“Traveling to Miami for Yeshiva break is super popular. Do you believe this is a prudent financial decision? I imagine the answer will differ based on a family’s financial situation, but I’d love to hear your perspective. Kol Tuv.”
Dr. David S. Gottlieb
West Hempstead, New York
For the uninitiated, Miami – and Florida in general – is an extremely trendy vacation destination during January when many of the yeshivas around the country have winter break. Hotels are packed, restaurants require reservations weeks in advance, and you are likely to run into every Yid you ever met on Collins Avenue. Given its popularity, folks may feel social pressure to go to Florida during this time of year. However, it’s important to assess whether this is a prudent financial decision for your family.
The framework for making this decision involves a few factors, namely your ability to meet non-discretionary expenses, the level of cash in your emergency fund, your retirement savings strategy, and how you plan to finance your trip. Allow me to explain.
Non-discretionary expenses: The ability to pay your regular, daily living expenses is paramount to any other financial goal. These expenses include your mortgage, utility bill, Yeshiva tuition, and putting food on the table. If you are kept up at night wondering how you will be able to afford any of these items, then going on vacation should not be in the cards.
Emergency fund: The next priority is the level of assets in your emergency fund. An emergency fund is excess cash folks keep in their checking or savings account that can immediately be drawn upon in the event of an emergency. The rule of thumb is to have three to six months’ worth of expense money in your account as a cushion in case a need arises. No need to worry how you will pay if your boiler blows, you need a new roof, or your car needs to be repaired, because your emergency money is already sitting in cash. It is highly recommended that you fund this emergency safety net before paying for a vacation.
Retirement savings: Before paying for a vacation, please consider “paying yourself first.” That is a phrase used by some financial experts to describe the process of regularly saving for retirement. The suggestion that retirement saving tops vacation may seem ludicrous to some. After all, retirement may be decades in the future. However, saving regularly for retirement is a necessity to safeguard your financial future. Retirement planning is a long-term goal. It’s not like an emergency fund, where you meet a certain threshold of assets and then can stop saving. Instead, a prudent retirement strategy generally focuses on one’s process and requires saving regularly and investing that money properly. If you have a few decades until retirement, a rule of thumb is to save 15 percent of your net income. If you are closer to retirement and have only a modest sum saved, that percentage may need to be higher. Granted, the feasibility of any savings rate is very much dependent on each family’s situation. However, the key point is that before you decide to indulge in any type of trip, make sure that you are contributing regularly towards your retirement.
Method of financing your trip: One of the biggest mistakes folks make before going on a trip is how they choose to pay for it. Paying in full out of your checking account, using a credit card and then paying your credit card bill in full, or using credit card points are all reasonable options for financing a trip. Some people may be fortunate to have a third party, like a generous family member or an employer, sponsor their trip. The important thing to keep in mind is that under no circumstances should your trip be financed using borrowed funds. Whether it’s credit card debt or a Home Equity Line of Credit, using borrowed money to pay for a vacation is a poor financial decision. Remember, going away for vacation is a luxury. It is not a right or an obligation. If you can’t afford to pay for it out of your own pocket, then pick a cheaper locale or stay at home.
As I mentioned in my last article, it’s important for folks to live their rich life. If going to Florida for winter break sparks joy in your life, then take that trip, guilt free, as long as you address the four aforementioned criteria. However, any getaway that requires taking on extra debt or comes at the expense of paying your bills, having an adequate emergency fund, or saving for retirement, is a poor financial decision. No amount of social pressure will change that reality.