How do I ensure I have sufficient money needed for a recurring travel plan?
Most Indians are not able to go
on vacation for lack of money. Here’s how to save enough to take that
Taking a vacation is not even an
option for many people. There’s too much work to do, or not enough in the bank,
or maybe children have to attend school or coaching classes. The Expedia
Vacation Deprivation Report, 2016, says Indians are the fourth most vacation
deprived in the world.
More than 11% even participate in
con-calls while on holiday. Evidently, Indians don’t attach enough importance
to taking time off from work. They understand that vacations are important but
let myriad reasons hold them back from taking time off to unwind. “Most people
agree that work-life balance gives them better focus at work. But they are
still putting up with it instead of changing it.”
Here are some tips on how to be
financially prepared for your international trip once a year?
Start early as possible
Early planning of overseas
vacation gives you sufficient time to save and accumulate a sizeable fund for
managing all the tour expenses. Firstly, make an estimate of expenses for the
entire trip, including every little detail from flight tickets, hotel stays,
sightseeing, sports and activities, to entry cost at tourist spots, passport
fees, VISA charges and other miscellaneous expenses.
This will help you to figure out
how many days you would like to stay based on your estimated budget. Once you
have your total budget figured, break the fund requirement into the number of
months after which you plan to go abroad. For instance, if your total budget is
Rs 2 lakh and you plan to travel after 10 months, then each month you should
save Rs 20,000 to get the desired corpus. If you are planning the tour in less
than 1 year period, you can also invest in a liquid fund or high interest
savings account. If you plan to go after 1 year, then you can invest in
balanced funds, short term debt fund or in recurring deposits.
Be alert on currency exchange rates
While making an estimation for
fund requirement, you should also take into account the change in foreign
exchange rate. For example, if you have estimated that you would require $2000
to spend in a foreign country and the exchange rate at that time was Rs 64/$,
the fund requirement would have been Rs 1,28,000. But the rate is likely to
fluctuate in 6 months and may rise to Rs 67/$, scaling up the fund requirement
to Rs 1,34,000 and therefore you need to make sure you keep some surplus amount
at your disposal in such a situation.
Book travel and accommodation early
The biggest expenditure on
foreign travels are airfares, and require you to pay in lump sum. To avoid
facing high airfare rates book travel as early as you can, even 6 months
earlier if required. Make hotel accommodations early as well to get the best
deals. Try to book a hotel room with option to pay at the hotel or pay at checkout,
because it will give you flexibility to make changes in the plan in any
emergency. Always compare the hotel deals across various travel portals to get
the best deal. You can also check the deal offered by the travel agents for a
package if their itinerary matches with your requirement.
Pick the right spending instrument
You have various options to make
payments while travelling abroad like credit cards, international debit cards,
prepaid card, multi-currency cards and cash. Each mode comes with its
convenience and asses what is ideal for you based on your travel plan.
Prepaid cards are very easy to
use as it is convenient to load money in it and you can get the benefit of
discounted exchange rate in comparison to other modes of carrying money. But beware,
as every time the prepaid card is used to withdraw cash, it is charged with
currency conversion fees or other charges as per the bank’s norms. In case it
is swiped at point of sale (POS) counters generally no charges are levied.
Similarly international credit or debit card transactions are subject to
currency conversion charges at a stipulated rate, which could be around 2.5% to
3.5% of the transaction value.
So, assess the places you are
going to and what is the mode most suitable. If a country is more dependent on
cash payments, make sure to carry cash so that you do not end up paying a bomb
in conversion fees.
Get Travel Insurance
When going to an unknown country
where you have no contacts to rescue in an emergency situation, travel
insurance could be a very important tool to ensure you have financial security.
Travel insurance takes care of situations like flight cancellation, change in
travel plans, loss of checked in luggage, emergency evacuation in certain
condition and support for unexpected medical cost in a foreign land.
Travel insurance is a compulsion
if you are visiting Schengen countries and some other western countries, but is
often ignored by travellers in countries where it is not mandatory. Make sure
you don’t ignore travel insurance no matter where you are travelling.
Additionally, you must check the list of risks it covers and its service
availability in the country in which you are planning to go for a vacation.
How do I calculate the corpus needed for a recurring travel plan?
As an illustration, we have
picked a beautiful but expensive destination – Paris, the capital of France, in
Raising funds for the trip
As explained above, there are a
number of expenses you will have to incur. Probably the most important of these
is travel insurance because it can help you deal with financial troubles
ranging from loss of baggage, cancellation of flight, as well as medical care
abroad, and is thus more an investment than an expense.
Some options can provide funds
immediately while you may have to wait for a few years in case of other
options. In any case, it doesn’t make sense to wait for more than three years
to raise cash for the trip. So let us take a look at some options that can help
you to raise funds for the trip.
This is the simplest option if
you want money immediately. It’s also the most expensive. If properly planned
for, a personal loan of 3.5 lakhs should not be a problem for somebody earning
Rs.75,000 to Rs.80,000 especially a couple. A 3 year loan will increase your
EMI burden by Rs.13,500 and the money will be credited into your account with
no questions asked.
However, this option has many
negatives. Firstly, you don’t get to plan your savings towards a specific
financial goal. Such an exercise can be a great way to learn how to save for
your home’s down payment. Secondly, your Paris trip will cost 4.93 lakhs when
you include interest and processing charges. Finally, it does not make sense to
use a personal loan or high balance credit for a foreign holiday.
Opening a RD and depositing
Rs.9,700 per month for three years at an interest rate of 7% should help you
accumulate Rs.4 lakhs at the end of third year. However you cannot wait for 3
years and withdraw the entire amount in full. You need to plan your withdrawals
To ensure you have the amount
when required, you may have to invest Rs.11,400 per month to ensure you can
withdraw money as and when required for the expenses.
A look at the top performing
mutual funds in India shows that some small and mid-cap funds have earned
16-20% returns over the past one year and as much as 200% returns over the past
3 years. Presuming 20% returns, investing in SIP in a high return fund will
help you accumulate Rs 4 lakhs in 3 years at just Rs.7,700 per month
You can invest in different funds
like small cap, large cap etc to minimize the risk and maximize chances of
earning returns at a high rate than that of recurring deposit. To play it safe,
you can choose to invest in fixed return debt funds.
So when you should start saving?
In case of mutual funds and recurring deposits, a three year time frame is
ideal if you cannot save more than 8 – 10 k per month. If you want to leave
immediately, then perhaps the personal loan is the only viable option. Either
way, don’t delay and start planning today!
15 January, 2019