To answer your question, let's first convert 700 Galleons into real money so we can get our heads around it a little better. Using this currency converter it seems that 700 galleons is about $3300. Figuring that you have at minimum 7 people going, it isn't hard to imagine that $3300 would be just enough to cover a somewhat lengthy vacation.
So then comes the question "why go on a vacation?" --
Look at it from what could be their perspective: what's more important, making the next couple years little more comfortable around the time that schoolbooks need to be purchased (at least in CoS, it appears that this was the yearly event they needed to save for, as it seemed to clear them out) or giving your kids an experience they'll remember for a lifetime? (Basically the same point <PERSON> made in the comments)
But all that being said, we aren't told exactly what else the money might have been spent on (the exception being <PERSON>'s new wand). 233
Since I believe it was <PERSON> who told <PERSON> that most of the money was spent on the trip (not 100% sure, but I don't have my copy of PoA on me), it may be the case that there was still a bit of money left over, but it went into things <PERSON> was either unaware of or couldn't appreciate at 13. As you pointed out, we just know that by the next year, <PERSON>'s dress robes had to be purchased second-hand, though as a counterpoint, I'd point you to OotP, where <PERSON> was bought a new broom because he became a prefect (at least suggesting the <PERSON> were able to save up something during the school year).
Out of universe, this is probably an example of the (warning: TV tropes link) Truth in Fiction trope where many people who, winning the lottery or coming into some sort of windfall (such as an inheritance) spend it all on trips or short term events (rather than saving it for the future). Just take a look at personal finance blogs or stack exchange site for examples of people asking for advice/telling of their experiences (or the news pieces that follow up on what happened to lottery winners). 194