We just returned from a short vacation, 5 days out of state, and we have three trips coming up. For the past few years we have followed the same sort of financial plan for our vacations.
First, we always have a travel savings account at ING and we always have an auto transfer funding that account. Most times the auto transfer is $50 every two weeks (if no travel is planned) and if we have travel planned we up the amount. As a result, we generally have enough in our travel account to pay for the flight.
Second, once we know where we are going, we book the hotel. Even though we don't normally use credit cards for day to day spending, we do use credit cards for booking travel. We use credit cards both because we don't like travel holds on our debit cards and because we get travel insurance with our credit card. Normally we can book the hotel without paying for it upfront and then we up our auto transfer to the travel fund to account for the hotel/accomodations costs. I love to stay in nice hotels, but I still search for the best rate on those nice hotels.
Third, once I've got the hotel booked and rental car (if applicable), I plan out our "budget" for the trip. And budget does not mean I limit our spending, but rather I just plan out how much we are going to spend. I normally budget $100 a day for each of us when we travel. Yes, that is a lot of money. But, when I factor in eating out, entertainment, museums, shopping, tipping, cabs or rental car, admissions, etc., this is normally what we spend when we travel. Then I up our auto transfer to our ING travel savings account and by the time we depart on our trip I have the full "budget" saved up.
Fourth, at the time of travel, I transfer the travel funds from our ING travel savings account to my checking account. I actually like to use cash when we travel if there is a safe in the room. I prefer just taking $100 cash for each of us at the start of the day, spending what we spend and then accounting for it at the end of the day. But if it doesn't seem safe, we use my debit card since I transfer the travel savings to my checking account.
Fifth, after travel, normally I might have the hotel bill or rental car bill on my credit card. But, we've already got the money set aside to pay the credit card bill and we promptly pay it off. Often times, when we return there is no bill awaiting us.