How to budget for your dream trip this year

With a fresh year in front of us,  many of us are inspired to start travel planning. But no matter what kind of trip you want to take, someone has to foot the bill. If that someone is you, it's time to start budgeting.

And this year is going to be an expensive one. Experts forecast 2023 as a year of "economic pain," and that includes vacation costs. Flight prices are up substantially this year compared to last — 52% for domestic and 29% for international, according to Kayak. Travel prices overall are 6.5% higher than this time last year, a NerdWallet analysis of Bureau of Labor Statistics data found.

"A lot of people — and what I used to do in my early twenties — just put the entire trip on a credit card without a plan on how to pay for it," says financial educator Yanely Espinal, director of educational outreach at Next Gen Personal Finance. "That's how I ended up in so many debt cycles."

Consider budgeting a necessary part of your trip planning process. You already plan for how to get there, where to stay and what to do; why not plan how you'll pay for it?

Start with a brutally honest audit of your spending

Your financial health should determine how much you can spend on a trip, or if you can take one in the first place. "I know people don't want to hear it, but vacations are a treat," says Michelle Singletary, author and personal finance columnist for The Washington Post. "They're a luxury — they're extra."

If you have credit card debt you're carrying month to month, don't have an emergency fund or a college savings account started for your kids, Singletary says your dream trip might not be in the cards this year — but you can still take a vacation.

"Vacation is when you take some time off to just decompress, but that doesn't have to be on a beach," she says. Instead, travelers can find cheaper ways to unwind, like with shorter trips, staycations or camping.

When it's time to start saving for a trip, you need to first see how you're spending in your day-to-day so you can find out where you can cut back. That can be complicated because financial ignorance is bliss.

"Every single time I talk to people, they don't know how much they spend on food in a month," Espinal said. "You have to sit down and actually look at your spending and add it all up … Then it's real and you can't ignore it anymore."

Espinal advises clients to print the last 90 days of their credit card and checking account activity. Reviewing a paper version is a more visceral experience than looking at a phone or computer, she says.

Build your trip around your budget, not a place

In her early travel days, Espinal traveled like many of us do. She'd decide on a place to visit, end up paying outrageous airfare or taking flights with long layovers to cut costs to make her dream a reality.

But these days, Espinal saves money by letting travel prices dictate where she goes. She starts by plugging in her available travel dates and departure city into Google Flights, then reviews the map of results to see what works for her budget and sounds most appealing.

Naturally, that approach won't work for every trip. You may need to get home for Thanksgiving or travel for your niece's birthday. When your travel plans aren't flexible, set price alerts for flights you want and watch for them to drop.

You don't have to start your vacation brainstorming around flying, either. Consider getting somewhere by bike, train or car — which may take longer, but make for a memorable journey.

Break down your estimated trip costs

Once you've decided where you're going, estimate how much the trip will cost so you can save accordingly. You'll need a rough estimate for transportation (airfare, gas, going to and from the train station, getting to your hotel, etc.), accommodations, food and drinks, your extracurriculars (surf lessons, cooking classes, museum visits). It may be helpful to calculate previous vacation costs to get an idea of your travel spending behavior.

As you calculate those estimates, think of where you can cut costs preemptively. For example, you probably don't eat out for every meal of the day — and you don't have to when you travel.

It's impossible to exactly predict how much you'll spend, so Singletary says to build in some cushion to your budget.

Map out your 'backwards' budgeting plan

Now that you have a trip in mind, it's time to map out a budget. Espinal recommends taking a "backward" approach to the process. Starting with the cost of the trip and when you want to take it, work backward to see how much you need to set aside each month to save by your departure.

If you have a trip in December that is expected to cost $2,000, "I can divide that by how many paychecks I have between now and December," Espinal says. "It just it makes it so much easier for you to see, 'I need $166 dollars every month for 12 months' versus 'I need $2,000 dollars for this trip.'"

Singletary creates a document to keep track of her travel budgeting and sets her travel money aside in a "life happens fund" bank account. Even though she has the funds ready, Singletary pays using a credit card for a few reasons: You can earn points and miles, and the credit card company can help you with disputes or cover you with its travel insurance.

Once Singletary gets home, she pays the credit card bill with money from her fund. That way, she comes back knowing she won't have snowballing bills or creeping debt because, "that's not a vacation to me," she says. "That's an escape."