While talking about budgeting in the past, we’ve made mention of the fact that we’re believers in overestimating the cost of something, especially when it comes to big purchases (like vacations and home projects). At LenPenzo.com, there was a post that illustrated why we believe in overestimating: “Why the Dirty Details Matter When Planning Your Vacation.”

 

Many people have a dream vacation as one of their financial goals. Vacations can be amazing, fun, relaxing, and they give you the opportunity to see and experience things you can’t at home. However, vacations can also be expensive, and they are the perfect example of why overestimating the cost while planning can be very useful and financially beneficial.

 

There are always unexpected costs involve with travel. Len Penzo describes these unexpected costs perfectly. His ideal vacation to Maui that he estimated to cost $2,700 ended up costing him over $4,300!  And where did those extra dollars go to? Unexpected costs like additional travel fees on the hotel room and airfare, tips, etc. Luckily for Len, he had enough in his “mad money” account to cover the difference in expense. But how would he have paid for it if he hadn’t?

 

If it’d have been you, how would you have covered the unexpected $1,600 cost? Unfortunately, too many people turn to their credit cards when something like this comes up. Then you will be coming home from your relaxing vacation to that pesky credit card bill that will likely cause you more stress.

 

How do you avoid this situation? Overestimate! When planning and saving for your vacation, overestimate on every expense you expect. Think it will cost $500 for food and drinks? Budget for $700. Think airfare will be $700? Budget for $1,000. Doing it this way will definitely take you longer to save, but you won’t regret it! It will feel so much better to come home from that relaxing vacation knowing that you stayed under budget and won’t have to pay off your credit card bills.

 

And what if you overestimate too much? Apply the extra toward your next vacation or goal. So, if you think your vacation is going to cost $3,000, it actually costs you $4,000, but you saved $5,000, you will not only avoid the credit card bill, but you also have $1,000 to spare that you weren’t counting on. Overestimating the cost is definitely a more financially beneficial way to go.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.
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