In this edition of "Bank of Dad" our columnist tackles questions about spring break budgeting and how to reassess your finances after a surprisingly low tax return.
I’m taking a week off with my kids for spring break and want to have a blast on vacation. How much should I spend? How much would be too much? I want to be this side of responsible. But just barely. – Dave, Pittsburgh, PA
After a long winter with periods of brutal weather, I’m sure you’re ready for a little down time – not to mention warmer temperatures.
But rather than pulling out your credit card and going wild, you want to look at how much cash you have on have and let that be your guide, says Shannon McLay, founder and CEO of The Financial Gym, a New York City-based money coaching company.
“You don’t want to go on spring break, have a great time and come home with debt that you can’t pay,” McLay says. “It’ll be more painful than a sunburn.”
A LearnVest survey from 2017 , for example, found that 74 percent of adults go in the red in order to fund their vacation, racking up an average of $1,108 in debt. Not great.
Rather than relying on a line of credit, you’re much better off saving up ahead of time. Making regular deposits into a separate savings account is a good way to take away the sting of a big vacation. Consider, for example, that socking away $100 a week throughout the year will give you a $5,200 budget with which to work.
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I have a sneaking suspicion that you’re thinking about this because there isn’t exactly a huge balance in your savings account that you can dip into. If I’m right about that, you might want to make some compromises for the sake of your financial health.
So maybe your week-long trip to Hawaii or Disney World gives way to a three-day excursion by car. At least you live in a part of the country where culturally rich cities like Washington DC and Philadelphia are easily accessible. By staying within your means, you’ll come home with peace of mind – if not a great tan.
While it’s too late to start for this year’s vacation, McLay recommends creating a travel savings fund that you build up over the course of the year through automatic transfers each month. With a little planning, hopefully next spring you won’t have to trade-off between your spring fling and long-term money goals.
Paradise can wait. And you’ll enjoy it more when you’ve saved up ahead of time.
Like many, I received a smaller tax return this year. It blows and also throws off my family’s budget. I had credit cards I was going to pay off and was going to put away for vacation. Now? I don’t know what to do. How do I reassess my yearly finances to figure this out? Any tips? Or do I just scream into the void? — Chris W, Boston
I would never advise against a good screaming session, if only for therapeutic reasons. Your underlying financial dilemma, however, may require a more thought-out response.
You’re certainly not alone in feeling hoodwinked by the IRS. While Trump’s tax cut is projected to reduce the levy for about 80 percent of Americans, employers decreased tax withholdings last year by an even bigger amount. As a result, it’s possible to have a lower tax liability and yet come away with a smaller refund. That wasn’t exactly explained well to the public.
So, yeah, it stinks. Regardless, it’s always a roll of the dice to over-rely on your check from the IRS, which will invariably fluctuate from one year to the next. “Tax returns are fun to receive, but we shouldn’t consider them part of our spending plan for the year,” says Shannon McLay of The Financial Gym.
McLay suggests looking back at your expenses for the last three months — including both your debit and credit card transactions — to get a more accurate read on your budget. “If it’s more than you’re bringing in, you’ll need to look at what you can cut back on of how you can make more money,” McLay says.
That could mean putting in some overtime at work or putting together a side hustle to make up for any cash deficits. Easier still: getting rid of whatever expenses you don’t actually need. Think about the cable package you hardly ever watch or the membership to a gym you last visited during the Obama administration.
But getting back in the black financially shouldn’t fall on your shoulders alone. “Depending on how old your children are, you should have a conversation with them about the family finances and how you all need to work together to manage expenses so that you can better plan for fun things like vacation,” says McLay.
So while the lack of a sizable refund was a shocker, at least it exposed some deeper cash flow issues in your household. If you can address those by next tax season, anything you get back from Uncle Sam will seem like icing on the cake, not a financial Band-Aid.