Category: Financial Planning

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



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.


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.




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