Iceland is one of the cheapest destinations to get to but one of the most expensive locations for tourists to visit. You can easily find air tickets for $99 from Boston or Baltimore to Iceland one way (plus tax and luggage fees) with low cost airlines.
Before I get started you need to understand that the tourist season is relatively short on Iceland, visitors concentrate in Reykjavik from spring to fall, only the brave ones venture out in the winter. The hotels get sold out very quickly and are very expensive. Reykjavik is a very small city comparing to other capitals in the world, downtown only consists of one street running from Hallgrimskrikja Church to Old Harbor and pretty much that is it. Parking is very limited and you can’t access certain sections of downtown with a car; it is going to be hard to find free parking around there. If there is no event, try parking at the church and walk your way down to the port.
If you are not into pub crawling and hate crowded and overpriced hotels like I do, then book an apartment in the suburbs and park for free. Suburb in Iceland only means a 10-15 minute drive to downtown Reykjavik so it wasnt a big deal for me knowing how much money we saved. Whether you are traveling alone or with family members or other couples, you may want to consider booking an apartment on Airbnb which is what I did.
We went to Iceland in the month of June, which is considered to be peak season, hotel rooms were starting from $240/night with no breakfast and paid parking. My two-bedroom apartment cost $52 a night (for the 4 of us) with utilities and cleaning fee included. The building itself was nothing to write about, the apartment had no panoramic views but was completely renovated and furnished with typical nordic furniture; the host left us a lot of fresh food in the fridge and cabinets. We had a grill on the balcony and a private parking so we never had to fight for space or feed the meter.
Restaurants are very expensive as well, a plate of food with meat or fish ranges from $42 to $80 and portions are small. I have been to over 4o countries but never seen anything like it before. Cafeterias were a bit cheaper but come on! A family of 4 could break the bank in a week so we did grocery shopping and cooked for ourselves. We only sat in coffee houses twice and treated ourselves with a slice of dessert (got free water) and I paid $60 each time for a family of 4.
The cheapest grocery store is called Bonus, you may want to remember that because there is a price difference between them. Take a walk and look around well, don’t grab the first item that comes in your sight because they tend to display special items in the middle of the shelves and isles. I grabbed a whole leg of lamb but found the same meat under a different brand just 2 fridges away for half the price.
Most of the produce and crops are imported since nothing grows on Iceland for two reasons: First, the climate does not allow it; since summer is short and relatively cold, the vegetables only have 3 months to grow from the day they plant it till harvest. Second, there is no good soil for cultivation, the land is nothing but rocks and ashes from the lava. There are 21 active volcanos and hundreds of geysers, hot springs and waterfalls. Imagine the country like Marsh with only moss and green grass surrounded by an ocean. Very spectacular actually but no agriculture. I heard on a cooking class that wheat survives on certain parts of Iceland.
Tap water is completely safe to drink, Icelandic water is one of the cleanest and purest on earth however it does have a little smell and taste which is due to its high mineral content. The shower water smells the same way. If it does not bother go for it, you save money on bottled water, if it does, get a case of water.
Organized tours cost an arm and a leg. Initially I thought they are taking advantage of tourists then we realized that they have to make enough money from spring to fall to survive winter with no (or minimal) income. If you must pay for a tour, there are no local coupons to find anywhere online (trust me, I tried). You can do two things: pay the tour operators directly and skip the retailers or book your tour on an American webpage that allows you to use a coupon. I used Viator and saved 10%.
Your must book your ticket to the Blue Lagoon at least a 3-4 days in advance. There are no discounts and the price is not fixed. During busy hours and based on demand they increase the entrance fee; however, if you choose to go in the morning or evening hours, you are paying the lowest price which is 50 Euro in the summer and 40 Euro in the winter which includes a locker and a silica musk. If you take a towel, slippers and a bathrope with you, you save some bucks on rental fees. There are cheaper hot springs but in all honesty, Blue Lagoon is the most unique and biggest on Iceland, one of the world’s Seven Wonders.
Your best bet is to rent a car and drive around. Rental cars are pricy, economy cars with limited miles start from $80 plus insurance. If you drive less than 100 km a day you are fine but if you exceed it, you will pay per kilometer. Note: The Keflavik International airport is already around 50 km from Reykjavik and distances between the main attractions are pretty big as well so map your road trip and calculate the distances. Since I book everything way in advance and do a good research online, I managed to find a local provider for about $50 a day with unlimited miles, it is called Hasso Rent a Car. Gasoline is around $2 a liter which equals to about $8 a gallon. (You are still better off driving comparing to paying for organized tours for multiple people). There is no toll on the south side of Iceland. It is safe to drive around, most roads are paved and in great condition, just watch out for narrow bridges and give way to incoming traffic; pull over if you have to. Watch out for cattle and herds crossing roads, the speed limit is slower than anywhere else. Keep an eye on the weather because it can change rapidly and unexpectedly, flash floods are pretty common over there. You are not allowed to drive on unpaved surfaces and through rivers (or running water) with an economy car, the fine is huge!