Most people have budgetary limitations when considering what can be spent on a vacation. Of course, you can always budget for vacations just as you would for clothes or groceries, and plan for big-ticket items, such as transportation and lodging. What is most difficult in budgeting for a vacation are the little things like food, drinks and entertainment. These sorts of expenses tend to be difficult to plan for because your desire to purchase these items tends to be spontaneous. (For more on creating a personal budget, check out Budgeting 101.)

Unfortunately, the laws of economics never take a rest, and vacationers are faced with a major financial risk: the risk of coming home broke. One solution vacationers should consider is the all-inclusive vacation package. Here, we'll take a look at all inclusive vacations as a form of financial risk management.

Stay on Budget
All-inclusive packages can be an ideal because these vacations allow you to virtually eliminate the risk of going over budget as resort operators will agree to cover all your variable expenses in exchange for a fixed fee. Essentially, these packages work like an insurance product.

For example, every year you pay a fixed fee for auto insurance and, in exchange, the insurer guarantees that out-of-pocket expenses won't exceed your deductible. All-inclusive resort operators are essentially doing the same thing. You pay a flat fee and they bear the risk of gluttonous consumption on your part. In other words, you transfer the risk of eating, drinking and entertaining yourself to them. This trades a highly variable cost for a fixed cost. To use an investment term, all-inclusive packages are a swap agreement in which you pay a fixed amount and someone else bears the variable cost. If you're someone who hates worrying about money on vacation, this is good option, but there are also drawbacks.

The Tradeoff
With a traditional approach to vacationing you can do anything you please and can spend as much or as little as you like, meaning you have complete discretion to consume any good or service you please. With an all-inclusive package, you can only eat, drink and be entertained at the resort. Of course, you can always leave to spend as you will, but that would only reintroduce variable costs.

Another very important thing to keep in mind in this regard is that once you commit to an all-inclusive vacation, you are committed for the duration of your vacation regardless of what you find when you arrive. So if you find yourself someplace that doesn't live up to your standards, you are stuck. This is a big tradeoff because if you choose the traditional approach you can always leave and spend your money elsewhere. Therefore, you have to ask yourself what flexibility is worth to you.

The big differences between all-inclusive and traditional vacations can be summed as follows:

  • A traditional approach allows unlimited flexibility, but also entails potentially unlimited expense.
  • An all-inclusive approach is structured and limited in nature, but has a fixed cost and no risk whatsoever of incurring variable expenses.

So how do you mitigate the risk of disappointment? Keep a few simple things in mind.

Quality Considerations
First and foremost, you need to determine the level of quality you're looking for in your resort. Do you want to spend your vacation eating macaroni and cheese and hot dogs at a buffet line, or do you prefer to eat at nice restaurants and buffets that serve high-quality gourmet foods? Furthermore, do you want to only drink soda and beer on vacation, or will you want to enjoy mixed drinks, wine and high-quality liquor? These are essential considerations during a vacation because you're going to want to enjoy your meals and drinks, and quality varies widely among resorts. Don't forget to research entertainment and the quality of the accommodations as well as the caliber of customer service.

One of the easiest things to keep an eye out for is the difference between the all-inclusive and super all-inclusive resorts. All-inclusive resorts usually charge extra to dine at their restaurants or drink alcoholic beverages, whereas super all-inclusive resorts include everything. If you're really looking to limit those variable expenses, the super all-inclusive packages are the way to go. They cost more of course, but you get a lot more in return.

Make sure you've fully vetted the services offered by potential resorts. The marginal cost of going to a nicer resort and getting additional services is often a very efficient tradeoff from an economic and risk management standpoint.

Bottom Line
Approach your vacation planning with a budget in mind. Think of all-inclusive vacations as an insurance policy that protects your budget and keeps your spending in line and remember that a vacation is the time you're most likely to overspend.

For more vacation saving tips, read Seven Saving Tips For Summer Getaways and Travel Smart By Planning How You'll Pay.

Related Articles
  1. Budgeting

    How to Travel to Tokyo on a Budget

    Planning a trip to Tokyo? Here are a few ways that you can make the trip more affordable.
  2. Budgeting

    How to Cost Effectively Spend on Baby Clothes

    Don't let your baby's wardrobe derail your budget. These top tips help you to save money and spend wisely on baby clothes.
  3. Personal Finance

    College Students are Failing Financial Literacy

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial literacy.
  4. Personal Finance

    3 Castles That Cost Less Than a NYC Apartment

    Did you know you can rent an entire château, and that it might cost less than your New York pad?
  5. Home & Auto

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  6. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  7. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  8. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  9. Retirement

    Just Retired? Check Out These Adventure Vacations

    Get out your bucket list. No matter what you're passionate about, there's an organization ready to lead the way. Here's a sampling.
  10. Investing

    10 New Apps That Help Budget For Expensive Cities

    From platforms for saving money to those that account for side jobs, mobile apps are changing spending habits and income generation in urban areas.
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  3. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
  4. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
  5. How do I use the rule of 72 to estimate compounding periods?

    The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >>
  6. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!