Vacation Affordability

A young, newly married, acquaintance of mine is planning a one week island vacation. There is nothing wrong with that if he could afford it. He seems to think so. I think he is making a big mistake that will cost him dearly.

Here are the facts. See what you think?

He is newly married for slightly over a year. He is 30 years old she is 32. They both have student loans outstanding of approximately $30,000. They have no savings. They presently live in an apartment and want to buy a house within the next year. He has a good job as a high school teacher earning approximately $35,000 per year. She as works in a office earning approximately $30,000 per year. She wants to have a child soon within the next 2 years.

Going to a discount travel agent like Itravel200 and looking at Caribbean island packages in the middle of summer, which is the cheapest time to go, one finds that the average island all-inclusive 7 day package costs approximately $2,000 for 2 with all taxes included.

Assuming both retire in 30 years and assuming they invest the $2,000 instead in a stock market index fund, this money will grow to $35,000 by the time they retire. This is just using an average of 10% compound interest over 30 years as this is the average annual growth of the stock market over long time periods.

Now, can they give up the instant pleasure of the vacation for the future pleasure and security of $35,000?

Another way to look at it is that this vacation is actually costing them $35,000.