I actually do what most people do here with their money - save up until you have enough to last a long time, and the rest is gravy.
I got majorly into cash back credit cards (points and miles, really) specifically with cheaper vacations in mind. Now I've got more than enough miles and points in the airline and hotels programs that I want, so I pretty much exclusively use credit cards that gain points that can be used for straight up cash back. That way, it's basically all my vacation fund without having to save any extra dollars.
For example, I've got about 100,000 Chase Ultimate Rewards points. These CAN be used to transfer out to airline miles or hotel points, but I've already got enough of that stuff, so what I'll probably do is turn them into cash to use on my next vacation.
Someone mentioned before that you can get more value out of the points than by turning them into cash. Which is very true, and that's why I haven't been using them as cash until now. But, being a typical American, I don't get anywhere near enough vacation to USE all of those points for things. So I just put all of my spending on credit cards - the only change I make is that AFTER I spend vacation-type points, I'll use exclusively miles/points cards until my coffers are full again, THEN I'll switch over to the pure cashback cards.