from when my plane would be scheduled to depart here to when it would land there. OK, would it cost me thousands of dollars? Only if I spent more on hotels and rental cars and food than I plan on. [Note: I just searched Travelocity to get good estimates of airfare and length of flight for a real wedding. The details in this paragraph are entirely true. Though I’m not actually planning on going to the wedding–too much money, and too much opportunity cost for other reasons.]
Believe it, it was one of my grandmother’s last foreign trips, and absolutely worth borrowing money for, although in fact my grandmother paid for two people’s travel.
This is largely true, but it’s balanced by the reality that when you put things off for another day, another month, another year, you may never get to do them at all. Maybe it’s because a hurricane wipes out that city, maybe a heart attack gets you without warning, maybe you just postpone the activity until the chance is gone for no traumatic reasons whatsoever. And so, if the opportunity for a Dream Vacation comes along and the only reason you can’t take it is that you don’t have enough warning time to save up the money for it, there is a part of me screaming “Go for it! Make sure you can pay for it in the long run, but take a gamble, make some memories, don’t look back wishing you’d taken that once in a lifetime opportunity”
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As I said, some opportunities you have to grab when they arise, but a dream vacation? Just don’t see a reason not to plan ahead.
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And I think to me, a dream vacation is not something that one can neccessarily plan ahead for, because it’s a once in a lifetime opportunity. Ordinary ones, yes, one should save for and plan so that you make memories without spending a lifetime paying for them. But a dream vacation? I think, depending on circumstances, using a loan to pay for it is not the end of the world–or proof that you don’t understand how finances work.
Heh! My father is younger than that but he was raised by a depression parent and The Look lives on in him. He tries to act nonchalant like it’s none of his business but you can see him struggling to reconcile such information with the idea that he is supposed to respect and love me. Poor guy. It’s good we live 2000 miles apart and he doesn’t witness me day to day.
I am paying off my remaining credit card balance today! woot! It was supposed to have been paid off last December.
