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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 much-needed break.

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 Europe.

Round trip flight for 2 people

Booked five months in advance

Rs 1,00,000

4 – star hotel stay for two

Booked five months in advance

Rs 1.3 lakhs

Travel to destinations in Paris

Rs 75,000

Visa fees, shopping, travel insurance and contingency funds

Rs 1,00,000

Total

Rs 4,00,000 (approx)

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.

Personal loan

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.

Recurring Deposit

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 as below.

Expense

Amount

When required

Hotel and flight booking

Rs.2.3 lakhs

2years and 6 months

Visa fees, purchases etc

Rs.50,000

2 years and 9 months

Paris expenses

Rs1.2 lakhs

3 years

 

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.

Mutual Funds

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.

Conclusion

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!

 

Anoop 

Dilzer Consultants Pvt Ltd

 

 

Reference:-

https://www.finaskus.com/select-sip-investment-per-goal/

https://www.financialexpress.com/money/how-to-travel-the-world-in-2018-6-top-tips-to-financially-prepare-for-a-vacation/1024871/

https://www.moneycontrol.com/news/business/personal-finance/planning-your-dream-vacation-overseas-in-2018-five-tips-on-how-to-be-financially-prepared-2482995.html

 

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